10-Q: Xerox Holdings Q1 2026: Revenue Up on Lexmark, Net Loss Widens

Xerox Holdings reported a 26.7% revenue increase in Q1 2026, driven by the Lexmark acquisition, but also a wider net loss and increased debt.

Summary

• Xerox Holdings Corporation reported total revenues of $1.85 billion for the first quarter of 2026, a 26.7% increase compared to the prior year period. This growth was significantly influenced by the Lexmark Acquisition, contributing 31.9 percentage points to the revenue increase, and a 3.1 percentage point favorable currency impact.
• The company experienced a net loss of $105 million for the quarter, an increase from the $90 million net loss in the first quarter of 2025. This widening loss is attributed to higher selling, administrative, and general expenses (SAG), non-financing interest expense, restructuring costs, research and development (RD&E), and amortization of intangible assets, largely due to the Lexmark acquisition.
• Adjusted net loss was $51 million, compared to $4 million in the prior year period, indicating a significant increase in adjusted losses.
• Operating cash flow is now projected to be approximately $350 million, a decrease from the previous guidance of $360 million, due to higher interest expenses related to the joint venture financing.
• The company completed a joint venture financing arrangement with TPG, raising $405 million in senior secured term loans and issuing $45 million in Class A Units, which is classified as debt.
• Xerox Holdings also repurchased $101 million of its 5.50% Senior Unsecured Notes due August 2028, resulting in a gain of $56 million on early extinguishment of debt.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the widening net loss, increased adjusted losses, reduced operating cash flow guidance, and significant decline in equipment gross margin, despite revenue growth driven by acquisitions.

Positives

• Total revenue increased by 26.7% to $1.85 billion, primarily driven by the Lexmark Acquisition.
• Post-sale revenue increased by 30.1% to $1.31 billion, also benefiting from the Lexmark Acquisition.
• Equipment sales revenue increased by 33.1% to $378 million, significantly boosted by the Lexmark Acquisition.
• The company's Print and Other segment saw a 30.8% revenue increase, largely due to the Lexmark Acquisition.
• Gross margin improved by 0.5 percentage points to 29.7%, with a 0.9 percentage point benefit from the Lexmark Acquisition.
• Post-sale gross margin increased by 5.0 percentage points to 34.6%, with a 4.4 percentage point benefit from the Lexmark Acquisition.
• The company generated $242 million in net cash from financing activities, a significant improvement from the prior year's use of cash.
• Availability under the revolving credit facility was $387 million before letters of credit, with net availability of $289 million.
• A gain of $56 million was recognized on the early extinguishment of debt.

Negatives

• Net loss widened to $105 million from $90 million in the prior year.
• Adjusted net loss increased significantly to $51 million from $4 million.
• Operating cash flow guidance was reduced to $350 million from $360 million.
• Total debt increased to $4.45 billion from $4.25 billion.
• Equipment gross margin decreased by 17.1 percentage points to 10.8%, with a 12.2 percentage point adverse impact from the Lexmark acquisition.
• IT Solutions revenue decreased by 5.5% to $154 million.
• Selling, Administrative and General (SAG) expenses increased by $52 million, primarily due to the Lexmark acquisition.
• Research, Development and Engineering (RD&E) expenses increased by $22 million, primarily due to the Lexmark acquisition.
• Non-financing interest expense increased by $51 million to $84 million, largely due to new borrowings.

Risks

• The company's future performance may vary from current expectations, assumptions, and estimates, particularly concerning macro-economic uncertainties, interest rates, inflationary pressures on costs, execution of Transformation efforts, and geopolitical uncertainty, which could impact goodwill impairment analysis.
• The company's ability to generate sufficient cash flow from operations or secure future borrowings may be impacted by various factors, potentially affecting its ability to repay indebtedness or meet liquidity needs.
• The company's capacity to borrow under the ABL Facility may be adversely impacted by the terms of the facility and other agreements governing its indebtedness.
• The company is involved in various legal matters, including tax assessments in Brazil, which could have a material adverse effect on results of operations, cash flows, and financial position if an unfavorable outcome or significant settlement occurs.
• The company's global operations expose it to foreign currency exchange rate fluctuations, which could affect operating results, financial position, and cash flows.
• The company's financial risk management strategies are subject to market and credit risks associated with derivative instruments.

Future Outlook

The company expects operating cash flows to be approximately $350 million, a decrease from the previous guidance of $360 million, reflecting higher interest expense related to funding from the Joint Venture Financing Arrangement. The company believes it has the ability to sell finance receivables for additional liquidity. The company will continue to monitor developments throughout the remainder of 2026, including updates to forecasts, discount rates, and market capitalization, which may require an update to goodwill impairment assessments.

