Xerox Holdings Corporation

Q2 revenue was $1.92 billion, up 22% year over year reported and 21% in constant currency, reflecting Lexmark’s contribution. GAAP EPS was $0.07 versus $1.01 a year ago, and adjusted EPS was $0.38, up $1.02 year over year. Adjusted gross margin was 36.4%, up 710 basis points, and adjusted operating margin was 10.6%, up 690 basis points; excluding the $105 million tariff receivable benefit, operating margin would have been 5.1%, up 140 basis points. Free cash flow was $11 million, and the company ended the quarter with $552 million of cash, cash equivalents and restricted cash and $4.2 billion of total debt. For 2026, Xerox now expects revenue of approximately $7.6 billion, adjusted operating income of $555 million to $605 million, free cash flow of approximately $250 million, Lexmark synergies of at least $350 million, and year-end gross and net leverage below 5x and 4x, respectively.

Louie Pastor framed the business around three priorities: stabilize revenue, increase profitability, and reduce leverage. He said Q2 showed progress on all three, citing stronger pro forma revenue trajectory after adjusting for Q1 timing items, expanded gross margins, and lower debt. He emphasized that entry and production are growth opportunities, the 9-Series should strengthen mid-range competitiveness, and IT Solutions is being rebuilt with a new sales force and improved cross-sell motion.

Chuck Butler highlighted the mechanics of the tariff receivable recovery, including $105 million recognized in gross profit and $80 million of cash received from selling the receivable to a third party, with the cash initially recorded in financing rather than operating cash flow. He said adjusted gross margin was 36.4%, adjusted operating margin 10.6%, and non-financing interest expense was $100 million, up $45 million year over year. He also noted operating cash flow of $37 million, free cash flow of $11 million, debt paydown of $223 million, and leverage improvement to 5.9x gross and 5.1x net; capital allocation remains focused on debt reduction.

Analysts pressed on why free cash flow guidance stayed at $250 million despite the $80 million tariff-receivable sale, and management said the benefit was largely offset by restructuring costs, working capital drag, and additional TPG JV interest. On IT Solutions, management said AI-related spending is helping some parts of the budget, such as endpoint refreshes, data-center capacity, and security, but also diverts spend elsewhere, and that the business is still in a sales-force rebuild. They also said IT Solutions should improve later in the year, with Q4 billings ahead of Q3 on a year-over-year basis and revenue expected to align more closely with billings next year.