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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 357 added, 319 removed, 552 unchanged (55% of the section changed)

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Throughout the Management’s Discussion and Analysis (MD&A), references to “Xerox Holdings” refer to Xerox Holdings Corporation and its consolidated subsidiaries while references to “Xerox” refer to Xerox Corporation and its consolidated subsidiaries.

References herein to “we,” “us,” “our,” the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise.

Throughout this Management’s Discussion and Analysis (MD&A), references to “Xerox Holdings” refer to Xerox Holdings Corporation and its consolidated subsidiaries while references to “Xerox” refer to Xerox Corporation and its consolidated subsidiaries.

References herein to “we,” “us,” “our,” and the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise.

References to "Xerox Holdings Corporation" refer to the stand-alone parent company and do not include its subsidiaries.

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The MD&A is provided as a supplement to, and should be read in conjunction with, the Condensed Consolidated Financial Statements and the accompanying notes.

Throughout this MD&A, references are made to various notes in the Condensed Consolidated Financial Statements which appear in Item 1 of this Combined Quarterly Report on Form 10-Q, and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made.

Throughout this MD&A, references are made to various notes in the Condensed Consolidated Financial Statements which appear in Item 1 of this combined Quarterly Report on Form 10-Q (this Form 10-Q), and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made.

Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established in 2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies.

Xerox Ventures LLC had investments of approximately $15 million at June 30, 2022.

Xerox Ventures LLC had investments of approximately $21 million at September 30, 2022.

Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion.

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Currency impact can be determined as the difference between actual growth rates and constant currency growth rates.

During the first half of 2022, we continued to see strong demand for our products and services despite a challenging operating environment.

Supply constraints continued to inhibit our ability to fulfill demand, resulting in the growth of our backlog 1 to $440 million, a 4.3% sequential increase and more than double prior year period's levels.

Although backlog remains elevated, it is considered manageable and its growth rate did decline quarter over quarter reflecting a slowing increase as product supply improves.

Post sale revenue grew in actual and constant currency, due to growth in IT Services, which included the benefits from recent acquisitions, and print activity-driven revenue, such as consumables and services.

Consistent with prior quarters, we see a very strong correlation between return-to-office trends and page volumes.

Although return-to-office trends have been gradual, in the first half of 2022, service revenue growth outpaced page volumes growth as contractual price increases began to materialize.

We expect that trend to continue through the remainder of the year.

The Company expects profitability to improve sequentially for the remaining two quarters of the year as supply chain costs normalize, particularly freight costs, and through an easing of product supply constraints, which will not only improve equipment sales but equipment gross margins, as product mix normalizes.

Inflationary pressures are expected to continue in the near-term, but we expect to offset a large portion of inflation-related cost growth with price increases for our products and services.

The effects of our price increases will compound over time, particularly for our contractual business, where price increases are enacted at specific times throughout the year, or upon contract renewal.

Further offsetting these cost pressures will be savings generated through Project Own It.

The Company is targeting gross cost savings of $450 million in 2022, the vast majority of which will be realized in the second half of the year.

Revenue growth during the third quarter 2022 accelerated in constant currency, reflecting the benefit from recent acquisitions as well as resilient demand for our products and services amid an increasingly challenging macroeconomic environment.

Equipment revenue increased 0.8% in actual currency and included a 5.9-percentage point adverse impact from currency.

The 6.7% increase in constant currency 1 , reflects the first quarter of equipment revenue growth since the supply chain constraints began last year.

As expected, backlog 2 slightly declined sequentially, reflecting sustained order flow, offset by gradual easing of supply constraints.

Although we were encouraged by supply chain improvements, the pace of improvement was slower than expected.

The increase in Post sale revenue was driven by another strong quarter for paper and supplies.

Growth in these consumables reflects the early benefits of recent pricing actions, and for supplies, an ongoing, gradual recovery of print-related activity.

Post sale revenue also benefited from growth in IT and Digital Services, including contributions from recent acquisitions.

Consistent with prior quarters, we continue to see a strong correlation between return-to-office trends and page volumes.

We did see an improvement in page volume relative to 2019 levels;

however, page volumes are recovering slower than we expected, as employers’ efforts to bring employees back to offices have been slow to gain momentum.

Adjusted 1 operating income margin declined 0.5-percentage points year-over-year but improved sequentially, reflecting the benefits of price and cost actions we have taken year-to-date.

Improvement was slower than expected due to persistently high rates of inflation across our cost base, an unfavorable geographic mix in equipment sales, and a slower-than-expected easing of supply chain constraints.

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(1) See the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure.

(2) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be

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It includes printing devices as well as IT hardware associated with our IT services

Second quarter 2022 backlog of $440 million excludes sales orders from Russia and Powerland Computers Ltd., which was acquired in the first quarter of 2022.

Third quarter 2022 backlog of $429 million excludes sales orders from Russia and Powerland Computers Ltd., which was acquired in the first quarter of 2022.

Prior quarter backlog was revised to conform to current reporting methodology.

Xerox 2022 Form 10-Q 45

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The Eurasian region in total comprised a low single digit percentage of our revenue and operating profits in 2021.

As of June 30, 2022 the net assets of our Eurasian operations were approximately $15 million (approximately $35 million of assets) and comprised approximately 0.4% of consolidated net assets.

As of September 30, 2022 the net assets of our Eurasian operations were approximately $18 million (approximately $30 million of total assets) and comprised approximately 0.5% of consolidated net assets.

At all times from the imposition of sanctions through the date of the filing of this Form 10-Q, we have been compliant with sanctions and government restrictions.

Reportable Segment Change

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As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments.

Second Quarter 2022 Review

Total revenue of $1.75 billion for second quarter 2022 decreased 2.6% from second quarter 2021, including a 3.7-percentage point adverse impact from currency and a 2.0-percentage point benefit from acquisitions.

Total revenue reflected an increase of 1.2% in Post sale revenue, including a 3.8-percentage point adverse impact from currency.

Post sale revenues improved sequentially from the first quarter 2022, reflecting increased IT services revenues, which benefited from recent acquisitions, as well as a modest increase in page volumes and the early benefits of pricing actions, particularly for our transactional goods and service agreements.

Equipment sales revenue decreased 14.7%, including a 3.3-percentage point adverse impact from currency, as supply chain constraints continue to limit our ability to fulfill demand, which remains strong, as evidenced by further growth in our equipment order backlog.

Total revenue of $3.42 billion for the six months ended June 30, 2022 decreased 2.5% as compared to the prior year period, including a 2.7-percentage point adverse impact from currency.

Third Quarter 2022 Review

Total revenue of $1.75 billion for third quarter 2022 decreased 0.4% from third quarter 2021, which included a 5.1-percentage point adverse impact from currency partially offset by a 3.4-percentage point benefit from acquisitions.

Total revenue reflected a decrease of 0.7% in Post sale revenue, which included a 4.8-percentage point adverse impact from currency, and reflected increased IT services revenues, which benefited from recent acquisitions, as well as higher consumables revenues including from paper and supplies, partially offset by lower service and rental revenue.

Equipment sales revenue increased 0.8%, which included a 5.9-percentage point adverse impact from currency and reflected higher demand for our products and a modest improvement in product availability, primarily in EMEA.

Total revenue of $5.17 billion for the nine months ended September 30, 2022 decreased 1.8% as compared to the prior year period, including a 3.5-percentage point adverse impact from currency partially offset by a 2.4-percentage point benefit from acquisitions.

Total revenue reflected an increase of 0.8% in Post sale revenue, including a 3.4-percentage point adverse impact from currency, and a decrease of 10.6% in Equipment sales revenue, including a 3.6-percentage point adverse impact from currency.

Net (loss) income attributable to Xerox Holdings and adjusted 1 Net income attributable to Xerox Holdings were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 B/(W) 2022 2021 B/(W)

Net (loss) income attributable to Xerox Holdings $ (383) $ 90 $ (473) $ (443) $ 220 $ (663)

Adjusted (1) Net income attributable to Xerox Holdings

33 90 (57) 43 231 (188)

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(1) See the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure.

Third quarter 2022 Net (loss) attributable to Xerox Holdings of ($383) million was a decrease of $473 million as compared to third quarter 2021 Net income attributable to Xerox Holdings of $90 million.

The decrease primarily reflects an after-tax non-cash Goodwill impairment charge of $395 million ($412 million pre-tax), as well as lower gross margin, reflecting unfavorable product and services mix associated with product supply constraints, and higher Restructuring and related costs, net, Other expenses, net, and Income tax expense.

These negative impacts were partially offset by lower Research, development and engineering expenses.

Third quarter 2022 A djusted 1 Net income attributable to Xerox Holdings of $33 million decreased $57 million as compared to the prior year period, primarily due to lower gross margin, reflecting unfavorable product and services mix associated with product supply constraints, as well as higher Income tax expense and Other expenses, net.

Net (loss) attributable to Xerox Holdings for the nine months ended September 30, 2022 of $(443) million was a decrease of $663 million as compared to the prior year period Net income attributable to Xerox Holdings of $220 million.

The decrease primarily reflects an after-tax non-cash Goodwill impairment charge of $395 million ($412 million pre-tax), as well as lower gross margin, reflecting unfavorable product and services mix as well as higher freight costs associated with product supply constraints, and higher Selling, administrative and general expenses due to higher stock compensation expense associated with the accelerated vesting of all outstanding equity awards, in the second quarter 2022 according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO.

Other expenses, net, were $94 million higher primarily due to a $33 million charge in the first quarter 2022 associated with the termination of a product supply agreement (which was net of an $8 million

Xerox 2022 Form 10-Q 46

previously recorded accrual), lower gains on sales of businesses and assets, and a lower benefit from non-service retirement costs.

These negative impacts were partially offset by lower Income tax expense.

A djusted 1 Net income attributable to Xerox Holdings for the nine months ended September 30, 2022 of $43 million decreased $188 million as compared to the prior year period, primarily reflecting lower gross margin, as a result of unfavorable product and services mix as well as higher freight costs associated with product supply constraints, and higher Selling, administrative and general expenses and Other expense, net.

These negative impacts were partially offset by lower Income tax expense.

A summary of our segment information is as follows:

Three Months Ended June 30, Six Months Ended June 30, % of Total

Three Months Ended September 30, Nine Months Ended September 30, % of Total

(in millions) 2022 2021 % Change 2022 2021 % Change 2022 2021

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Total Revenue $ 1,751 $ 1,758 (0.4) % $ 5,166 $ 5,261 (1.8) % 100 % 100 %

Profit (Loss)

Print and Other $ 57 $ 50 14.0 % $ 55 $ 232 (76.3) % 57 % 80 %

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(1) Reflects net revenue, primarily commissions and other payments, made by the Financing segment (FITTLE) to the Print and Other segment for the lease of Xerox equipment placements.

Net (loss) income attributable to Xerox Holdings and adjusted 1 Net income attributable to Xerox Holdings were as follows:

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2022 2021 B/(W) 2022 2021 B/(W)

Net (loss) income attributable to Xerox Holdings $ (4) $ 91 $ (95) $ (60) $ 130 $ (190)

Adjusted (1) Net income attributable to Xerox Holdings

24 94 (70) 10 141 (131)

Second quarter 2022 Net loss attributable to Xerox Holdings of $(4) million was a $95 million decrease as compared to second quarter 2021 primarily reflecting lower gross margin, as a result of unfavorable product and services mix and higher freight costs associated with product supply constraints, as well as higher Selling, administrative and general expenses due to higher stock compensation expense associated with the accelerated vesting of certain

Xerox 2022 Form 10-Q 43

equity awards and higher Other expenses, net due to the lower benefit from non-service retirement costs.

These negative impacts were partially offset by lower Restructuring and related costs, net, Amortization of intangible assets and lower Income tax expense.

