Xerox Holdings Corp 10-Q

ITEM 1A — RISK FACTORS Except for below, as of June 30, 2025, there have been no material changes to the risk factors that were previously disclosed in Part I, Item 1A of the combined Xerox Holdings Corporation and Xerox Corporation Annual Report on Form 10-K for the year ended December 31, 2024. We may be unable to realize the anticipated synergies, cost-savings, incremental revenues, and liquidity benefits from the Lexmark Acquisition and may incur additional and/or unexpected costs in connection with the Lexmark Acquisition. Although we expect to realize significant cost-savings and synergies in connection with the acquisition of Lexmark International II, LLC (Lexmark) (the Lexmark Acquisition) and we also expect to realize significant incremental revenues and other benefits resulting from, among other things, consolidation of various systems, roles, and vendors, no assurance can be given that these anticipated benefits will be realized in whole or in part or on a timeframe that is consistent with our expectations. While we believe these benefits are achievable, our ability to achieve them in the amounts and on the timeframe expected is subject to various assumptions by our management based on expectations that are subject to costs that could offset all or a portion of such synergies. Failure to timely realize the expected cost-savings from the Lexmark Acquisition could have an adverse effect on our financial results and prospects. The amounts of anticipated cost savings and anticipated expenses related thereto are forward-looking statements within the meaning of applicable securities laws, and are based on our current estimates, but they involve risks, uncertainties, assumptions and other factors that may cause actual results, performance or achievements to be materially different from those described herein. Assumptions relating to the plans and amounts related thereto involve subjective decisions and judgments with respect to, among other things, the estimated impact of certain operational adjustments, including marketing efficiency, labor management, material input cost fluctuations, transition costs and other cost and savings adjustments, as well as future economic, competitive, industry and market conditions and future business decisions, all of which are inherently uncertain and may be beyond the control of our management. Although our management believes these estimates and assumptions to be reasonable, any of the assumptions could be inaccurate, and there can be no assurance that the estimates described herein will prove to be accurate or that the objectives and plans expressed will be achieved. Neither our independent auditor nor any other independent accountant, has examined, compiled or performed any procedures with respect to these amounts, nor have they expressed any opinion, or any other form of assurance, on such information or their achievability. Accordingly, there can be no assurance that the anticipated cost savings, incremental revenues and liquidity benefits will be realized or that the impact of the efforts to achieve such cost savings, incremental revenues will not be significantly different than currently anticipated. We undertake no obligation to update or otherwise revise or reconcile our expectations regarding its cost savings efforts whether as a result of new information, future events or otherwise. We may fail to timely realize the anticipated benefits of the Lexmark Acquisition, if at all. We may also encounter significant difficulties in integrating Lexmark’s business into our operations. Our ability to realize the anticipated benefits of the Lexmark Acquisition, including anticipated synergies, will depend, to a large extent, on our ability to integrate Lexmark’s business into our existing operations. We recently completed the Lexmark Acquisition. The combination of independent businesses is a complex, costly and time-consuming process that requires significant management attention and resources. The integration process may disrupt the affected businesses and, if implemented ineffectively, could limit the expected benefits thereof. The failure to meet the challenges involved in integrating such businesses and to realize the anticipated benefits of acquisitions such as the Lexmark Acquisition could cause an interruption of, or loss of momentum in, the activities of the combined company and could adversely affect the results of operations of the combined company. Although certain of Lexmark’s operations overlap with our historical operations, Lexmark’s business entails certain activities in which we were not engaged immediately prior to the Lexmark Acquisition, such as print hardware Xerox 2025 Form 10-Q 76 manufacturing. We are exposed to operational, competitive, contractual, regulatory, and other risks associated with Lexmark’s manufacturing activities. Moreover, Lexmark has significant operations in Asia and other geographies where we currently do not have a significant presence. Any failure in our ability to transition to new geographies or to realize the anticipated benefits of our Lexmark’s customer relationships could harm our brand, prospects, operating results, and financial condition, and could have an adverse effect on our business. By virtue of our expansion into new geographies, we will be subject to new political, economic, legal, operational, regulatory and other risks that are inherent in operating in a foreign country, including risks of possible price controls, capital controls, exchange controls, inflation controls, licensing requirements and other restrictive governmental actions. Additionally, as of December 31, 2024, approximately 7% of Lexmark’s employees (563 non-U.S. employees), who were employed in France, Argentina, Spain, Italy, Portugal, Sweden, Finland, Austria and Brazil were covered by collective bargaining agreements, which are generally national or industry-wide agreements. As of December 31, 2024, Lexmark was in the process of registering a labor union for 31 employees located in Shenzhen, China. If we encounter difficulties with renegotiations or renewals of collective bargaining agreements or are unsuccessful in those efforts, we could incur additional costs and experience work stoppages. Union actions at suppliers also can affect us. Any delays or work stoppages could adversely affect the ability to perform under contracts, which could negatively impact our results of operations, cash flows and financial condition. In addition, the integration may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer and other business relationships, and diversion of management’s attention. The difficulties of combining the operations of the companies include, among others: • the diversion of management’s attention to integration matters; • difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination; • difficulties in integration of operations and systems; • conforming standards, controls, procedures, and accounting and other policies, business cultures and compensation structures between the two companies; • difficulties in assimilation of employees and corporate cultures; • potential unknown liabilities, adverse consequences and unforeseen expenses; and • challenges in attracting and retaining key personnel. Many of these factors will be outside of our control and any one of these factors could result in increased costs, decreases in the amount of expected revenues and additional diversion of management’s time and energy, which could materially adversely impact the business, financial condition and results of operations of the combined company. In addition, even if the businesses are integrated successfully, the full benefits thereof, including expected synergies, cost savings, and revenue growth may not be realized. The benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in connection with the integration of the businesses. All of these factors could decrease or delay the expected accretive effect of any acquisition, including the Lexmark Acquisition, and negatively impact the combined company’s business, operating results and financial condition. As a result, we cannot provide any assurance that our acquisitions, including the Lexmark Acquisition will result in the realization of the expected benefits thereof. Our level of indebtedness could adversely affect our financial condition and reduce our financial flexibility. As of June 30, 2025, on a pro forma basis after giving effect to the closing of the Lexmark Acquisition on July 1, 2025, our total principal debt was approximately $4.3 billion (which is net of the planned repayment of the 2025 Notes due in August of $298 million), which primarily consisted of approximately $2.5 billion of unsecured debt and approximately $1.8 billion of secured borrowings. In the future, we may incur additional indebtedness for organic or inorganic growth or otherwise. Our level of indebtedness could affect our flexibility and operations in several ways, including the following: • a significant portion of our cash flows could be used to service our indebtedness; • the covenants contained in the agreements governing our outstanding indebtedness may limit our ability to borrow additional funds, dispose of assets, pay dividends, and make certain investments; • our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry; Xerox 2025 Form 10-Q 77 • a high level of debt would increase our vulnerability to general adverse economic and industry conditions; • a high level of debt may place us at a competitive disadvantage compared to our competitors that may be less leveraged and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing; and • a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, or general corporate or other purposes. In addition, revolving borrowings under our ABL Facility and the term loans under our TLB, and potentially other credit facilities we or our subsidiaries may enter into in the future, may bear interest at variable rates. Increases in market interest rates could lead to higher debt service requirements associated with our variable rate borrowings, if any. The effect of inflation on interest rates could increase our financing costs over time, either through near-term borrowings on our ABL and TLB, refinancing of our existing borrowings, or the issuance of new debt. In addition to our debt service obligations, our operations require substantial expenditures on a continuing basis. Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of our operating assets and properties, as well as to provide capacity for the growth of our business, depend on our financial and operating performance. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital borrowings or debt or equity financing may not be available to pay or refinance such debt at attractive rates or at all.