Xerox Holdings Corporation

Welcome to the Xerox Holdings Corporation first quarter 2025 earnings release conference call. After the presentation, there will be a question and answer session. To ask your questions at that time, please press star 1 1 at any time during this call. You can withdraw your question by pressing star 1 1 again. At this time, I would like to turn the meeting over to Mr. David Beckel, Vice President and Head of Investor Relations.

Good morning, everyone. I'm David Beckel, Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation first quarter 2025 earnings release conference call hosted by Steve Bandersack, Chief Executive Officer. He's joined by John Bruno, President and Chief Operating Officer, and Merlanda Getsai, Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and or rebroadcasting of this call 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.xerox.com slash investor and will make comments that contain forward-looking statements, which by their nature address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I'd like to turn the meeting over to Mr. Bandershek.

Good morning, and thank you for joining our Q1 2025 Earnings Conference Call. In the first quarter of 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 IT savvy. Sales activity has normalized, and the IT-savvy integration and reinvention-related cost reduction programs are running ahead of plan, placing us firmly on a path for near-term revenue stabilization and growth in adjusted operating income. 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 200,000 clients and the successful execution of our reinvention. I commend our team who are working 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 operating efficiencies. Summarizing results for the quarter, revenue of around $1.5 billion decreased 3% in actual currency and 1.1% in constant currency, inclusive of IT Savvy. Adjusted operating income margin of 1.5% was lower year-over-year by 70 basis points. Free cash flow in 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. And adjusted loss per share was $0.06, $0.12 lower year over year. 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 IT solution products and services billed in Q1, as well as higher than expected costs associated with the recent trade and macroeconomic related disruptions. 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 Xerox's operating results. 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%. a 500 basis point improvement from the pace of decline in 2024. Equipment installation grew 24%, the third consecutive quarter of double-digit growth, driven by initiatives to grow share in A4 and with channel partners, as well as the successful global launch of our new Primelink product. Service of renewal rates for large client contracts were at a multi-year high, And in the first full quarter following the acquisition of IT Savvy, synergy realization, IT solutions, order volumes, and the cross-sale opportunities between the print and IT solutions businesses are already ahead of plan. These improvements reflect the culmination of intentional, often difficult decisions taken over the past two years to re-engineer Xerox. positioned the company to take advantage of favorable secular trends in and adjacent to print and IT services with a streamlined and agile operating structure. 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, a key contributor to this quarter's improved equipment revenue trajectory. Sales productivity improvements reflect a reduced administrative burden on our Salesforce, enabled by a host of simplification and optimization initiatives recently put in place. These initiatives include standardized bidding, ordering and post-signature processes, and AI-enabled pricing tools, which helps our sales team optimize sales opportunities. We also implemented a refined approach to client segmentation, providing our sales organization with greater focus when serving clients and developing bids. 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 35,000 smaller client accounts by adding support capacity through our centralized inside sales team. This team will focus on proactive customer support, upsell, and cross-sale 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. 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 were transferred is pacing 10% higher year over year. We expect initiatives like these and others planned to drive further productivity gains and contribute to our goal of growing equipment share in 2025 and beyond. Moving to acquisition benefits. The integration of IT Savvy is running ahead of plan with our collective IT solution strategies aligned and IT Savvy's people and IT operations now fully integrated. Systems and process integration is expected to be complete by Q3. The vast majority of the expected run rate synergies totaling more than 15 million have been implemented and are expected to contribute to improved IT solutions and total company profit in future periods. Through the design of IT-savvy integration, we also see early signs of success in the cross-sale of IT solutions to existing print clients, a key tenet of our acquisition thesis, and confirmation of the value we bring to clients when our industry-leading print and IT solutions are combined. Melinda will provide additional color on early cross-sale success and its contribution to IT solutions pipeline. Early integration planning for the Lexmont acquisition is well underway. With IT Savvy's integration expected to be complete by the time the Lexmark deal closes, we will focus our complete attention on the integration of Lexmark operations in the second half of this year. Finally, balance sheet strength. In Q1, 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 allocations priority is the repayment of debt. In Q1, Xerox total debt balance decreased by around $100 million following the repayment of secured debt. In April, we issued $800 million of secured notes, a portion of which will be used to refinance existing debt and a portion of which will be used to fund the Lexmont acquisitions. 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 LexMod acquisition, but the level of acquired EBITDA is expected to result in a lower pro forma debt leverage level. I will now hand the call over to John to discuss reinvention progress made in Q1 and provide an update on LexMod acquisition.