Second quarter 2022 A djusted 1 net income attributable to Xerox Holdings of $24 million decreased $70 million as compared to the prior year, primarily reflecting lower gross margin, as a result of unfavorable mix as well as higher logistics costs associated with product supply constraints.

These negative impacts were partially offset by lower Other expenses, net and Income tax expense.

Net loss attributable to Xerox Holdings for the six months ended June 30, 2022 of $(60) million was a $190 million decrease as compared to the prior year period primarily reflecting lower gross margin, as a result of unfavorable product and services mix as well as higher freight costs associated with product supply constraints, as well as higher Selling, administrative and general expenses due to higher stock compensation expense associated with the accelerated vesting of certain equity awards.

Other expenses, net were $60 million higher primarily due to a $33 million charge in the first quarter 2022 associated with the termination of a product supply agreement (which was net of an $8 million previously recorded accrual), higher non-financing interest expense, and a lower benefit from non-service retirement costs.

These negative impacts were partially offset by income tax benefits.

A djusted 1 net income attributable to Xerox Holdings for the six months ended June 30, 2022 decreased $131 million as compared to the prior year period, primarily reflecting lower gross margin, as a result of unfavorable product and services mix as well as higher freight costs associated with product supply constraints, and higher Selling, administrative and general expenses.

These negative impacts were partially offset by income tax benefits and Other expenses, net.

Cash flows from operating activities during the six months ended June 30, 2022 was a use of $19 million and decreased $350 million as compared to the prior year period, primarily related to lower cash earnings, which included incremental investments in our new businesses, lower royalty payments and a $41 million one-time payment in the current quarter associated with the termination of a product supply agreement as well as an increase in working capital 2 and the timing of management bonus payments.

Cash used in investing activities during the six months ended June 30, 2022 was $62 million reflecting capital expenditures of $29 million, acquisitions of $52 million and $7 million of noncontrolling investments as part of our corporate venture capital fund, partially offset by $26 million related to the sale of surplus buildings and land in the U.S.

Cash used in financing activities during the six months ended June 30, 2022 was $587 million reflecting payments of $477 million on existing secured financing arrangements, $300 million on Senior Notes that matured in 2022 and $353 million for the early redemption of 2023 Senior Notes, which included a premium payment of $3 million, partially offset by proceeds of $753 million on a new secured financing arrangement, as well as $113 million for repurchases of our Common Stock, and dividend payments of $88 million.

Despite a challenging operating environment, we are maintaining our revenue and cash flow outlook, as we continue to expect supply chain constraints and return-to-office trends to improve in the second half of the year, and we are implementing counteractive measures in response to geopolitical uncertainty and inflationary pressures.

Accordingly, we continue to expect revenue to grow to $7.1 billion in actual currency, and expect that profitability will improve in the second half of the year.

Our revenue outlook is also based on current exchange rates.

We are confident in our ability to generate cash and plan to continue our capital allocation policy of returning at least 50% of our annual free cash flow to shareholders and expect full year Operating cash flows to be at least $475 million (excluding the payments associated with the first quarter 2022 contract termination charge), and capital expenditures of at least $75 million.

(1) Reflects net revenue, primarily commissions and other payments, made by the Financing (FITTLE) segment to the Print and Other segment for the lease of Xerox equipment placements.

Cash flows from operating activities during the nine months ended September 30, 2022 was a use of $27 million and decreased $458 million as compared to the prior year period, primarily related to lower net income as well as lower royalty payments, higher finance receivable originations, a $41 million one-time payment in second quarter 2022 associated with the termination of a product supply agreement, and higher working capital 2 .

Cash used in investing activities during the nine months ended September 30, 2022 was $95 million reflecting capital expenditures of $39 million, acquisitions of $93 million and $13 million of noncontrolling investments as part of our corporate venture capital fund, partially offset by $49 million related to the sale of surplus assets including buildings and land in the U.S.

Cash used in financing activities during the nine months ended September 30, 2022 was $755 million reflecting payments of $600 million on existing secured financing arrangements, $300 million on Senior Notes that matured in 2022 and $353 million for the early redemption of 2023 Senior Notes, partially offset by proceeds of $753 million on new secured financing arrangements, as well as dividend payments of $131 million and $113 million for repurchases of our Common Stock.

The global macroeconomic outlook has become more volatile in the past three months, but we are not yet seeing a meaningful effect of a global slowdown on our revenues.

We continue to see resiliency in demand for our office products, particularly our A3 devices.

However, consistent with the uncertain macro environment, we are beginning to see longer project deployment times, and in some cases, lower page volume commitments.

Due to the recent weakening of the Euro and British Pound, and an uncertain outlook for global foreign exchange rates, we are adjusting our full-year revenue guidance from at least $7.1 billion to a range of $7.0 billion to $7.1 billion in actual currency.

Additionally, we are lowering our cash flow guidance due to slower-than-expected supply chain improvements and persistently high rates of inflation, which negatively affected operating profit, as well as a greater-than-expected use of working capital to fund originations growth at FITTLE and inventories.

Accordingly, we are adjusting our full-year 2022 Operating cash flows guidance from at least $475 million to at least $180 million (excluding the $41 million one-time payment associated with the termination of a product supply agreement), and expect capital expenditures of $55 million (previously $75 million) for full-year 2022.

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Critical Accounting Policies and Estimates - Update

Goodwill - Interim Impairment Evaluation – Change in Segments

Our goodwill balance was $3.2 billion and $3.3 billion at June 30, 2022 and December 31, 2021, respectively.

The balance at December 31, 2021 reflects a pre-tax impairment charge of $781 million recorded in the fourth quarter 2021 after completion of our fourth quarter annual goodwill impairment assessment.

Except as noted below, there have been no significant changes for the three and nine months ended September 30, 2022 to the items that we disclosed as our critical accounting estimates and policies in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our combined Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the 2021 Form 10-K).

Goodwill - Interim Impairment Evaluation

We assess Goodwill for impairment at least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

During 2022, we had events and conditions in the first quarter and third quarter that required an interim assessment of Goodwill.

First Quarter 2022 - Change in Segments

During the first quarter 2022, the Company made a change to its operating and reportable segments from one operating/reportable segment - Printing - to two operating/reportable segments - Print and Other, and Financing (FITTLE).

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Prior to this change, consistent with the determination that we had one operating/reportable segment, we determined that we had one reporting unit for Goodwill assessment purposes.

Our reassessment during the first quarter of 2022 determined that likewise consistent with the determination that we had two operating/reportable segments, we now have two reporting units for goodwill assessment purposes – Print and Other, and Financing (FITTLE).

Our reassessment during the first quarter of 2022 determined that consistent with the determination that we had two operating/reportable segments, we now have two reporting units for Goodwill assessment purposes – Print and Other, and Financing (FITTLE).

As a result of the change in reporting units, effective January 1, 2022, we estimated the fair value of our new reporting units and, based on an assessment of the relative fair values of our new reporting units after the change, we determined that no Goodwill was allocable to the Financing (FITTLE) segment.

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We believe that the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflected current market and industry conditions.

In estimating the fair value of our reporting unit with goodwill after the change in segments (Print and Other), our analysis likewise reflected a 75/25 allocation between the income and market approach but the discount rate applied to our projected cash flows was increased to approximately 8.75%.

In estimating the fair value of our reporting unit with Goodwill after the change in segments (Print and Other), our analysis likewise reflected a 75/25 allocation between the income and market approach, respectively, but the discount rate applied to our projected cash flows was increased to approximately 8.75%.

The increase in the discount rate was largely due to an increase in the Company Specific Risk Premium to balance the overall Company valuation and to reflect an increased risk to Print and Other as a result of the removal of a portion of the steadier annuity financing revenues to the Financing (FITTLE) reporting unit.

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Based on our forecast model, which we believe reflects the inherent uncertainty of the future, we estimated that the excess of fair value over carrying value for the reporting unit with Goodwill ranged between 15% and 20%.

In performing its assessment, the Company believes it made reasonable estimates based on the facts and circumstances available as of the assessment date and taking into consideration the macro-economic and industry factors existing at that point.

Xerox 2022 Form 10-Q 48

Third Quarter 2022

In the first nine months of 2022, the Company continued to encounter operational challenges due to unfavorable product and services mix associated with supply chain constraints as well the impacts of unfavorable macroeconomic conditions including inflationary pressure on product and labor costs, geopolitical uncertainty in Europe and the continued impacts from the COVID-19 recovery.

Additionally, higher interest rates continue to put downward pressure on the Company’s valuation.

Although operating results are expected to improve in the fourth quarter 2022, and in 2023 as the Company works down its backlog;

operating results are expected to be below previous forecasts and will continue to be pressured as result of these unfavorable macroeconomic conditions.

As a result of these negative financial impacts as well as a sustained market capitalization below our book value, in the third quarter 2022 we determined there was a triggering event requiring an interim quantitative assessment of Goodwill.

After completing our interim impairment test, we concluded that the estimated fair value of the Print and Other reporting unit (the only reporting unit with Goodwill) had declined below its carrying value and we recognized an after-tax non-cash impairment charge of $395 million ($412 million pre-tax) related to our Goodwill in the third quarter 2022.

In estimating the fair value of the Print and Other reporting unit, our analysis reflected a 75/25 allocation between the income and market approach, respectively, and the application of a discount rate applied to our projected cash flows of approximately 10.75%.

The weighting between the income and market approach was consistent with our assessment in the fourth quarter 2021 as well as the first quarter 2022.

The applied discount rate was 200 basis points higher than the rate applied in the first quarter 2022 assessment primarily due to higher market interest rates.

As a result of recent macroeconomic volatility and continued supply chain constraints, our current results and internal forecasts indicate that the Company could have a slower-than-expected recovery from the impacts of the COVID pandemic and supply chain issues experienced over the past few years.

Although operating results and related cash flows are expected to improve in the fourth quarter 2022, and in full-year 2023, we expect an increased risk to our previous outlooks and estimates, at least in the near term.

This impact combined with higher market interest rates and the resulting effect on valuation discount rates, continues to negatively impact the Company’s valuation resulting in the Goodwill impairment charge for the third quarter 2022.

In performing its assessment, the Company believes it has made reasonable estimates based on the facts and circumstances that were available as of the reporting date.

However, the determination of fair value includes assumptions that are subject to risk and uncertainty.

The discounted cash flow calculations are dependent on subjective factors including the timing and amount of future cash flows and the discount rate.

During the first half of 2022, the Company continued to encounter significant operational challenges due to supply chain constraints, inflationary pressure on product and labor costs, geopolitical uncertainty in Europe and the

If the Company's future performance varies from current expectations, assumptions, or estimates, including those assumptions relating to the supply chain constraints, interest rates, inflationary pressure on product and labor costs, geopolitical uncertainty in Europe, or the continued impacts from the COVID-19 recovery, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

We will continue to monitor developments throughout the remainder of 2022, including updates to our forecasts as well as our market capitalization, and an update of our assessment and related estimates may be required in the future.

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continued impacts from additional COVID-19 variants.

Operating results did improve in the second quarter 2022 as compared to the first quarter 2022 and operating results are expected to improve further in the second half of 2022 .

The Company's latest projections for the full year 2022 as well as for 2023 and 2024 are still within the range of our sensitivity analysis performed as part of the January 1, 2022 interim impairment assessment.

Accordingly, based on our interim assessment as of June 30, 2022, we determined that it was more-likely-than-not that the fair value of the Print and Other reporting unit (the only reporting unit with goodwill) was still greater than its net book value and that we did not have a “triggering event” requiring a quantitative assessment of Goodwill.

However, given macroeconomic conditions, specifically rising interest rates and their impact on discount rates, our goodwill excess fair value over carrying value is likely reduced as compared to the impairment test as of January 1, 2022.

If assumptions or estimates with respect to the Company's future performance vary from what is expected, including those assumptions relating to the supply chain constraints, interest rates, inflationary pressure on product and labor costs, geopolitical uncertainty in Europe and the threat of additional COVID-19 variants, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

We will continue to monitor developments in 2022 including updates to our forecasts as well as our market capitalization, and an update of our assessment and related estimates may be required in the future.

Financial Review

Three Months Ended

June 30, Six Months Ended

June 30, % of Total Revenue

September 30, Nine Months Ended

September 30, % of Total Revenue

(in millions) 2022 2021 % Change CC % Change 2022 2021 % Change CC % Change 2022 2021

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CC - See "Currency Impact" section for a description of Constant Currency.

(1) Reflects net revenue, primarily commissions and other payments, made by the Financing segment (FITTLE) to the Print and Other segment for the lease of Xerox equipment placements.

(1) Reflects net revenue, primarily commissions and other payments, made by the Financing (FITTLE) segment to the Print and Other segment for the lease of Xerox equipment placements.

(2) Refer to the "Reportable Segments and Geographic Sales Channels" section.

Third quarter 2022 total revenue decreased 0.4% as compared to third quarter 2021, including a 5.1-percentage point adverse impact from currency, partially offset by a 3.4-percentage point benefit from acquisitions.

The increase in organic revenue at constant currency 1 reflected growth in equipment sales revenue, primarily due to resilient demand for our office products and a modest improvement in product supply availability.

Total revenue for the nine months ended September 30, 2022 decreased 1.8%, including a 3.5-percentage point adverse impact from currency, partially offset by a 2.4-percentage point benefit from acquisitions.

The decrease in revenue reflected global product supply constraints and freight disruptions, which limited our ability to fulfill orders and resulted in growth of our order backlog through the first half of 2022, which began to slightly decline in third quarter 2022 (an approximate 8% decline).

Post sale revenue for both the three and nine months ended September 30, 2022 increased at constant currency 1 , reflecting improvement in IT and Digital Services revenue as well as paper and supplies sales, partially offset by lower signings.

We expect supply constraints and return-to-office trends to modestly improve in the fourth quarter, but at a slower pace than expected.

Geographically, third quarter 2022 revenue increased 1.2% in our Americas region, including a 0.5-percentage point adverse impact from currency, as compared to third quarter 2021, while for the nine months ended September 30, 2022 revenue increased 0.7%, including a 0.4-percentage point adverse impact from currency, with both periods benefiting from recent acquisitions.

Revenue in our EMEA operations decreased 4.5%, including a 13.8-percentage point adverse impact from currency, as compared to third quarter 2021, while for the nine months ended September 30, 2022 revenue decreased 7.0%, including a 9.4-percentage point adverse impact from currency.

Absent the adverse impact from currency, revenue increased driven by strength in equipment sales due to increased product

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Second quarter 2022 total revenue decreased 2.6% as compared to second quarter 2021, including a 3.7-percentage point adverse impact from currency and a 2.0-percentage point benefit from acquisitions, while total revenue for the six months ended June 30, 2022 decreased 2.5%, including a 2.7-percentage point adverse impact from currency and a 1.9-percentage point benefit from acquisitions.

The decrease in revenue reflected continued global product supply constraints and freight disruptions, which limited our ability to fulfill orders and resulted in growth of our order backlog.

At the end of the first quarter of 2022, and continuing in the second quarter of 2022, we began to see a modest increase in page volumes, as well as an increase in page volume-driven post sale revenue as workers gradually return to the workplace.

We continue to expect supply constraints and return-to-office trends to improve in the second half of the year.

Geographically, second quarter 2022 revenue in EMEA decreased 10.7%, including a 9.6-percentage point adverse impact from currency, as compared to second quarter 2021, while for the six months ended June 30, 2022 revenue decreased 8.2%, including a 7.3-percentage point adverse impact from currency.

Second quarter 2022 r evenue increased 1.5% in our Americas operations, including a 0.5-percentage point adverse impact from currency, while for the six months ended June 30, 2022 revenue increased 0.5%, including a 0.3-percentage point adverse impact from currency, with both periods benefitting from recent acquisitions.

Both regions were negatively affected by product supply constraints and global freight disruptions.

Page volumes during the first half of 2022 grew moderately faster in EMEA than in the Americas when compared to the prior year period as Europe's return to office measures post-pandemic has generally trended higher than in the U.S.

Total revenue for the three and six months ended June 30, 2022 reflected the following:

availability specifically in the EMEA region.

However, both regions continue to be negatively impacted by product supply shortages.

Total revenue for the three and nine months ended September 30, 2022 reflected the following:

Post sale revenue

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These revenues are associated not only with the population of devices in the field, which are affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page.

Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization in the U.S.

For the three months ended June 30, 2022, Post sale revenue increased 1.2% as compared to second quarter 2021, including a 3.8-percentage point adverse impact from currency, while Post sale revenues increased 1.6% for the six months ended June 30, 2022 as compared to the prior year period, including a 2.7-percentage point adverse impact from currency.

Post sale revenue also includes transactional IT hardware sales and implementation services.

For the three months ended September 30, 2022, Post sale revenue decreased 0.7% as compared to third quarter 2021, including a 4.8-percentage point adverse impact from currency and a 4.4-percentage point benefit from acquisitions, while Post sale revenue increased 0.8% for the nine months ended September 30, 2022 as compared to the prior year period, including a 3.4-percentage point adverse impact from currency and a 3.1-percentage point benefit from acquisitions.

Post sale revenue reflected the following:

• Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled supplies) as well as the post sale component of the document services revenue from our Xerox Services offerings.

◦ For the three months ended June 30, 2022, these revenues decreased 3.7% as compared to second quarter 2021, including a 3.9-percentage point adverse impact from currency.

The resulting change in revenues reflected moderately higher page volumes, corresponding with the gradual return-to-office trends, which were partially offset by lower royalty revenues from FUJIFILM Business Innovation Systems (formerly Fuji Xerox), lower third-party leasing commissions (resulting from higher XFS lease penetration of our XBS operations), a lower net population of devices and an ongoing competitive environment.

◦ For the six months ended June 30, 2022, these revenues decreased 3.3% as compared to the prior year period, including a 2.9-percentage point adverse impact from currency, reflecting the impact of lower royalty revenues from FUJIFILM Business Innovation Systems (formerly Fuji Xerox), lower third-party leasing commissions (resulting from higher XFS lease penetration of our XBS operations), a lower net population of devices and an ongoing competitive environment.

Declines were partially offset by moderately higher page volumes, which began to increase towards the end of the first quarter of 2022, corresponding with return-to-office trends.

• Services, maintenance and rentals revenue includes maintenance revenue (including bundled supplies), document services revenue from our Xerox Services offerings and rentals.

◦ For the three months ended September 30, 2022, these revenues decreased 3.4% as compared to third quarter 2021, including a 4.8-percentage point adverse impact from currency.

In constant currency 1 , growth in outsourcing services revenue primarily reflects recent pricing actions and the acquisition of Go Inspire, partially offset by a slightly lower population of machines in the field and lower contracted page minimums.

◦ For the nine months ended September 30, 2022, these revenues decreased 3.3% as compared to the prior year period, including a 3.5-percentage point adverse impact from currency.

The growth at constant currency 1 was primarily due to the acquisition of Go Inspire during the third quarter 2022, partially offset by the impact of lower royalty revenues from FUJIFILM Business Innovation Systems (formerly Fuji Xerox), lower third-party leasing commissions (resulting from higher XFS lease penetration of our XBS operations), a lower net population of devices, an ongoing competitive environment and slightly lower page volumes.

• Supplies, paper and other sales includes unbundled supplies, IT services and other sales.

◦ For the three months ended June 30, 2022, these revenues increased 24.9% as compared to second quarter 2021, including a 3.1-percentage point adverse impact from currency, and primarily reflected higher IT Services revenues which included revenues from the recent acquisition of Powerland in Canada.

The increase was also as a result of higher supplies and paper revenues driven by higher channel demand and the gradual return-to-office trends.

◦ For the six months ended June 30, 2022, these revenues increased 25.3% as compared to the prior year period, including a 2.7-percentage point adverse impact from currency, and primarily reflected higher IT Services revenues, which included revenues from the recent acquisition of Powerland in

Xerox 2022 Form 10-Q 47

The increase was also a result of higher supplies and paper revenues.

The higher supplies revenues reflects higher channel demand and is consistent with the gradual return-to-office trends.

◦ For the three months ended September 30, 2022, these revenues increased 11.1% as compared to third quarter 2021, including a 4.8-percentage point adverse impact from currency, while for the nine months ended September 30, 2022, these revenues increased 20.1% as compared to the prior year period, including a 3.4-percentage point adverse impact from currency.

The increase for the three and nine months ended September 30, 2022, as compared to the respective prior year periods primarily reflected higher IT Services revenues, which included revenues from the recent acquisition of Powerland in Canada, as well as higher paper and supplies revenues driven by higher channel demand.

• Financing revenue is generated from financed equipment sale transactions.

For the three months ended June 30, 2022, these revenues decreased 7.1% as compared to second quarter 2021, including a 2.6-percentage point adverse impact from currency, while Financing revenue for the six months ended June 30, 2022 decreased 5.4%, including a 1.9-percentage point adverse impact from currency, as compared to the prior year period.

The decrease for the three and six months ended June 30, 2022, as compared the respective prior year periods, reflected a lower finance receivables balance due to the pace of run-off of our lease portfolio and lower equipment sales in prior periods, as well as the impact of lower equipment sales in the current period.

Xerox channel originations declined 25% and 23% for the three and six months ended June 30, 2022, as compared the respective prior year periods, due primarily to supply constraints.

These declines were partially offset by an increase in originations from third-party dealers and non-Xerox equipment providers.

For the three months ended September 30, 2022, these revenues decreased 7.3% as compared to third quarter 2021, including a 4.4-percentage point adverse impact from currency, while Financing revenue for the nine months ended September 30, 2022 decreased 6.0%, including a 2.7-percentage point adverse impact from currency, as compared to the prior year period.

The decrease for the three and nine months ended September 30, 2022, as compared to the respective prior year periods reflected a lower finance receivables balance due to the pace of run-off of our lease portfolio and lower equipment sales in prior periods.

Lease originations for the three months ended September 30, 2022 increased as compared to third quarter 2021, while lease originations declined for the nine months ended September 30, 2022 as compared to the prior year period.

Xerox channel originations declined for both the three and nine months ended September 30, 2022, as compared to the respective prior year periods, due primarily to supply constraints.

These declines were partially offset by an increase in originations from third-party dealers and non-Xerox equipment providers in both the three and nine months ended September 30, 2022.

____________________________

(1) See the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure..

Xerox 2022 Form 10-Q 51

Equipment sales revenue

Equipment sales revenue decreased 14.7% for the three months ended June 30, 2022 as compared to second quarter 2021, including a 3.3-percentage point adverse impact from currency, while Equipment sales revenue for the six months ended June 30, 2022 decreased 16.0%, including a 2.4-percentage point adverse impact from currency.

The decrease in both periods reflected the adverse impact of product supply constraints and global freight disruptions.

Demand continued to outpace supply with return-to-office trends, resulting in a backlog of orders at the end of the quarter that increased sequentially and was above both prior year and pre-pandemic levels.

Equipment sales revenue decreased in EMEA and the Americas, for both the three and six months ended June 30, 2022 due to supply chain disruptions, which impacted all product categories (Entry, Mid-Range, and High-End).

Equipment sales revenue increased 0.8% for the three months ended September 30, 2022 as compared to third quarter 2021, including a 5.9-percentage point adverse impact from currency.

The increase reflected higher demand and a modest improvement in product availability, primarily in EMEA.

Backlog declined slightly on a sequential basis (an approximate 8% decline), but remained above both prior year and pre-pandemic levels.

Equipment sales revenue increased in EMEA primarily due to better availability of product specific to EMEA markets.

Equipment sales revenue decreased in the Americas due to continued supply chain disruptions, which impacted all product categories (Entry, Mid-Range, and High-End).

Equipment sales revenue for the nine months ended September 30, 2022 decreased 10.6%, including a 3.6-percentage point adverse impact from currency, reflecting the adverse impact of product supply constraints and global freight disruptions.

Although backlog at September 30, 2022 declined slightly on a sequential basis, it remained above both prior year and pre-pandemic levels.

Equipment sales revenue decreased in the Americas region and in EMEA primarily due to supply chain disruptions, which impacted all product categories (Entry, Mid-Range, and High-End).

See Segment Review - Print and Other below for additional discussion on Equipment sales revenue.

Xerox 2022 Form 10-Q 52

Costs, Expenses and Other Income

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The following is a summary of key financial ratios used to assess our performance:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 B/(W) 2022 2021 B/(W)

22 unchanged sentences

Pre-tax (Loss) Income Margin

Second quarter 2022 pre-tax (loss) margin of (0.3)% decreased 5.8-percentage points as compared to second quarter 2021.

These impacts were partially offset by lower Restructuring and related expense, net and Amortization of intangible assets.

Xerox 2022 Form 10-Q 48

Pre-tax (loss) margin for the six months ended June 30, 2022 of (2.8)% decreased 7.1-percentage points as compared to the prior year period.

The decrease primarily reflected the impact of lower adjusted 1 operating margin (see below), increased SAG due to the higher stock compensation expense associated with the accelerated vesting of certain equity awards, as well as higher Other expenses, net, which included a $33 million charge associated with the termination of a product supply agreement.

Third quarter 2022 pre-tax (loss) margin of (21.7)% decreased 26.5-percentage points as compared to third quarter 2021.

The decrease primarily reflected the Goodwill impairment charge of $412 million ($395 million after-tax), the impact of lower adjusted 1 operating margin (see Adjusted 1 Operating Margin discussion below), as well as higher Restructuring and related cost, net and Other expenses, net.

Pre-tax (loss) margin for the nine months ended September 30, 2022 of (9.2)% decreased 13.7-percentage points as compared to the prior year period.

The decrease primarily reflected the Goodwill impairment charge, as well as the impact of lower adjusted 1 operating margin (see Adjusted 1 Operating Margin discussion below), increased SAG (Selling, administrative and general expenses) due to the higher stock compensation expense associated with the accelerated vesting of all outstanding equity awards in the second quarter 2022, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO, as well as higher Other expenses, net, which included a $33 million charge associated with the termination of a product supply agreement.

Adjusted 1 Operating Margin

Second quarter 2022 adjusted 1 operating income margin of 2.0% decreased by 5.0-percentage points as compared to second quarter 2021, primarily reflecting lower revenues and lower gross margin, which includes the impact of unfavorable product and services mix and higher freight costs associated with product supply constraints, as well as lower royalty revenues.

The decrease was also the result of higher expenses reflecting increased investments in new businesses, and the benefits from temporary government assistance and furlough measures in the prior year.

These negative impacts were partially offset by favorable currency as well as productivity and cost savings associated with our Project Own It transformation actions.

Adjusted 1 operating margin for the six months ended June 30, 2022 of 0.9% decreased by 5.2-percentage points as compared to the prior year period, primarily reflecting lower revenues and lower gross margin, which includes the impact of higher freight costs associated with product supply constraints, as well as lower royalty revenues.

The decrease was also the result of higher expenses reflecting increased investments in new businesses, higher bad debt expense, and benefits from temporary government assistance and furlough measures in the prior year.

These negative impacts were partially offset by lower selling expenses resulting from lower sales volumes as well as productivity and cost savings associated with our Project Own It transformation actions.

Third quarter 2022 adjusted 1 operating income margin of 3.7% decreased by 0.5-percentage points as compared to third quarter 2021 primarily reflecting lower gross margin, which includes the impact of unfavorable product and services mix associated with product supply constraints as well as higher bad debt expense, real estate and occupancy costs, and the benefits from temporary government assistance in the prior year.

These impacts were partially offset by lower freight costs, research and development (R&D), and favorable currency, as well as productivity and cost savings associated with our Project Own It transformation actions.

Adjusted 1 operating income margin for the nine months ended September 30, 2022 of 1.9% decreased by 3.6-percentage points as compared to the prior year period, primarily reflecting lower revenues and lower gross margin, which includes the impact of unfavorable products and services mix associated with product supply constraints, as well as lower royalty revenues.

The decrease was also the result of higher bad debt expense, and benefits from temporary government assistance in the prior year.

These negative impacts were partially offset by lower selling expenses resulting from lower sales volumes, lower freight costs and favorable currency, as well as productivity and cost savings associated with our Project Own It transformation actions.

______________

(1) Refer to the Operating (Loss) Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section.

Second quarter 2022 gross margin of 31.9% decreased by 3.7-percentage points as compared to second quarter 2021, primarily reflecting approximately 3.4-percentage points associated with the adverse impacts of higher supply chain costs and capacity restrictions (including higher freight and shipping costs and limited availability of higher margin equipment) and higher product and service costs, as well as unfavorable product and services mix and strategic investments.

In addition, gross margin was negatively impacted by lower third-party financing commissions, lower royalty revenue, benefits from temporary government assistance and furlough measures in the prior year, and a competitive environment.

These impacts were partially offset by favorable transaction currency and productivity and cost savings associated with Project Own It transformation actions.

Gross margin for the six months ended June 30, 2022 of 31.8% decreased by 3.9-percentage points as compared to the prior year period, primarily reflecting approximately 3.0-percentage points associated with the adverse impacts of higher supply chain costs and capacity restrictions (including higher freight and shipping costs and limited availability of higher margin equipment).

These impacts were partially offset by favorable transaction currency and productivity and cost savings associated with Project Own It transformation actions.

Second quarter 2022 equipment gross margin of 23.5% decreased by 4.6-percentage points as compared to second quarter 2021, primarily reflecting an unfavorable mix of mid-range products associated with continued product supply constraints and higher product costs as well as and the impact of higher inbound and outbound freight costs.

These impacts were partially offset by the early benefits of price increases and favorable currency.

Equipment gross margin for the six months ended June 30, 2022 of 22.1% decreased by 5.9-percentage points as compared to the prior year period, primarily reflecting an unfavorable mix of mid-range products and the impact of higher freight costs associated with product supply constraints and higher product costs.

These impacts were partially offset by the early benefits of price increases and favorable transaction currency.

Second quarter 2022 Post sale gross margin of 34.1% decreased by 4.0-percentage points as compared to second quarter 2021, reflecting higher component and logistics costs associated with supply chain disruption, benefits from temporary government assistance and furlough measures in the prior year, a competitive environment, and lower royalty revenues and third-party financing commissions.

In addition, a higher mix of IT services revenues also contributed to the decrease in margins.

These impacts were partially offset by favorable transaction currency as well as productivity and cost savings associated with Project Own It transformation actions.

Xerox 2022 Form 10-Q 53

Post sale gross margin for the six months ended June 30, 2022 of 34.2% decreased by 3.8-percentage points as compared to the prior year period, reflecting higher component and logistics costs associated with supply chain disruption, benefits from temporary government assistance and furlough measures in the prior year, a competitive environment, and lower royalty revenues and third-party financing commissions.

Third quarter 2022 gross margin of 31.8% decreased by 0.6-percentage points as compared to third quarter 2021, primarily reflecting approximately 0.5-percentage points associated with the adverse impacts of higher supply chain costs and capacity restrictions (including limited availability of higher margin equipment), as well as an unfavorable product and service mix to paper and IT services.

In addition, gross margin was negatively impacted by the cost of acquisitions, benefits from temporary government assistance and furlough measures in the prior year, and a competitive price environment.

These impacts were partially offset by favorable currency and productivity and cost savings associated with Project Own It transformation actions.

Gross margin for the nine months ended September 30, 2022 of 31.8% decreased by 2.8-percentage points as compared to the prior year period, primarily reflecting approximately 1.9-percentage points associated with the adverse impacts of higher supply chain costs and capacity restrictions (including limited availability of higher margin equipment) as well as unfavorable product and service mix to paper and IT services.

These impacts were partially offset by favorable currency and productivity and cost savings associated with Project Own It transformation actions.

Third quarter 2022 equipment gross margin of 21.0% increased by 2.7-percentage points as compared to third quarter 2021, primarily reflecting lower freight costs, price increases, a favorable product and channel mix in EMEA, as well as slightly higher revenue.

These impacts were partially offset by continued product supply constraints and higher product costs.

Equipment gross margin for the nine months ended September 30, 2022 of 21.7% decreased by 3.2-percentage points as compared to the prior year period, primarily reflecting an unfavorable mix of entry products and the impact of continued product supply constraints and higher product costs.

These impacts were partially offset by the benefits of price increases, lower freight costs and favorable currency.

Third quarter 2022 Post sale gross margin of 34.9% decreased by 1.5-percentage points as compared to third quarter 2021, reflecting the unfavorable mix impact from recent acquisitions, higher component and logistics costs associated with supply chain disruption, benefits from temporary government assistance in the prior year, and a competitive price environment.

In addition, a higher mix of IT services and paper revenues also contributed to the decrease in margins.

These impacts were partially offset by favorable currency, lower freight costs, as well as productivity and cost savings associated with Project Own It transformation actions.

Post sale gross margin for the nine months ended September 30, 2022 of 34.5% decreased by 3.0-percentage points as compared to the prior year period, reflecting higher component and logistics costs associated with supply chain disruption, benefits from temporary government assistance in the prior year, a competitive price environment, and lower royalty revenues and third-party financing commissions.

In addition, a higher mix of IT services revenues also contributed to the decrease in margins.

These impacts were partially offset by favorable transaction currency as well as productivity and cost savings associated with Project Own It transformation actions.

These impacts were partially offset by favorable currency as well as productivity and cost savings associated with Project Own It transformation actions.

Research, Development and Engineering Expenses (RD&E)

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 Change 2022 2021 Change

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Total RD&E Expenses $ 73 $ 82 $ (9) $ 235 $ 235 $ —

Second quarter 2022 RD&E as a percentage of revenue of 4.8% increased by 0.4-percentage points as compared to second quarter 2021, as a result of revenue declines that outpaced the rate of investments in new businesses.

RD&E as a percentage of revenue for the six months ended June 30, 2022 of 4.7% increased by 0.3-percentage points as compared to the prior year period, as a result of revenue declines that outpaced the rate of investments in new businesses.

RD&E of $84 million increased $5 million as compared to second quarter 2021 primarily reflecting investments in our innovation portfolio and software, partially offset by lower spending for our print business and modest savings from restructuring and productivity.

RD&E for the six months ended June 30, 2022 of $162 million increased $9 million as compared to the prior year period, primarily reflecting investments in our innovation portfolio and software, partially offset by lower spending for our print business as well as savings from restructuring and productivity.

Selling, Administrative and General Expenses (SAG)

Second quarter 2022 SAG as a percentage of revenue of 26.3% increased by 2.1-percentage points as compared to second quarter 2021, primarily due to higher administrative expenses, as well as a modest increase in bad debt and the impact of lower revenues

Second quarter 2022 SAG of $459 million increased $25 million as compared to second quarter 2021, primarily reflecting stock compensation expense of $21 million associated with the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO, investments in new businesses, acquisitions, higher bad debt expense and benefits from temporary government assistance and furlough measures in the prior year.

These actions were partially offset by the favorable impact from currency as well as productivity and cost savings associated with our Project Own It transformation actions and lower sales and marketing expenses resulting from lower sales volumes.

SAG as a percentage of revenue for the six months ended June 30, 2022 of 26.8% increased by 1.6-percentage points as compared to the prior year period, due to higher administrative and bad debt expenses, as well as the impact of lower revenues, partially offset by lower selling expenses as a result of lower sales volumes and lower marketing costs.

SAG for the six months ended June 30, 2022 of $914 million increased by $32 million as compared to the prior year period, primarily reflecting stock compensation expense of $21 million associated with the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO, investments in new businesses, higher bad debt expense and acquisitions, as well as benefits from temporary government assistance and furlough measures in the prior year.

These actions were partially offset by lower sales and marketing expenses resulting from lower sales volumes as well as productivity and cost savings associated with our Project Own It transformation actions, as well as the favorable impact from currency.

Our bad debt provision for the six months ended June 30, 2022 of $22 million increased by $9 million as compared to the prior year period, primarily related to reserves for trade receivables in our Russian operations, as well as due to the prior year reserve release of $6 million.

Although write-offs incurred to date continue to lag expectations, we believe our current reserve position remains sufficient to cover expected future losses that may result from current

Third quarter 2022 RD&E as a percentage of revenue of 4.2% decreased by 0.5-percentage points as compared to third quarter 2021, primarily due to investment prioritization and rationalization as well as costs savings associated with Project Own It which outpaced a modest revenue decline.

RD&E as a percentage of revenue for the nine months ended September 30, 2022 of 4.5% was flat as compared to the prior year period, as a result of a consistent rate of investments year-over-year, which outpaced the rate of revenue declines.

Xerox 2022 Form 10-Q 54

and future macro-economic conditions including higher inflation and interest rates.

In addition, there continues to be uncertainty regarding the effects from the Russia/Ukraine war and its impact on the macro or global economy.

As a result of these uncertainties, our reserves as a percent of receivables have remained fairly consistent subsequent to the first quarter 2020 increase to initially record expected losses from the COVID-19 pandemic.

We continue to monitor developments in future economic conditions, and as a result, our reserves may need to be updated in future periods.

On a trailing twelve-month basis (TTM), bad debt expense was approximately 1.0% of total receivables (excluding the 2021 reserve reductions of approximately $31 million), which is consistent with the pre-pandemic trend and reflects the consistent level of reserves subsequent to the first quarter 2020 charge.

RD&E of $73 million decreased $9 million as compared to third quarter 2021 primarily reflecting lower spending in both our print business and our innovation portfolio as well as savings from restructuring and productivity associated with Project Own It.

The lower spending in innovation reflects the decision to scale back activities in PARC.

RD&E for the nine months ended September 30, 2022 of $235 million was flat as compared to the prior year period, primarily reflecting lower spending in our print business as well as savings from restructuring and productivity associated with Project Own It, offset by investments in our innovation portfolio and software.

Selling, Administrative and General Expenses (SAG)

Third quarter 2022 SAG as a percentage of revenue of 23.9% increased by 0.4-percentage points as compared to third quarter 2021, primarily due to higher bad debt and administrative expenses, as well as modestly lower revenues, partially offset by lower selling expenses as a result of the favorable impact from currency as well as productivity and cost savings associated with our Project Own It transformation actions.

Third quarter 2022 SAG of $418 million increased $5 million as compared to third quarter 2021, primarily reflecting higher bad debt expense, due to the prior year reserve release, as well as the impacts from acquisitions and higher real estate and occupancy costs, litigation costs and benefits from temporary government assistance in the prior year.

These adverse impacts were partially offset by the favorable impact from currency as well as productivity and cost savings associated with our Project Own It transformation actions.

SAG as a percentage of revenue for the nine months ended September 30, 2022 of 25.8% increased by 1.2-percentage points as compared to the prior year period, due to higher administrative and bad debt expenses, as well as the impact of lower revenues, partially offset by lower selling expenses as a result of the favorable impact from currency as well as productivity and cost savings associated with our Project Own It transformation actions.

SAG for the nine months ended September 30, 2022 of $1,332 million increased by $37 million as compared to the prior year period, primarily reflecting stock compensation expense of $21 million associated with the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO and higher bad debt expense due to the prior year reserve releases.

The increase was also due to acquisitions, investments in CareAR and FITTLE, higher litigation costs and real estate and occupancy costs, as well as benefits from temporary government assistance in the prior year.

These actions were partially offset by lower sales and marketing expenses resulting from lower sales volumes, and productivity and cost savings associated with our Project Own It transformation actions, as well as the favorable impact from currency.

Our bad debt provision for the three and nine months ended September 30, 2022 of $7 million and $29 million, respectively, increased by $11 million and $20 million, respectively, as compared to the prior year period, primarily related to prior year reserve releases totaling $14 million and $20 million, respectively.

On a trailing twelve-month basis (TTM), bad debt expense was approximately 1.0% of total receivables (excluding the fourth quarter 2021 reserve reduction of approximately $11 million), which is consistent with the pre-pandemic trend and reflects the consistent level of reserves subsequent to the first quarter 2020 charge.

Refer to Note 8 - Accounts Receivable, Net and Note 9 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our bad debt provision.

Xerox 2022 Form 10-Q 55

Restructuring and Related Costs, Net

We incurred Restructuring and related costs, net of $1 million for the second quarter 2022 , as compared to $12 million for second quarter 2021, and $19 million for the six months ended June 30, 2022, as compared to $29 million in the prior year period.

We incurred Restructuring and related costs, net of $22 million for the third quarter 2022 , as compared to $10 million for third quarter 2021, and $41 million for the nine months ended September 30, 2022, as compared to $39 million in the prior year period.

These costs were primarily related to the implementation of initiatives under our business transformation projects, including Project Own It.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 2022 2021

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_____________

(1) Reflects headcount reductions of approximately 600 and 50 employees worldwide in second quarter 2022 and 2021, respectively, and 1,050 and 400 employees worldwide for the six months ended June 30, 2022 and 2021, respectively.

(1) Reflects headcount reductions of approximately 550 and 35 employees worldwide in third quarter 2022 and 2021, respectively, and 1,600 and 435 employees worldwide for the nine months ended September 30, 2022 and 2021, respectively.

(2) Primarily related to the exit and abandonment of leased and owned facilities net of any potential sublease income and other recoveries.

(3) Primarily includes additional costs incurred upon the exit from our facilities including decommissioning costs and associated contractual termination costs.

(4) Reflects a net gain on the sale of land and a facility of $20 million in the second quarter of 2022 as well as net reversals for changes in estimated reserves from prior period initiatives.

(4) Reflects net gains on the sale of owned land and facilities of $2 million and $22 million for the three and nine months ended September 30, 2022, respectively, as well as net reversals for changes in estimated reserves from prior period initiatives.

(5) Includes retention-related severance and bonuses for employees expected to continue working beyond their minimum notification period before termination.

The reversals in first quarter 2022 and 2021, respectively, reflect a change in estimates.

(6) Amounts primarily reflect severance and other related costs we are contractually required to pay in connection with employees transferred as part of the shared service arrangement entered into with third party providers.

The reversals in 2022 reflect a change in estimates.

(6) Amounts primarily reflect severance and other related costs we are contractually required to pay in connection with employees transferred as part of shared service arrangements entered into with third party providers.

(7) Represents professional support services associated with our business transformation initiatives.

Second quarter 2022 actions impacted several functional areas, with approximately 40% focused on gross margin improvements, approximately 55% focused on SAG reductions and the remainder focused on RD&E optimization.

Second quarter 2021 actions impacted several functional areas, with approximately 30% focused on gross margin improvement and approximately 70% focused on SAG reductions.

The Restructuring and related costs, net reserve balance for all programs as of June 30, 2022 was $59 million, of which $57 million is expected to be paid over the next twelve months.

Third quarter 2022 actions impacted several functional areas, with approximately 75% focused on gross margin improvements, approximately 20% focused on SAG reductions and the remainder focused on RD&E optimization.

Third quarter 2021 actions impacted several functional areas, with approximately 35% focused on gross margin improvements, approximately 50% focused on SAG reductions and the remainder focused on RD&E optimization.

The Restructuring and related costs, net reserve balance for all programs as of September 30, 2022 was $51 million, of which $50 million is expected to be paid over the next twelve months.

Refer to Note 12 - Restructuring Programs in the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

Amortization of Intangible Assets

Amortization of intangible assets for the three and six months ended June 30, 2022 of $10 million and $21 million was $4 million and $8 million lower, respectively, as compared to the respective prior year periods, primarily related to the write-off of certain XBS tradenames in first quarter 2022 as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It.

Xerox 2022 Form 10-Q 51

Amortization of intangible assets for the three and nine months ended September 30, 2022 of $10 million and $31 million was $3 million and $11 million lower, respectively, as compared to the respective prior year periods, primarily related to the write-off of certain XBS trade names in first quarter 2022 as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It.

Worldwide Employment

Worldwide employment was approximately 22,700 as of June 30, 2022, a decrease of approximately 600 from December 31, 2021.

The decrease resulted from net attrition (attrition net of gross hires), as well as the impact of organizational changes.

Worldwide employment was approximately 21,200 as of September 30, 2022, a decrease of approximately 2,100 from December 31, 2021.

The decrease resulted from net attrition (attrition net of gross hires) and restructuring, as well as the impact of organizational changes including employee transfers associated with shared services arrangements.

Xerox 2022 Form 10-Q 56

Other Expenses, Net

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 2022 2021

2 unchanged sentences

Non-service retirement-related costs (7) (22) (18) (64)

Gains on sales of businesses and assets (16) (39) (17) (40)

Currency losses, net 1 3 2 6

Loss on early extinguishment of debt — — 4 —

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Non-Financing Interest Expense

Second quarter 2022 non-financing interest expense of $23 million was relatively flat as compared to the second quarter 2021.

When combined with financing interest expense (Cost of financing), total interest expense of $49 million, likewise, remained relatively flat as compared to second quarter 2021.

Non-financing interest expense for the six months ended June 30, 2022 of $52 million was $4 million higher than the prior year period.

When combined with financing interest expense (Cost of financing), total interest expense of $102 million decreased by $2 million from the prior year period reflecting a lower average interest rate and average debt balance.

Third quarter 2022 non-financing interest expense of $21 million was $2 million lower than third quarter 2021.

When combined with financing interest expense (Cost of financing), total interest expense of $49 million decreased by $3 million as compared to third quarter 2021, primarily reflecting a lower average debt balance, partially offset by slightly higher average interest rates.

Non-financing interest expense for the nine months ended September 30, 2022 of $73 million was $2 million higher than the prior year period.

When combined with financing interest expense (Cost of financing), total interest expense of $151 million decreased by $5 million from the prior year period reflecting a lower average debt balance, partially offset by higher average interest rates.

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt activity and interest expense.

Non-Service Retirement-Related Costs

Second quarter 2022 non-service retirement-related costs were $18 million higher as compared to the second quarter 2021, while non-service retirement-related costs for the six months ended June 30, 2022 were $31 million higher than the prior year period, primarily driven by an increase in interest costs due to higher discount rates and higher losses from pension settlements in the U.S.

Service retirement-related costs, which are included in operating expenses, were $6 million and $6 million for the three months ended June 30, 2022 and 2021, respectively, and $10 million and $12 million, for the six months ended June 30, 2022 and 2021, respectively.

Third quarter 2022 non-service retirement-related costs were $15 million higher than third quarter 2021, while non-service retirement-related costs for the nine months ended September 30, 2022 were $46 million higher than the prior year period.

The increase in both periods was primarily driven by an increase in interest costs due to higher discount rates.

Service retirement-related costs, which are included in operating expenses, were $4 million and $5 million for the three months ended September 30, 2022 and 2021, respectively, and $14 million and $17 million for the nine months ended September 30, 2022 and 2021, respectively.

Refer to Note 16 - Employee Benefit Plans in the Condensed Consolidated Financial Statements for additional information regarding service and non-service retirement-related costs.

Gains on Sales of Businesses and Assets

Gains on sales of businesses and assets were $23 million lower for both the three and nine months ended September 30, 2022, as compared to the respective prior year periods, primarily due to lower sales of non-core surplus business assets.

Loss on Early Extinguishment of Debt

In the second quarter 2022, we recorded a loss of $4 million related to the early redemption of $350 million of the $1 billion of Xerox Corporation 4.625% Senior Notes due March 2023.

In the second quarter 2022, we recorded a loss of $4 million related to the early redemption of $350 million of the $1 billion of Xerox Corporation's 4.625% Senior Notes due March 2023 ($650 million after redemption).

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements, for additional information regarding debt activity and interest expense.

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The charge primarily reflects the payment of the contractual cancellation fee plus interest and related legal fees.

Xerox 2022 Form 10-Q 57

Excess Contribution Refund

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The excess contributions accumulated over the past 20 plus years.

Xerox 2022 Form 10-Q 52

Second quarter 2022 effective tax rate was (20.0)% and includes tax expense associated with the non-deductible accelerated share vestings offset by additional tax incentives.

On an adjusted 1 basis, second quarter 2022 effective tax rate was 18.5%.

The adjusted 1 effective tax rate was lower than the U.S.

federal statutory tax rate of 21% primarily due to benefits from additional tax incentives offset by the geographical mix of earnings.

Second quarter 2021 effective tax rate was 9.1%.

On an adjusted 1 basis, second quarter 2021 effective tax rate was 9.7%.

Both rates include the benefit from a change in tax law, resulting in the remeasurement of deferred tax assets of approximately 16%.

Third quarter 2022 effective tax rate was (0.8)% and includes the tax impacts associated with the non-cash Goodwill impairment charge.

On an adjusted 1 basis, third quarter 2022 effective tax rate was 42.1%.

The adjusted 1 effective tax rate was higher than the U.S.

federal statutory tax rate of 21% primarily due to changes in elections made to certain tax positions for recently filed returns as well as the geographical mix of earnings, combined with lower adjusted pre-tax income.

Third quarter 2021 effective tax rate was (4.8)%.

On an adjusted 1 basis, third quarter 2021 effective tax rate was (3.5)%.

Both rates include the benefits from additional incentives as a result of changes in elections made with the filed tax returns, as well as a decrease in the deferred tax valuation allowances of approximately 26%.

The adjusted 1 effective tax rate was lower than the U.S.

federal statutory tax rate of 21% primarily due to the change in tax law, partially offset by state taxes and the geographical mix of earnings.

The effective tax rate for the six months ended June 30, 2022 was 31.9% and included benefits from additional tax incentives as well as a change in our indefinite reinvestment tax liability due to a recent acquisition offset by the non-deductible accelerated share vestings.

On an adjusted 1 basis, the effective tax rate for the six months ended June 30, 2022 was 185.7%.

federal statutory tax rate of 21% primarily due to additional incentives as a result of changes in elections made with the filed tax returns, decrease in deferred tax valuation allowances, and the geographical mix of earnings.

The effective tax rate for the nine months ended September 30, 2022 was 5.7% and included tax expense associated with the non-cash Goodwill impairment charge, changes in elections made to certain tax positions for recently filed returns, and the non-deductible accelerated share vestings, according to the terms of an award agreement, in connection with the passing of Xerox Holding's former CEO, offset by benefits from additional tax incentives, a change in our indefinite reinvestment tax liability due to a recent acquisition and the geographical mix of earnings.

On an adjusted 1 basis, the effective tax rate for the nine months ended September 30, 2022 was 22.0%.

The adjusted 1 effective tax rate was higher than the U.S.

federal statutory tax rate of 21% primarily due to benefits from additional tax incentives and a change in our indefinite reinvestment tax liability due to a recent acquisition as well as the geographical mix of earnings.

The effective tax rate for the six months ended June 30, 2021 was 15.1%.

On an adjusted 1 basis, the effective tax rate for the six months ended June 30, 2021 was 16.7%.

Both rates include the benefit from a change in tax law, resulting in the remeasurement of deferred tax assets of approximately 10%.

federal statutory tax rate of 21% primarily due to tax expense associated with changes in elections made to certain tax positions for recently filed returns, offset by benefits from additional tax incentives and a change in our indefinite reinvestment tax liability due to a recent acquisition.

The effective tax rate for the nine months ended September 30, 2021 was 8.1%.

On an adjusted 1 basis, the effective tax rate for the nine months ended September 30, 2021 was 9.9%.

Both rates include the benefits from tax law changes, additional incentives as a result of changes in elections made with the filed tax returns, as well as a decrease in the deferred tax valuation allowances of approximately 15%.

The adjusted 1 effective tax rate was lower than the U.S.

federal statutory tax rate of 21% primarily due to the change in the tax law, partially offset by state taxes and the geographical mix of earnings.

federal statutory tax rate of 21% primarily due to benefits from tax law changes, additional incentives as a result of changes in elections made with the filed tax returns, decrease in deferred tax valuation allowances and partially offset by state taxes and the geographical mix of earnings.

Our effective tax rate is based on nonrecurring events as well as recurring factors, including the taxation of foreign income.

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Investment in Affiliates, at Equity largely consists of several minor investments in entities in the Middle East region.

Equity in net income of unconsolidated affiliates for the six months ended June 30, 2022 was relatively flat as compared to the prior year period.

Equity in net income of unconsolidated affiliates for the nine months ended September 30, 2022 was relatively flat as compared to the prior year period.

Net (Loss) Income

Second quarter 2022 Net Loss Attributable to Xerox Holdings was $(4) million, or $(0.05) per diluted share.

Third quarter 2022 Net (Loss) Attributable to Xerox Holdings was $(383) million, or $(2.48) per diluted share, which included an after-tax non-cash Goodwill impairment charge of $395 million ($412 million pre-tax), or $2.54 per share.

On an adjusted 1 basis, Net Income Attributable to Xerox Holdings was $33 million, or $0.19 per diluted share.

Second quarter 2021 Net Income Attributable to Xerox Holdings was $91 million, or $0.46 per diluted share and included the benefit from a change in tax law.

Third quarter 2021 Net Income Attributable to Xerox Holdings was $90 million, or $0.48 per diluted share.

On an adjusted 1 basis, Net Income Attributable to Xerox Holdings was $90 million, or $0.48 per diluted share.

Net Loss Attributable to Xerox Holdings for the six months ended June 30, 2022 was $(60) million, or $(0.43) per diluted share.

Net (Loss) Attributable to Xerox Holdings for the nine months ended September 30, 2022 was $(443) million, or $(2.91) per diluted share, which included an after-tax non-cash Goodwill impairment charge of $395 million ($412 million pre-tax), or $2.54 per share.

On an adjusted 1 basis, Net Income Attributable to Xerox Holdings was $43 million, or $0.21 per diluted share.

Net Income Attributable to Xerox Holdings for the six months ended June 30, 2021 was $130 million, or $0.64 per diluted share and included the benefit from a change in tax law.

Xerox 2022 Form 10-Q 58

Net Income Attributable to Xerox Holdings for the nine months ended September 30, 2021 was $220 million, or $1.10 per diluted share, and included the benefit from a change in tax law.

On an adjusted 1 basis, Net Income Attributable to Xerox Holdings was $231 million, or $1.16 per diluted share.

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Other Comprehensive (Loss) Income

Second quarter 2022 Other Comprehensive Loss, Net Attributable to Xerox Holdings was $298 million and included the following:

Third quarter 2022 Other Comprehensive Loss, Net Attributable to Xerox Holdings was $217 million and included the following:

i) net translation adjustment losses of $277 million reflecting the weakening of our major foreign currencies against the U.S.

Dollar during the quarter;

ii) $14 million of net unrealized losses primarily due to the weakening of the Yen during the quarter and the associated impact on our Yen based forward exchange contracts hedging forecasted purchases;

and iii) $3 million of net gains from the changes in defined benefit plans primarily

Xerox 2022 Form 10-Q 53

due to the positive impact of currency as well as the amortization of actuarial losses and settlement losses, which were partially offset by a UK pension plan amendment and remeasurement.

This compares to Other Comprehensive Income, Net Attributable to Xerox Holdings of $70 million for the second quarter 2021, which reflected the following:

i) net translation adjustment gains of $54 million reflecting the strengthening of our major foreign currencies against the U.S.

ii) $54 million of net gains from the changes in defined benefit plans primarily due to the positive impact of currency as well as the amortization of actuarial losses and settlement losses;

and iii) $6 million of net unrealized gains.

This compares to Other Comprehensive Loss, Net Attributable to Xerox Holdings of $70 million for the third quarter 2021, which reflected the following:

i) net translation adjustment losses of $125 million reflecting the weakening of our major foreign currencies against the U.S.

Dollar during the quarter;

and ii) $16 million of net gains from the changes in defined benefit plans primarily due to remeasurement and net actuarial gains as a result of higher discount rates.

Other Comprehensive Loss, Net Attributable to Xerox Holdings for the six months ended June 30, 2022 was $342 million and included the following:

ii) $4 million of net unrealized gains;

and iii) $51 million of net gains from the changes in defined benefit plans primarily due to net actuarial gains as a result of better than expected investment returns and higher discount rates as well as the positive impact of currency.

Other Comprehensive Loss, Net Attributable to Xerox Holdings for the nine months ended September 30, 2022 was $559 million and included the following:

i) net translation adjustment losses of $636 million reflecting the weakening of our major foreign currencies against the U.S.

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and iii) $96 million of net gains from the changes in defined benefit plans primarily due to the positive impact of currency, a U.S.

retiree-health plan amendment and the amortization of actuarial losses and settlement losses, which were partially offset by a UK pension plan amendment and remeasurement.

This compares to Other Comprehensive Income, Net Attributable to Xerox Holdings for the six months ended June 30, 2021 of $67 million, which reflected the following:

i) $71 million of net gains from the changes in defined benefit plans primarily due to remeasurement in the second quarter of 2021 and net actuarial gains as a result of higher discount rates;

ii) net translation adjustment gains of $3 million reflecting the strengthening of the GBP and CAD that was only partially offset by the weakening of the EUR against the U.S.

and iii) $7 million of net unrealized losses.

Refer to Note 20 - Other Comprehensive (Loss) Income in the Condensed Consolidated Financial Statements, for the components of Other Comprehensive (Loss) Income, Note 14 - Financial Instruments in the Condensed Consolidated Financial Statements, for additional information regarding unrealized losses, net, and Note 16 - Employee Benefit Plans in the Condensed Consolidated Financial Statements, for additional information regarding net changes in our defined benefit plans.

retiree-health plan amendment and the amortization of actuarial losses and settlement losses, which were partially offset by a UK plan amendment and remeasurement.

This compares to Other Comprehensive Loss, Net Attributable to Xerox Holdings for the nine months ended September 30, 2021 of $3 million, which reflected the following:

i) net translation adjustment losses of $122 million reflecting the weakening of our major foreign currencies against the U.S.

ii) $3 million of net unrealized losses;

and iii) $122 million of net gains from the changes in defined benefit plans primarily due to remeasurement in the second quarter of 2021 and net actuarial gains as a result of higher discount rates, as well as the positive impact of currency.

Refer to Note 20 - Other Comprehensive (Loss) Income in the Condensed Consolidated Financial Statements for the components of Other Comprehensive (Loss) Income, Note 14 - Financial Instruments in the Condensed Consolidated Financial Statements for additional information regarding unrealized gains (losses), net, and Note 16 - Employee Benefit Plans in the Condensed Consolidated Financial Statements for additional information regarding net changes in our defined benefit plans.

Xerox 2022 Form 10-Q 59

Reportable Segments and Geographic Sales Channels

Our business is organized to ensure we focus on efficiently managing operations while serving our customers and the markets in which we operate.

During 2021 we progressed with the standing up of three new businesses:

During 2021, we progressed with the standing up three new businesses:

Software (CareAR), Financing (FITTLE) and Innovation (PARC).

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• EMEA , which includes our sales channels in Europe, the Middle East, Africa and India.

• Other , primarily includes sales to Fuji Xerox as well as royalties and licensing revenue.

• Other , which primarily includes sales to Fuji Xerox as well as royalties and licensing revenue.

These GTM sales channels are structured to serve a range of customers for our products and services, including financing.

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Segment Review

Three Months Ended June 30,

Three Months Ended September 30,

(in millions) External Net Revenue Intersegment Net Revenue (1)

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Total $ 1,758 $ 49 $ 1,807 100 % $ 74 4.2 %

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) External Net Revenue Intersegment Net Revenue (1)

Total Segment Revenue % of Total Revenue Segment (Loss) Profit Segment Margin (2)

Total Segment Revenue % of Total Revenue Segment Profit Segment Margin (2)

Print and Other $ 4,716 $ 108 $ 4,824 91 % $ 55 1.2 %

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_____________

(1) Reflects net revenue, primarily commissions and other payments, made by the Financing segment (FITTLE) to the Print and Other segment for the lease of Xerox equipment placements.

(1) Reflects net revenue, primarily commissions and other payments, made by the Financing (FITTLE) segment to the Print and Other segment for the lease of Xerox equipment placements.

(2) Segment margin based on external net revenue only.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 %

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(1) Reflects net revenue, primarily commissions and other payments, made by the Financing (FITTLE) segment to the Print and Other segment for the lease of Xerox equipment placements.

Second quarter 2022 Print and Other revenue decreased 2.3% as compared to second quarter 2021, primarily due to continued supply constraints, which contributed to the 14.5% decline in Equipment sales revenue as compared to second quarter 2021.

This decline was partially offset by an increase in Post sale revenue of 3.4% as compared to second quarter 2021, which was primarily due to the benefits from acquisitions as well as revenue from IT services, paper and supplies.

Print and Other revenue decreased 2.2% for the six months ended June 30, 2022 as compared to the prior year period, primarily due to continued supply constraints, which contributed to a 15.7% decline in Equipment sales

Third quarter 2022 Print and Other revenue increased 0.3% as compared to third quarter 2021, driven by both Equipment sales revenue and Post sale revenue growth as compared to third quarter 2021.

Print and Other revenue decreased 1.3% for the nine months ended September 30, 2022 as compared to the prior year period, primarily due to continued supply constraints, which contributed to a 10.4% decline in Equipment sales revenue for the nine months ended September 30, 2022 as compared to the prior year period.

This decline was partially offset by an increase in Post sale revenue of 2.7% for the nine months ended September 30, 2022 as compared to the prior year period, which was primarily due to the benefits from acquisitions as well as revenue from IT services, paper and supplies.

Xerox 2022 Form 10-Q 61

revenue for the six months ended June 30, 2022 as compared to the prior year period.

This decline was partially offset by an increase in Post sale revenue of 3.6% for the six months ended June 30, 2022 as compared to the prior year period, which was primarily due to the benefits from acquisitions as well as revenue from IT services, paper and supplies.

Print and Other segment revenue results included the following:

Equipment sales revenue decreased 14.5% during the second quarter 2022 as compared to second quarter 2021, and decreased 15.7% during the six months ended June 30, 2022 as compared to the prior year period.

The decrease in both periods was attributed to the adverse impact of product supply constraints and global freight disruptions.

Supply constraints continued to inhibit our ability to fulfill demand, resulting in the growth of our backlog 1 to $440 million, a 4.3% sequential increase and more than double the prior year period's levels.

Equipment sales revenue increased 0.8% during the third quarter 2022 as compared to third quarter 2021 due to resilient demand, modest improvement in supply chain conditions and favorable mix, while Equipment sales revenue decreased 10.4% during the nine months ended September 30, 2022 as compared to the prior year period driven by the impact of product supply constraints and global freight disruptions, especially in the first half of 2022.

The backlog 1 of orders slightly declined sequentially due to slightly better availability of product, but remained above both prior year and pre-pandemic levels driven by healthy demand.

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It includes printing devices as well as IT hardware associated with our IT services

Second quarter 2022 backlog of $440 million excludes sales orders from Russia and Powerland Computers Ltd., which was acquired in the first quarter of 2022.

Post sale revenue increased by 3.4% during the second quarter 2022 as compared to second quarter 2021, and increased 3.6% during the six months ended June 30, 2022 as compared to the prior year period.

The increase in both periods was attributed primarily to growth in supplies, paper and other revenue, which includes growth from our IT Services business and our recent acquisition of Powerland.

We also experienced growth in page volume-driven service revenues, reflecting modest growth in page volumes during the first half of 2022.

These increases were partially offset by a decline in royalty income and third-party leasing commissions.

Third quarter 2022 backlog of $429 million excludes sales orders from Russia and Powerland Computers Ltd., which was acquired in the first quarter of 2022.

Prior quarter backlog was revised to conform to current reporting methodology.

Post sale revenue increased by 0.9% during the third quarter 2022 as compared to third quarter 2021, and increased 2.7% during the nine months ended September 30, 2022 as compared to the prior year period.

The increase in both periods was attributed primarily to growth in supplies, paper and other revenue.

This includes growth from our IT Services business, including our recent acquisition of Powerland.

These increases were partially offset by the adverse impact from currency and lower contracted page volume minimums.

Post sales revenue for the nine months ended September 30, 2022 was also adversely impacted by lower royalty income and third-party leasing commissions as compared to the prior year period.

Detail by product group is shown below.

Three Months Ended

June 30, Six Months Ended

June 30, % of Equipment Sales

September 30, Nine Months Ended

September 30, % of Equipment Sales

(in millions) 2022 2021 %

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(1) Refer to the Products and Offerings Definitions section.

(2) Includes equipment sales related to the Financing (FITTLE) segment of $5 million and $7 million for the three months ended June 30, 2022 and 2021, respectively, and $10 million and $15 million for the six months ended June 30, 2022 and 2021, respectively.

(2) Includes equipment sales related to the Financing (FITTLE) segment of $6 million and $6 million for the three months ended September 30, 2022 and 2021, respectively, and $16 million and $21 million for the nine months ended September 30, 2022 and 2021, respectively.

The change at constant currency 1 reflected the following:

• Entry - The decrease for the three months ended June 30, 2022 as compared to second quarter 2021, was driven by supply constraints, which most significantly affected our black-and-white devices.

This was partially offset by growth in color devices and price increases.

The decrease for the six months ended June 30, 2022 as compared to the prior year period was driven by supply constraints, which most significantly affected our black-and-white devices.

This was partially offset by growth in color devices and price increases.

• Mid-range - The decrease for the three months ended June 30, 2022 as compared to second quarter 2021, was primarily driven by the impact of global product supply constraints and freight disruptions.

The decrease for the six months ended June 30, 2022 as compared to the prior year period was primarily driven by the impact of global product supply constraints and freight disruptions, which had a more pronounced effect on our U.S.

• High-end - The decrease for the three months ended June 30, 2022 as compared to second quarter 2021, primarily reflected the impact of global product supply constraints and freight disruptions, partially offset by a more favorable mix and increased product availability, particularly for our Iridesse and Baltoro products.

The decrease for the six months ended June 30, 2022 as compared to the prior year period primarily reflected the impact of global product supply constraints and freight disruptions, partially offset by a more favorable mix.

• Entry - The increase for both the three and nine months ended September 30, 2022 as compared to the respective prior year periods, was driven by growth in color devices and price increases, partially offset by supply constraints, which most significantly affected our black-and-white devices.

• Mid-range - The increase for the three months ended September 30, 2022 as compared to third quarter 2021, was primarily driven by a favorable mix toward color devices and increased product availability, partially offset by the impact of global product supply constraints and freight disruptions.

The decrease for the nine months ended September 30, 2022 as compared to the prior year period was primarily driven by the impact of global product supply constraints and freight disruptions, which had a more pronounced effect on our U.S.

• High-end - The increase for the three months ended September 30, 2022 as compared to third quarter 2021, was primarily driven by a favorable mix toward color devices and increased product availability, partially offset by the impact of global product supply constraints and freight disruptions.

The decrease for the nine months ended September 30, 2022 as compared to the prior year period primarily reflected the impact of global product supply constraints and freight disruptions, partially offset by a more favorable mix and higher installations of our Baltoro cut-sheet inkjet devices.

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Total Installs

Installs reflect only new placements of devices (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations).

Installs reflect only new placements of devices (i.e., this measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations).

Revenue associated with equipment installations may be reflected up-front in Equipment sales or over time either through rental income or as part of our services revenues (which are both reported within our Post sale revenues), depending on the terms and conditions of our agreements with customers.

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Detail by product group (see Products and Offerings Definitions ) is shown below.

Installs for the three months ended June 30, 2022:

Installs for the three months ended September 30, 2022 as compared to prior year period reflect the following:

• 28% increase in color multifunction devices reflecting higher demand and increased product availability.

• 34% decrease in black-and-white multifunction devices primarily due to higher prior year installs associated with work-from-home demand, resulting from the COVID-19 pandemic, as well as ongoing product constraints.

• 17% decrease in color installs primarily reflecting the impact of freight disruption and product supply constraints, offsetting strong demand.

• 22% decrease in black-and-white installs primarily in the Americas, reflecting the impact of freight disruption and product supply constraints.

• 13% increase in color installs primarily reflecting increased product availability, particularly for our Iridesse and Baltoro products.

• 29% decrease in high-end black-and-white systems reflecting the impact of global product constraints and freight disruptions.

Installs for the six months ended June 30, 2022:

• 31% increase in color multifunction devices reflecting higher demand, primarily in our EMEA region, and increased product availability.

• 28% decrease in black-and-white multifunction devices primarily due to higher prior year installs associated with work-from-home demand, resulting from the COVID-19 pandemic.

• 10% increase in color installs primarily reflecting higher demand and increased product availability, primarily in EMEA.

• 21% decrease in black-and-white installs primarily in EMEA, reflecting the impact of product supply constraints.

• 1% increase in color installs primarily reflecting increased product availability, as well as higher installs of our Versant systems.

• 10% decrease in black-and-white systems reflecting the impact of global product constraints and freight disruptions.

Installs for the nine months ended September 30, 2022 as compared to the prior year period reflect the following:

• 30% increase in color multifunction devices reflecting higher demand and increased product availability, primarily in our EMEA region.

• 34% decrease in black-and-white multifunction devices primarily due to higher prior year installs in our EMEA region associated with work-from-home demand, resulting from the COVID-19 pandemic, as well as ongoing product constraints.

• 13% decrease in color installs primarily reflecting the impact of freight disruption and product supply constraints, offsetting strong demand for recently launched products.

• 40% decrease in black-and-white installs, primarily in our Americas region, reflecting the impact of freight disruption and product supply constraints.

• 8% decrease in color installs primarily reflecting the impact of global product constraints and freight disruptions, more than offset higher installs due to increasing product availability.

• 6% decrease in color installs primarily reflecting the impact of freight disruption and product supply constraints, partially offset by higher installs in EMEA.

• 33% decrease in black-and-white installs, reflecting the impact of freight disruption and product supply constraints.

• 6% decrease in color installs primarily reflecting the impact of global product constraints and freight disruptions, partially offset by higher installations of our Baltoro cut-sheet inkjet devices.

• 18% decrease in black-and-white systems reflecting the impact of global product constraints and freight disruptions.

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Segment Margin

Print and Other segment margin of 1.1% for the three months ended June 30, 2022 decreased by 5.8-percentage points as compared to second quarter 2021, while the Print and Other segment margin of (0.1)% for the six months ended June 30, 2022 decreased 5.9-percentage points as compared to the prior year period.

The decrease in the segment margin for both periods is primarily due to the impact of higher freight and production costs associated with product supply constraints, investments in new businesses, benefits from temporary government assistance and furlough measures in the prior year, lower royalty revenues and third-party leasing commissions, partially offset by productivity and cost savings associated with Project Own It transformation actions.

Print and Other segment margin of 3.6% for the three months ended September 30, 2022 increased by 0.5-percentage points as compared to third quarter 2021.

The increase was primarily due to lower RD&E expense, a reduction in selling expense and productivity and cost savings associated with Project Own It transformation actions, all of which were partially offset by the impact of product supply constraints and benefits from temporary government assistance and furlough measures in the prior year.

Print and Other segment margin of 1.2% for the nine months ended September 30, 2022 decreased 3.7-percentage points as compared to the prior year period.

The decrease is primarily due to lower segment gross profit, which includes the impacts of higher freight and production costs associated with product supply constraints, as well as the benefits from temporary government assistance and furlough measures in the prior year, and lower royalty revenues and third-party leasing commissions, all of which were partially offset by a reduction in selling expense, and productivity and cost savings associated with Project Own It transformation actions.

Financing (FITTLE)

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 %

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(2) Reflects net revenue, primarily commissions and other payments, made by the Financing (FITTLE) segment to the Print and Other segment for the lease of Xerox equipment placements.

Second quarter 2022 Financing (FITTLE) segment revenue decreased 14.7% as compared to second quarter 2021, while for the six months ended June 30, 2022 segment revenue decreased 13.4% as compared to the prior year period.

Third quarter 2022 Financing (FITTLE) revenue decreased 12.3% as compared to third quarter 2021, while for the nine months ended September 30, 2022 revenue decreased 13.1% as compared to the prior year period.

Financing (FITTLE) segment revenues included the following:

Equipment Sales for the three months ended June 30, 2022 decreased 28.6% as compared to second quarter 2021, and decreased 33.3% for the six months ended June 30, 2022 as compared to the prior year period.

The decrease in both periods was attributed to reduced end of lease equipment inventory resulting in fewer opportunities.

Financing Income for the three months ended June 30, 2022 decreased by 7.1% as compared to second quarter 2021, and decreased 5.4% for the six months ended June 30, 2022 as compared to the prior year period.

Equipment Sales was flat for the three months ended September 30, 2022 as compared to third quarter 2021, and decreased 23.8% for the nine months ended September 30, 2022 as compared to the prior year period.

The decrease for the nine months ended September 30, 2022 was attributed to reduced end of lease equipment inventory resulting in fewer opportunities.

Financing Income decreased by 7.3% for the three months ended September 30, 2022 as compared to third quarter 2021, and decreased 6.0% for the nine months ended September 30, 2022 as compared to the prior year period.

The decrease in both periods was due to a lower finance receivables balance, as collections continue to outpace originations.

Originations have been impacted by the global product supply constraints and freight disruptions.

Other Post sale revenue for the three months ended June 30, 2022 decreased 18.0% as compared to second quarter 2021, and decreased 16.4% for the six months ended June 30, 2022 as compared to the prior year period.

Other Post sale revenue decreased 15.9% for the three months ended September 30, 2022 as compared to third quarter 2021, and decreased 16.3% for the nine months ended September 30, 2022 as compared to the prior year period.

The decrease in both periods is due to a decline in operating lease rental income, which is consistent with the overall decline of equipment installs.

Segment Margin

Financing (FITTLE) segment margin of 11.5% and 11.2% for the three and six months ended June 30, 2022 increased 2.9-percentage points and 1.8-percentage points as compared to the respective prior year periods.

The increase in segment profit for both periods was due to a reduction in commissions paid to equipment suppliers (primarily the Print and Other segment), partially offset by incremental costs associated with standing up the business.

We expect Financing (FITTLE)'s segment margin to normalize as Xerox lease volumes pick up, driving increases in intersegment commissions.

Financing (FITTLE) segment margin of 5.4% for the three months ended September 30, 2022 decreased 8.9-percentage points as compared to third quarter 2021 due to lower profit from operating leases and higher bad debt expense, including a reserve release of approximately $14 million in 2021, which were only partially offset by lower inter-segment commissions due to lower originations.

Financing (FITTLE) segment margin of 9.3% for the nine months ended September 30, 2022 decreased 1.7-percentage points as compared to the prior year period primarily due to higher bad debt expense, including reserve releases of approximately $20 million in 2021, and incremental costs associated with standing up the business, partially offset by a reduction in commissions paid to equipment suppliers (primarily the Print and Other segment).

Xerox 2022 Form 10-Q 64

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The following is a summary of our liquidity position:

• As of June 30, 2022 and December 31, 2021, total cash, cash equivalents and restricted cash were $1,227 million and $1,909 million, respectively, and apart from restricted cash of $76 million and $69 million, respectively, was readily accessible for use.

The decrease in total cash, cash equivalents and restricted cash of $682 million primarily reflects net payments on debt of $379 million, payments to shareholders of $201 million (repurchases of $113 million and dividends of $88 million) and acquisitions of $52 million.

• No amounts are due under our Senior Note borrowings for the remainder of 2022.

• In July 2022, Xerox Corporation entered into an agreement for a new $500 million revolving Credit Facility.

• As of September 30, 2022 and December 31, 2021, total cash, cash equivalents and restricted cash were $1,001 million and $1,909 million, respectively, and apart from restricted cash of $69 million in both periods, was readily accessible for use.

The decrease in total cash, cash equivalents and restricted cash of $908 million primarily reflects net payments on debt of $505 million, payments to shareholders of $244 million (dividends of $131 million and share repurchases of $113 million) and acquisitions of $93 million.

• In July 2022, Xerox Corporation entered into a credit agreement for a new $500 million revolving Credit Facility.

This new facility replaced our prior $1.5 billion Credit Facility.

Refer to Note 23 - Subsequent Events in the Condensed Consolidated Financial Statements for additional information related to this Credit Facility.

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information related to this Credit Facility.

• No amounts are due under our Senior Unsecured Note borrowings for the remainder of 2022.

However, our new $500 million revolving Credit Facility requires repayment in December 2022, of at least $350 million of the remaining $650 million aggregate principal amount of our 4.625% Senior Notes due in March 2023.

• As of September 30, 2022 total secured debt was $709 million or approximately 19% of the total principal amount of debt, an increase from $561 million or 13% from December 31, 2021.

The Company expects to continue to enter into finance receivables securitization transactions to refinance future unsecured debt maturities and to fund other debt repayments.

Cash Flow Analysis

The following summarizes our cash, cash equivalents and restricted cash:

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(in millions) 2022 2021

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Cash Flows from Operating Activities

Net cash used in operating activities was $19 million for the six months ended June 30, 2022.

Net cash used in operating activities was $27 million for the nine months ended September 30, 2022.

The $458 million decrease in operating cash from the prior year period was primarily due to the following:

• $235 million decrease in pre-tax income before depreciation and amortization, stock-based compensation, restructuring and related costs and non-service retirement-related costs.

• $146 million decrease primarily due to the prior year receipts of an upfront prepaid fixed royalty from FX of $100 million for their continued use of the Xerox brand trademark after the termination of our technology agreement with them and $46 million of royalty payments under the technology agreement.

• $99 million decrease from inventory primarily due to higher inventories in anticipation of higher second half revenues.

• $86 million decrease from accounts receivable primarily due to a lower sequential revenue decrease compared to the prior year as well as the timing of collections.

• $25 million decrease from higher net tax payments.

• $205 million increase from accounts payable primarily due to the timing of supplier and vendor payments and an associated increase in days payable as well as higher purchases.

• $275 million decrease in pre-tax income before depreciation and amortization, stock-based compensation, Goodwill impairment, restructuring and related costs and non-service retirement-related costs.

• $146 million decrease primarily due to the prior year receipts of an upfront prepaid fixed royalty from Fuji Xerox of $100 million for their continued use of the Xerox brand trademark after the termination of our technology agreement with them and $46 million of royalty payments under the technology agreement prior to its termination.

• $146 million decrease primarily due to higher inventory levels as a result of receipts weighted to the end of the quarter as well as the build-up in anticipation of increased fourth quarter sales activity.

• $43 million decrease due to a current year increase in finance receivable originations as compared to a run-off in the prior year.

• $124 million increase from accounts payable primarily due to the timing of supplier and vendor payments and the increase in days payable as well as higher purchases.

• $28 million increase due to the timing of payments associated with restructuring and related costs.

Cash Flows from Investing Activities

Net cash used in investing activities was $62 million for the six months ended June 30, 2022.

The $10 million change from the prior year period was primarily due to the following:

• $25 million increase primarily due to the sale of surplus buildings and land in the U.S.

• $15 million decrease from acquisitions.

• Other investing, net includes $7 million of noncontrolling investments as part of our corporate venture capital fund compared to $3 million in the prior year.

Net cash used in investing activities was $95 million for the nine months ended September 30, 2022.

The $41 million increase in the use of cash from the prior year period was primarily due to the following:

• $55 million increase from acquisitions.

• $23 million increase from the sale of non-core business assets of $15 million in 2022 compared to $38 million in the prior year.

Xerox 2022 Form 10-Q 66

• $32 million decrease from the sale of surplus buildings and land in 2022 of $25 million in the U.S.

and $7 million in Europe.

• $13 million decrease reflecting lower capital expenditures.

• Other investing, net includes $13 million of noncontrolling investments as part of our corporate venture capital fund compared to $3 million in the prior year period.

Cash Flows from Financing Activities

Net cash used in financing activities was $587 million for the six months ended June 30, 2022.

Net cash used in financing activities was $755 million for the nine months ended September 30, 2022.

The $38 million decrease in the use of cash from the prior year period was primarily due to the following:

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• $26 million decrease in common and preferred stock dividends due to a lower level of outstanding shares.

Xerox 2022 Form 10-Q 60

• $372 million increase from net debt activity.

2022 reflects proceeds of $753 million on secured financing arrangements offset by payments of $600 1 million, $300 million on maturing 2022 Senior Notes and $353 million for the early redemption of 2023 Senior Notes, which includes a premium payment of $3 million.

2021 reflects payments of $209 million on secured financing arrangements.

2021 reflects payments of $444 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement.

• Other financing, net includes receipts for noncontrolling investments of $6 million in 2022 as compared to $15 million in the prior year period.

_____________

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Our leases have remaining terms of up to ten years and a variety of renewal and/or termination options.

As of June 30, 2022 and December 31, 2021, total operating lease liabilities were $250 million and $283 million, respectively.

As of September 30, 2022 and December 31, 2021, total operating lease liabilities were $231 million and $283 million, respectively.

Refer to Note 11 - Lessee in the Condensed Consolidated Financial Statements for additional information regarding our leases accounted for under lessee accounting.

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The following summarizes our debt:

(in millions) June 30, 2022 December 31, 2021

(in millions) September 30, 2022 December 31, 2021

Xerox Holdings Corporation $ 1,500 $ 1,500

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Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt.

Xerox 2022 Form 10-Q 67

Finance Assets and Related Debt

The following represents our total finance assets, net associated with our lease and finance operations:

(in millions) June 30, 2022 December 31, 2021

(in millions) September 30, 2022 December 31, 2021

Total finance receivables, net (1)

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(2) The change from December 31, 2021 includes a decrease of $175 million due to currency.

Xerox 2022 Form 10-Q 61

Our lease contracts permit customers to pay for equipment over time rather than at the date of installation;

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Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt:

(in millions) June 30, 2022 December 31, 2021

(in millions) September 30, 2022 December 31, 2021

Finance receivables debt (1)

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Activity related to sales of accounts receivable is as follows:

Six Months Ended

Nine Months Ended

September 30,

(in millions) 2022 2021

Estimated decrease to net operating cash flows (1)

$ (10) $ (26)

Estimated increase (decrease) to net operating cash flows (1)

_____________

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Refer to Note 8 - Accounts Receivable, