XEROX DELIVERED ANOTHER STRONG QUARTER AND CONTINUES TO EXECUTE ON THE STRATEGY OUTLINED AFTER THE LEXMARK ACQUISITION

Source: https://www.news.xerox.com/multimedia/photo

The most important takeaway, in our view, is the continued acceleration of integration. Management increased the expected Lexmark synergy target to more than $350 million, up from the previous $300 million, while successfully launching the first unified Xerox-Lexmark hardware platform and introducing the new global Xerox brand identity. These milestones demonstrate that integration remains firmly on track.

Capital allocation also continues to exceed our expectations. During the second quarter, Xerox repurchased an additional $99 million of debt while repaying the remaining $125 million Bridge Notes, reducing gross debt by more than $200 million during the quarter. This is another clear proof point that deleveraging remains one of management's highest priorities.

The improved outlook further reinforces this progress. Xerox raised full-year revenue guidance from above $7.5 billion to approximately $7.6 billion, while adjusted operating income guidance increased significantly from $450–500 million to $555–605 million. At the same time, management expects to generate approximately $320 million of free cash flow during the second half of 2026, which we believe will largely be directed toward additional debt repurchases, continuing to strengthen the balance sheet.

Another encouraging development is the continued decline in leverage. Xerox now indicates an expected year-end net leverage ratio of approximately 3.9x, compared to its previous framework of around 4.5x. Importantly, this outlook does not include the potential benefits from further opportunistic debt repurchases or the distributed warrant structure, both of which we believe could provide additional deleveraging while enhancing shareholder value.

Overall, these results further strengthen our conviction that management is delivering on the roadmap it communicated to investors. We remain confident in both the strategic direction of the company and, equally importantly, the disciplined execution demonstrated by Louie Pastor, Chuck Butler and the entire Xerox team.

Additional information are available at starteepo.com/xerox.

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