Management Comments

• The February 2026 Supreme Court ruling on tariffs is expected to have a net positive impact on Xerox's cost structure, though this is expected to be slightly more than offset by higher memory and oil prices.
• First quarter 2026 reflects the benefits of the Lexmark Acquisition and from Xerox's Transformation efforts, complemented by a more unified go-to-market model, increasing partner validation, and strategic initiatives to enhance long-term profitability.
• Management believes that the constant currency measure provides investors an additional perspective on revenue trends.
• Management believes that the non-GAAP measures allow investors to better understand the trends in the business and to better understand and compare results.
• Management believes that the current reserve position for finance receivables remains sufficient to cover expected future losses that may result from current and future macro-economic conditions including higher inflation, interest rates, and the potential for recessions.

Industry Context

StockSavvy.ai notes that Xerox's Q1 2026 results highlight the significant impact of large acquisitions like Lexmark on revenue growth, while also underscoring the challenges of integrating such entities and managing increased debt and operating expenses. The company's performance is closely tied to broader economic conditions and industry-specific trends in document management and IT solutions.

Comparison to Industry Standards

• The increase in total revenue by 26.7% is substantial, largely driven by the Lexmark acquisition. Competitors in the printing and IT solutions space often see more modest organic growth rates, making Xerox's reported growth rate appear high due to the acquisition's scale.
• The widening net loss, despite revenue growth, is a concern. Many companies in the sector focus on achieving profitability alongside revenue expansion, especially post-acquisition. Xerox's adjusted net loss of $51 million indicates ongoing operational challenges or integration costs.
• The increase in debt to $4.45 billion is significant. Industry peers are also managing debt levels, but the substantial increase here, partly due to acquisition financing, warrants close monitoring of leverage ratios and interest coverage.
• The decline in equipment gross margin by 17.1 percentage points is a notable negative. This suggests pricing pressures, increased input costs, or unfavorable product mix, which are common challenges in the hardware segment of the industry, but the magnitude here is concerning.
• The improvement in post-sale gross margin is a positive counterpoint, indicating strength in recurring revenue streams like services and maintenance, which is a strategic focus for many companies in the sector seeking stable income.

Legal Proceedings

• The company is involved in various claims, lawsuits, investigations, and proceedings concerning securities law, governmental entity contracting, servicing and procurement law, intellectual property law, environmental law, employment law, ERISA, and other laws and regulations.
• Brazilian operations face numerous governmental assessments related to indirect and other taxes, primarily concerning claims for taxes on internal inventory transfers, municipal service taxes on rentals, and gross revenue taxes. These are being disputed.
• The company is involved in certain disputes with contract and former employees, though exposures related to labor matters are not material for the periods presented.

Related Party Transactions

• The company has a joint venture arrangement with TPG, which provided $405 million in senior secured term loans and purchased $45 million of Class A Units from XRX Brandco Holdings LLC (IPCo Holdings).
• Xerox Corporation contributed intellectual property and related assets to IPCo Holdings.
• Xerox Holdings and Xerox Corporation entered into a Shared Services and License Agreement (SSLA) with IPCo Holdings and IPCo, where Xerox Holdings provides services and IPCo grants licenses to Xerox Corporation and its subsidiaries.
• Xerox Corporation has intercompany loans with Xerox Holdings Corporation, with balances of $1,896 million and $1,993 million at March 31, 2026 and December 31, 2025, respectively.

Stakeholder Impact

• Shareholders: The widening net loss and increased adjusted net loss, coupled with a reduced operating cash flow outlook, may negatively impact shareholder sentiment and stock price. The warrant distribution in January 2026 could also affect share dilution.
• Creditors: The increase in total debt to $4.45 billion, including new joint venture financing, increases the company's leverage. While the company has availability under its credit facility, covenants and debt levels will be closely monitored.
• Employees: Restructuring actions, including workforce reductions, are ongoing as part of the Transformation efforts and integration of Lexmark, impacting employee numbers and potentially morale.
• Suppliers: The company utilizes a supplier finance program where vendors can opt for early payment of invoices at a discount, managed through a financial institution.

Next Steps

• Continue to monitor goodwill impairment assessments based on future performance and market conditions.
• Utilize finance receivables sales for additional liquidity if needed.
• Opportunistically address Xerox Holdings' capital structure, which may include redemption or payment of debt.
• Continue to integrate Lexmark operations and realize benefits from Transformation efforts.

Key Dates

Recommendation

While revenue growth driven by the Lexmark acquisition is a positive, the widening net loss, increased adjusted losses, reduced operating cash flow guidance, and significant decline in equipment gross margin present considerable headwinds. The company's substantial debt load and ongoing integration challenges warrant a cautious approach. A 'hold' recommendation reflects the uncertainty surrounding the successful integration of Lexmark and the path to sustainable profitability, balanced against the potential for future improvements if transformation efforts gain traction.

Keywords

Xerox Holdings, Xerox Corporation, 10-Q, Quarterly Report, Lexmark Acquisition, Joint Venture, Financing, Revenue, Net Loss, Debt, Operating Cash Flow, Financial Statements