Xerox at Morgan Stanley Conference: Reinvention and Market Expansion

Published 06/03/2025, 13:18
Xerox at Morgan Stanley Conference: Reinvention and Market Expansion

On Tuesday, 04 March 2025, Xerox Corp (NASDAQ: XRX) shared its strategic reinvention plans at the Morgan Stanley Technology, Media & Telecom Conference. CEO Steve Van Drisak and CFO Myrlanda Getai outlined efforts to stabilize revenue, achieve double-digit operating profit, and expand into IT solutions. Despite challenges like a declining print market and tariffs, the company remains optimistic about its future.

Key Takeaways

  • Xerox aims to grow its total addressable market from $60 billion in print to over $700 billion in IT solutions.
  • The Lexmark acquisition is expected to strengthen EPS and free cash flow.
  • Core print revenue decline is expected to taper off by 2025.
  • The reinvention program aims to generate $400 million in incremental gross profit.
  • Xerox plans to reduce its debt leverage ratio to less than 3x in the medium term.

Financial Results

  • Revenue: Expected to grow in low single digits in 2025, with IT Savvy contributing.
  • Profitability: Targeting double-digit operating profit; Lexmark acquisition to add over $1 per share to EPS.
  • Free Cash Flow: Projected between $350 million and $400 million in 2025.
  • Gross Margin: Expected to be lower than the previous year’s 32%.
  • Capital Allocation: Prioritizing debt reduction, strategic acquisitions, and dividends of $0.5 per share.

Operational Updates

  • Reinvention Program: Focused on geographic simplification and operational efficiency.
  • IT Solutions Business: Approaching $1 billion in revenue, growing in double digits.
  • Digital Services: Aiming to drive workplace productivity and digital transformation.
  • Lexmark Acquisition: Enhances presence in the A4 market and Asia, providing manufacturing benefits.

Future Outlook

  • 2025 Guidance: Anticipates stronger print performance and revenue growth.
  • Tariff Impact: Plans to mitigate through pricing adjustments and supply chain management.
  • Growth Areas: Targeting 20% of revenue from IT solutions and digital services.
  • Long-Term Goals: Stabilize revenue, achieve double-digit operating profit, and continue returning capital to shareholders.

Q&A Highlights

  • Print Market Trends: Shift from office to retail and growth in A4 color printing.
  • IT Solutions Strategy: Opportunity to double wallet share in existing clients.
  • Lexmark Acquisition Benefits: Strategic fit with complementary client sets and geographic expansion.
  • Cost Management: Focus on long-term efficiency gains through business reconstruction.

For a detailed understanding of Xerox’s strategic plans, refer to the full transcript below.

Full transcript - Morgan Stanley Technology, Media & Telecom Conference:

Eric Woodring, Lead Hardware Research, Morgan Stanley: Hi, good morning, everyone. Welcome to day two of the TMT Conference. My name is Eric Woodring. I lead Morgan Stanley’s Hardware Research here based out of New York.

Before I get into who we’re with here, just a quick disclosure statement for important disclosures. Please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So I’m delighted to be welcomed by Steve Van Drisak, CEO of Xerox and Myrlanda, how do

Steve Van Drisak, CEO, Xerox: I pronounce the last? Getai.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Getai, CFO new CFO of Xerox to the stage. Just quick background, Steve has been at Xerox for more than half a decade, was President, COO, became CEO in August 2022. Rolanda joined in 2022, and up until recently was Chief Accounting Officer, now CFO. So thank you both for joining us today. Thank you, Brett.

Perfect. So maybe I think it would be most helpful to start, Steve. Just look back on the last twenty four months, a lot has changed both from the business, from a strategy perspective since you took the helm as CEO. What’s kind of most important that has changed under your leadership?

Steve Van Drisak, CEO, Xerox: Yes. I think a lot we’ve done over the last twenty four months. We announced the reinvention of the company and really had a bunch of different components to it. First was, how do we get back to operational efficiencies in our core business generating roughly $400,000,000 of incremental gross profit through our reinvention program. And that required a couple of different things.

One is strategically what we did with Palo Alto Research Center, what we did with XRCC, which was the equivalent in Canada, what we did with our finance business and we called FIDL, now with our Forward Fund agreement, what we’re doing there generating free cash, it allows us to go and invest in our company, culminating in a new board in May of last year, which allowed us to really kick start and really drive the investment back into our business. And so last year, we went through an organizational change. We put in what we call GBS, Global Business Services. We realigned to our economic buyer, and then we started to execute our overall reinvention strategy around geo simplification, operation, product simplification, more importantly to get to our goal of how do we stabilize our business in terms of revenue, get back to growth and then more importantly how do we get back to double digit operating profit. Two key components of that last year, we acquired a company called IT Savvy, which is growing our IT solutions business.

And if you think about today, we have over 300,000, SMB clients that we sell into today that we now can bring IT solutions to. That gives us and grows out TAM about $60,000,000,000 in the print space to over $700,000,000,000 in the IT solution space. So think about 10x our expansion in terms of existing accounts that we have today, we now can bring IT solutions into. Second piece of that is on digital services and our GDS business and really driving and helping our clients with this journey in digital services. How do you think about productivity in the workplace?

How do you think about getting more out of data, whether it’s in print or whether it’s around any other type of data? How do you do things like intelligent document processing? So at the end of the day, really how do we get back to growth in revenue, in areas of getting back to 20% of our business as we look forward will be in growth areas, right? The CAGR in terms of IT solutions growth is seven, eight times in a $700,000,000,000 TAM and then GDS and a digital services $100,000,000,000 TAM growing at 10%, right? So that’s how we’re repositioning the company.

Okay. Okay. That’s super helpful.

Eric Woodring, Lead Hardware Research, Morgan Stanley: I want to you went through a lot there. So I just want to maybe double click on reinvention because it’s kind of key to the story here. Maybe like the question is like the key pillars there, I think you went through them, but if we could just like maybe go into a little bit more detail. And what is the end goal of reinvention? Where do we get at the end of reinvention?

Yes.

Steve Van Drisak, CEO, Xerox: So let’s state the end goal first and then I’ll come back to it, right? So we get back to a business that’s stabilized top line and growing and double digit operating profit. That’s really where we’re trying to get to. The key pillars of that is first of all on what we call geography simplification. If you think about the amount of countries that we had direct business in, I mean I had my own sales team, my own operations in country, we now have pivoted in certain countries where we can get more profit by going indirect and having partners.

So we went through a lot of that transition in 2024. You will see more of that in 2025 on the tail end of it. Second thing is really what I call deconstructing our business and reconstructing it. What do I mean by that? So take a look at every operations from audit to cash.

Mhmm. You take a look at hire to retire. Taking a look at and how do I simplify those processes and then automate as much as I can. Mhmm. So think about RPA, robotics process automation.

I now do about 7,000,000 transactions per month where I had people that were manually doing things, I now can do with robotics. I use the same thing with AI technology, right? And so we are simplifying our overall end to end processes, driving technology, investing in technology and then driving operational efficiencies. The mix shift, we talk about the mix shift. It’s a big part of our conversation.

How do we get to 20% of our revenue that’s in growth areas, right? The print industry is not dead by any means, right? But it is declining single digits, 2% to 3%. We want to decline slower than that, which means we’re taking share. So on the print side, we want to be able to take share.

We want to be able to add value in the print space. Right? If you think about what’s happening in AI today, AI without data is like a cell phone without network connection. Where is that data? There’s data in print, there’s data in repositories in terms of documents and so forth.

We’ve played in that space for a long time. We know how to encrypt data, we know how to redact data, We know how to secure data. Security is a big part of the strategy going forward. Okay. One of the big vulnerabilities in most IT shops happens to be the print because the print device is a node on the network.

People don’t realize the vulnerability that you have in printers. As printers stay out there, they become more and more vulnerable. Think about a laptop that’s been in a industry, it’s been on your network for five, seven, ten years. It has vulnerabilities, right? It’s not passed correctly.

And so we are really important aggregate in terms of helping security in the IT space specifically around network. So making sure that we absolutely start to grow and then add to that that mix shift, right? I got to get to 20% of my revenue that’s in areas that are growing double digit that will offset the decline in my core business. So that’s where we’re going.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Okay. All right. Perfect. So maybe let’s start at the top and take a step back and talk about the print market. You talked about low single digit declines.

We’ve seen kind of behavioral changes, use of digital tools, environmental concerns, return to offices maybe here, but question mark. Can you just maybe help answer that question of what are you seeing from your customers when it comes to the print market? And how do you offset from your own business to take share? How do you offset those kind of headwinds at the market level?

Steve Van Drisak, CEO, Xerox: I think everybody thinks about print just as the office. But think about what’s happening in retail, what’s happening in a lot of different areas. Print is shifting. So in the A four, very specific A four color, that grew last year. And so one of the reasons why we went after the acquisition of Lexmark is in the A four market.

That’s actually a growth area that we’re seeing in the industry and we’re seeing that going forward. We’re also seeing a shift in types of print and where print is. We’re also seeing a physical to digital, digital to physical world. So if you go into retail today, I don’t care what retail it is, sometimes you start in the digital world, it ends in a physical world, in a receipt, whatever it may be. We’re seeing tremendous amount and still have print inside of federal space, state space, in areas like law firms and so forth.

So there are statutory requirements that just require print. Mhmm. There are things that people don’t think about in terms of print. If you go into a large retail store today and you look at things like marketing, right, whether it’s on the wall, whether it’s shelf pricing, whatever it is. And so there are different types of prints.

So we have to move where print is going and where the print is. There are billions of pages, billions of print images each and every month in the industry today. We gotta be able to take our share. We’ve gotta be able to move. But more importantly, we’ve gotta be able to add value around that.

So we talk about intelligent document processing and the ability to think about everything that’s digitized today typically is in some sort of paper workflow. So you go to a motor vehicle, you go into hospitals, a lot of that starts with a paper flow and now has gone digital. We’re following that. So if you take something that was traditionally a physical paper and now is inside of an electronic format, we’re helping drive that productivity along that process because we understand the process and we can bring value along that.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Okay. Right. Okay. And then let’s go to the other side of things where I hear from you over multiple quarters now excitement, which is digital and IT services. So the way I guess I kind of think about it is you have a ton of relationships already.

You’re using IT savvy as maybe the ballast to build out this strategy. It’s relatively small today. The goal is to get to 20%. Maybe just help us understand what services are you selling? Is this a reseller business?

Is this a VAR business? Is this a distribution? Where does services fall in terms of value add for you guys? Yes.

Steve Van Drisak, CEO, Xerox: So just a quick correction, like this is now approaching over a billion dollars for us, right? So we think about it small, it’s not small at all, right? It is now a growing piece of our business growing double digits and a TAM that’s growing high single digits, right? So we’re excited about just the overall market. As As I said a little bit earlier, you think about today, the print client that we had was roughly a $60,000,000,000 TAM that we were selling into.

We’re now selling into a $700,000,000,000 TAM. What does that mean? I can easily double my wallet share in existing clients simply by bringing IT solutions into existing accounts. Why am I confident that we can do that? The reality is in the SMB space, they don’t have the same luxury as a Morgan Stanley in terms of type of IT skills that you have at your corporation.

They’re struggling with security. They’re struggling with how do I deal in this world of AI. They’re struggling with this hybrid workforce. How do I deal with distributed workforce? How do I deal with workloads going from data centers to the cloud?

Between clouds back to the data center? They have no help. Right? And so now they see Xerox. We’re already behind the firewall.

We’re already trusted. We already have a relationship. What does that mean relationship? Not that we just sell a product to them. We’re physically there on the ground.

They look at us day to day in the eye where we service them and now bringing solutions. So now I can take network as a service. I can take security as a service, desktop as a service, and I can bring it in and add it to what I already have in terms of managed print services. And now we’d add another line item to a monthly cost. So you think about the ultimate subscription model, that’s what we’re trying to bring into the mid market.

But more importantly, I’m not competing against the biggest size. Okay. I’m competing against local, and I call mom and pop shops, small regional players. And it’s like, do you wanna see Susie down the block who’s been in business for three years or you wanna deal with Xerox? That’s my competitor.

Right? You can ask me about the VARs. VARs sell product, but they don’t have feet on the street and service people like we do. Right? And so the way I look at it is we’re a trusted relationship.

We’re on the ground. We absolutely have the right to play because we’ve been there a long time. We understand their processes and now bring in products and services they didn’t have before.

Eric Woodring, Lead Hardware Research, Morgan Stanley: And and what are you hearing from your customers, say, when it when it comes to that? You know, when when you hear the response from them, what is something that gives you the confidence that, hey, what we’ve already launched can become that much bigger? So one

Steve Van Drisak, CEO, Xerox: of the things we did before we started the reinvention, we went out and started to pull both our partners, big partners for us today. We got 10,000 partners out there today and our clients. And we said, if we had these solutions, would you be interested in buying from Xerox? And overwhelmingly, it was yes. Okay.

And the reason being is again, we’ve been there a long time. We’ve been known and innovated in the workspace today, Not just in terms of print, but other things we did that came out of Palo Alto Research that we put into the industry. And so we are very trusted behind the firewall. Mhmm. We’re very trusted inside of these environments.

We know what it means on 05:00 Friday night, you gotta get print and you got to get paychecks out. We’re there every day. Right. And we know that. The same thing with hospitals, the same thing with municipalities.

And so we’re very trusted. We did that survey and we’re seeing it now early results in early first quarter since we’ve acquired IT Savvy and we’ve grown the strategy. We’re seeing some very significant growth in our pipeline and we’re seeing some early wins. So we’re very excited about where we are.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Okay, great. Two more questions and then, Milano, we’ll bring you into the conversation. Both of them are on print. So first one, you alluded to the Lexmark acquisition. I would love to just get your perspective.

You’ve been partners for some time. Two questions. What is the key benefits that this deal provides Xerox? And then how do we think about kind of the long term or maybe not the long term, but the impact on your financials and the print trajectory with the Lexmark in the business?

Steve Van Drisak, CEO, Xerox: Yes. Let me take it from the strategic standpoint and Melando will comment on the economics of the deal because the economics and we had a question a little bit earlier, they’re like, how did you get it so cheap, right? How did you get it? And so number one, when we think about today, the growth in print is in the A four space. Today Lexmont is a leader in that category in terms of both manufacturing and selling A four into the industry, number one.

Number two, we’ve been working with them for a long time. So we know what their capabilities are. We know how they work on a supply chain. We know their manufacturing capabilities. This industry, Eric, will consolidate.

Just like I did the IBM PC spin down and built Lenovo, started at $300,000,000 go to $50,000,000,000 when I left, right? And so this industry will consolidate and you’re starting to see the Fuji’s and the Konica Minolta’s teaming up without acquisitions, Toshiba and SHOP connecting without acquisitions. And so they’re trying to find ways of creating alliances that help with the tremendous cost pressures. We see the same thing, all right. And so the acquisition of Lex helps us with a couple of things.

Number one, gets us in a growth area of A four, helps us with manufacturing. By the way, we expand into Asia, which we’re not in today. So it’s a whole new geography that we bring Xerox into a geography that we’ve never played before. We also have a very complimentary set of clients, meaning that I may have a large retail client that I do the back office. Lexmod does the front office.

And so if you go into a lot of retails and you go into point of sales and you go into pharmacies and look at point of sales, you’ll see Lexmod equipment because they specialize in that space. Specialty printing in the retail space and they’ve been very successful at that. They have a very unique channel proposition in their channel markets, which we’ll leverage as well. So we see it both in terms of manufacturing, growth in A four, geography expansion and then obviously very accretive the deal going forward. You want to talk about some of the benefits of that?

Myrlanda Getai, CFO, Xerox: Yes. Certainly. Thank you, Steve. So very accretive to EPS and free cash flow immediately actually. So, and Steve alluded previously to the goals of our free invention being revenue stabilization as well as double digit adjusted operating income.

Lex helps accelerate both of those. More than $1 of EPS per share once we realize the over $200,000,000 of synergy that we are expecting from combining the two companies. Thinking about balance sheet provides for a much stronger balance sheet. Our gross leverage ratio at 12/31/2024 was 6.1, immediately at close 5.4 and once we realize those growth synergies 4.4. So again, putting us on path to get to our below three times leverage ratio.

So again, it’s extremely beneficial financially, stronger balance sheet as well as getting us much quicker to the reinvention goals with respect to revenue and adjusted operating income. Cool.

Eric Woodring, Lead Hardware Research, Morgan Stanley: That’s exciting. It’s really exciting. And as a follow-up to that one more on print is just, Steve, I feel like I hear from you more so than many others involved in the industry. This focus on like innovation and differentiation in print, you’ve obviously mentioned security as a big factor there. What can drive and push back on me if this is an incorrect question, but what can drive faster refresh cycles or faster or stronger upgrade rates than we have seen in recent years?

Steve Van Drisak, CEO, Xerox: Yeah, I think it’s a couple of things. One is we’ve got to help our clients drive productivity in the workspace, right? So there’s obviously innovation in and around our end devices. So you think about now we’ve just launched a bunch of new products that actually have AI embedded inside of our devices today. We got a GPU chip, we got an operating system, and we now have AI capabilities inside of those devices.

So if we think about, we now have a lot of our clients that do a tremendous amount of scanning, right? You think about how do you get physical paper into a digital repository. Well, as you’re doing that scanning, if you’re just going to put it in a back end repository and you’re not indexing it, you don’t understand what data is when you’re scanning, you’ve lost half the value. Well, we can now help our clients with that, right. Where you can scan an invoice and you can put it into your payables process.

You can scan a contract and we can store it and we could take the key terms in that contract that later when your legal team or somebody is trying to discover something, we can help you with that, right. So it’s not just scanning for the sake of putting it in a PDF document and then storing some repository. We scan it, we index it, and we give you value going forward. Right? So the innovation is all around intelligent documents, but more importantly, how do I help our clients think about data in a different way?

When I say data, we’re focused on paper. We can help you with video data. We can help you with voice data. We can help you with sensor data. All of that is extremely important in terms of how you aggregate that and serve it up into large language modules in the AI space.

But we’re never going to be the Microsoft, we’re never going to be in play in that big high end, but somebody has to help these clients with aggregating and understanding how do you take that data and how do you serve it up and how do you make it more productive. So as we see headwinds in the industry in terms of whether it’s interest rate increases, whether you have to get more labor out because your minimum wage is going up, all those things drive tremendous pressure on the IT organization to drive more productivity. We can help in that mid market space and help clients and help our customers be more innovative. We talk about how do we get more focused on industry, right? So productivity in a university, productivity in a hospital, productivity in terms of state and local government, productivity in terms of law firms, because we’ve already been there, we can provide technology that helps and drive innovation in and around our print environment.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Okay. Helpful. And, Melanda, maybe I’ll wrap you into this, before we move on to another topic is just if we take everything that we just talked about, pre Lexmark acquisition, what does this mean for 2025? Can you just talk about kind of market growth or market performance, share gains, pricing, kind of one off headwinds and tailwinds? How do we land it?

How you’re thinking about 2025 from a financial model perspective?

Myrlanda Getai, CFO, Xerox: Yes. So overall for 2025, we guided and expect a stronger performance of print. Let me digest that a little bit. So we said or expect revenue will grow low single digit and that includes the impact of IT savvy. If I were to focus just on core print revenue, we expect that decline to taper off and do better than what the print market is currently doing.

And we believe print market is declining 2% to 3%. So our expectation is we’ll do better. And what has given us confidence there is a couple of things. It’s the double our market share on A four. We’re making investment there through partners.

And again, this is all before Lex. Our guidance does not include the impact of Lex acquisition. Global rollout of our Prime Link, we rolled it out in North America in Q1. In EMEA, we rolled it out in Q4. And then Salesforce productivity, we’re doing a lot on with inside sales, clear the desk and all of those will contribute to the productivity of Salesforce.

And we said in Q4 that it had improved about 20%. And we’ll continue to see that improvement further in 2025. So with that, the key question that’s hanging out there and all of us are grappling with is the tariff, what is the impact, because our guidance does not have the impact of tariffs for 2025. Our expectation is that and again, we are listening every single day if the message is changing. Our expectation is that we will offset the impact of tariffs with pricing and review of our supply chain management.

This is sort of what industry and our peers are doing already. We’re seeing price increases in the market and will follow. We certainly are not in any worse position than our peers in relation to the impact of tariffs in 2025. So with that, when I think about also sort of headwinds, right, we talked quite a bit about reinvention 2024, the impact, the headwinds of actions that we took ourselves. Steve covered geosimplification, product simplification.

We will have about 400 basis points negative impact in 2025 because it’s just the flow through from 2024 actions, but we expect that the impact will end in 2025. So no more disruption on the top line revenue as a result of our reinvention action that ends in 2025. And also, we sold our paper business in EMEA, so that impact will flow through a bit in 2025, but it’s part of that 400 basis points that I just covered. And all these actions that were took, they really are going to put us in a path of more profitable revenue and simplified processes. Steve mentioned, yes, you lose revenue immediately.

But as we take off the fixed costs for let’s say the countries that or the manufacturing that we got out at, that would more than offset the gross profit that we lost as a result of getting out of those countries from a direct indirect model or getting out of manufacturing high end production and finding better ways to offer those to our customers.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Right. And all everything that you just said is inclusive within that multi digit growth.

Myrlanda Getai, CFO, Xerox: That’s correct.

Eric Woodring, Lead Hardware Research, Morgan Stanley: That’s correct. And Steve and Melanda, maybe if you could just quickly touch on financial services. Again, you mentioned it’s gone through a bit of a strategy shift. Where do we stand with this business today? Kind of what’s the key message on XFS today?

So Let

Steve Van Drisak, CEO, Xerox: me just start from strategic and then turn it over to Melanda for the financials, right? What we did with Fiddle, which was our leasing business and changing it strategically back to a captive and not using our balance sheet was extremely, extremely strategic for us. Because we knew as we were going through the reinvention, we had to make some significant changes and some reinvestment in our business and that was going to take time. In order to do that, we had to be able to finance that, right? So the shift of fiddle to a indirect or to a captive and now all the things that we’ve done over the last three years and candidly what we do over the next twenty four months was strategic to have the underlying cash that allowed us to do things like IT savvy acquisition, positioned us for the Lex acquisition.

So I want everybody to think about what we did with Fiddle and how we move back to a captive, what we’re doing with peak as an absolute strategic underpinning to what we’re doing. At the outset of that, when we stop with all the financials and driving free cash flow from financials, we will have all the changes we need from a company standpoint to then get back to operating profit and cash flow that’s now going to drive us in the future.

Myrlanda Getai, CFO, Xerox: Yes. I think really we continue through the forward flow programs. We’re still going to get all the strategic benefits that we got today, but with a much lower capital intensive strategy. So Steve mentioned the balance sheet just wasn’t the best use of capital, right, and hence the forward flow agreement. And the expectation is that going forward, the reduction or the reduction finance receivable will go into paying down debt and continue to delever the company.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Right. Okay. Let’s go back to one of the key pillars of we’ve talked about kind of the demand side. Let’s talk about the cost side, because it’s almost more exciting if you go back to kind of pre COVID Xerox, you were at double digit operating margins. That is the goal to return back to double digit operating margins.

My question is twofold. What are the kind of heaviest levers you need to pull to get there? And can you do that with a flat to declining revenue base? Or do you have to grow to get to double digit operating margins?

Steve Van Drisak, CEO, Xerox: No, look, I think the operation, if we go back and we look at Project Own It, which we did pre COVID, driving significantly a billion plus costs out of the business, we’re really more about cost takeout and getting efficiency cost takeout. What we’re doing in reinvention is really completely deconstructing and reconstructing our business. So I talked about GBS Global Business Services. We’re not aligned by function, meaning that I don’t have finance, I don’t have sales, I don’t have sales operations. I have order to cash.

And really we look at from the entire process, how do we deconstruct and reconstruct it? Why is that important? Because that is not only a technology play, but it’s also business simplification in terms of rules, right? I can’t get to a touchless business without having to simplify a lot of my business rules, whether it’s around contracts, whether it’s around how we do service, how we do warranties, etcetera. So when we talk about the reinvention, it really is positioning our our company for future growth.

You’ve heard me talk a lot about the consumer experience, right? Every one of us today in our private lives is dealing with this consumer experience, easy, simple, touchless.

Eric Woodring, Lead Hardware Research, Morgan Stanley: We got

Steve Van Drisak, CEO, Xerox: to do the same thing internally within Xerox, not only in terms of our employees, but but in terms of our clients as well as our partners. So the reinvention is really dramatically changing and implementing technology and simplification like we’ve never done before from a client standpoint. So irrespective of where the revenue goes, irrespective of where we are, we’re going to do this and reconstruct and rebuild our business.

Myrlanda Getai, CFO, Xerox: Yes. No. And just to add to that, I mean, revenue stabilization is definitely key to us getting to that double digit. And we’re going to do that, as we mentioned before, make shift the gainshare. Those will contribute to our revenue civilization.

And what that means for us is that once you get there, all these $400,000,000 of gross cost savings that we have in the pipeline and we expect an improvement by the end of twenty twenty six, those will flow through the bottom line much quicker, hence helping and improving the operating profit to get the double digit growth. And as I mentioned before, Lex acquisition, another enabler to get us there. So that’s the combination in our view as to how we get there. But revenue is a key enabler.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Okay. And I’m kind of doing this in reverse order as I think about the income statement. So I just asked about operating margins. Now I’m going to ask you about gross margins and I think about it in reverse. But there has been pressure there.

What how much of reinvention can address kind of that level of the cost side of things? And really what I’m trying to get at is making sure that investors don’t think this is just ripping out costs. It’s much more intricate than that, but maybe help us understand how that affects kind of the gross margin side of the business. Yes.

Myrlanda Getai, CFO, Xerox: So certainly, when I think when we think about our goal, we want to have a stable print gross margin, right? We’ve had our gross margin has been 40% range when you think about few years ago and last year we ended up 32% and we expect to be lower. Now 2025% did get hit or two headwinds for us in the gross margin for 2025 that we just haven’t seen those combined or work together. One of them is we had higher than normal price increases and that came as a result of certain product refreshes with one major supplier that we work with. And the second is IT Savvy certainly has a lower gross margin profile than Xerox.

Now to be clear, IT Savvy has a need for a much lower SAG. So they have healthy operating margins, but do impact when you think about from a gross profit at the Xerox level. Now with the Lex acquisition, we expect to gain control on manufacturing and be able to offset product cost increases going forward. So that’s again adding to the financial benefit and strategic fit of Lex and Xerox acquisition. Okay.

But that’s sort of high level view of our gross profit expectation.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Okay. Let’s turn to kind of free cash flow, capital allocation before we end. So obviously, Fiddle plays a role in cash flow. So for this year, you’ve guided $350,000,000 to $400,000,000 of free cash flow. Can you just walk us through the kind of underlying drivers of maybe core free cash flow generation versus kind of the forward funding agreement?

And then how that kind of changes over the years, at least as you have insight into?

Myrlanda Getai, CFO, Xerox: Yes, certainly. So, one, we’ve been public and we’ve mentioned that we expect sort of that finance receivable balance to be somewhere around $1,000,000,000 by 2027. So let me just go high level. In the balance sheet, at the end of the year, we had about 1,800,000,000 of finance receivable $1,800,000,000 of finance receivable. So what that means is I have $800,000,000 that will get benefit in the next two years.

And I would say it’s pretty linear. So that’s the story when you think about the finance receivables and we expect a gain. Now expectation is that we’ll keep looking at that billion balance and see whether there’s an opportunity to further reduce it and get the benefit to our free cash flow. Now going back to the free cash flow for 2025 and the guidance, for 2024, as I mentioned, we still expect the sale of finance receivable to be having a large contribution to our free cash flow. It will offset some tailwinds that we have in 2025.

One of them is we have we had change in inventory terms with one of our suppliers. So that’s negatively impacting the working capital. We are investing, so you’ll see higher CapEx in 2025 as a result of our investment technology and tech stack going forward as part of reinvention. And then we have another year of higher than normal or higher than expected restructuring charges. We announced in 2024, beginning of ’20 ’20 ’4, ’15 percent cut or reduction in our workforce and that has an impact, right, the cost to get and what we’re paying out for restructuring.

So when you take all of those together, that’s what’s impacting our free cash flow in 2025. Now reinvention, our goal, increasing our adjusted operating profit going forward, all of those and improvement of working capital and expectation that your restructuring payments will come down, your pension payments will come down, all of those then will bring your free cash flow in a normalized range of adjusted operating income.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Right. Okay. Maybe let’s end on capital allocation. I’d maybe love to ask each of you, Steve, just starting from kind of like the strategic side of things, how do you think about the priorities because they have shifted over the years? And then, Rolanda, maybe put some numbers behind that.

Steve Van Drisak, CEO, Xerox: Yes. So look, we’re going to continue to delever this business going forward. We talked about that as a key priority. We will look at some acquisitions and tuck ins in areas that bring us innovation and accelerate on the strategy that we’ve already done. So if you think about IT solutions, is there a particular niche that we want to be able to acquire a small acquisition to tuck in?

But just like IT Savvy and Lexmont, both very accretive and both a part of our reinvention story either in terms of driving growth or helping us to deleverage or invest in areas that we know we can grow in. So Lexmont allows us to grow in the A four, allows us to go into Asia Pacific. IT solutions or IT savvy allows us to get to a TAM that we never had before. So when we think about acquisitions and tuck ins, it will be accretive and will help us grow and get to our reinvention strategy. But we will delever the company going forward.

Myrlanda Getai, CFO, Xerox: Yes. And just Eric, as you said, to put some numbers, and we kind of shared this at the Lex investor call, but our goal or number one goal, it is reduction of debt, delevering to less than three times in the medium term, as well as continue to return capital to our shareholders in a form of $0.5 dividend of $0.5 per share.

Eric Woodring, Lead Hardware Research, Morgan Stanley: Perfect. We are just out of time. So, Steve and Melanda, thank you very much for joining us and good luck. Thank you, Eric. Appreciate it.

Myrlanda Getai, CFO, Xerox: Thank you, Eric. Appreciate the time.

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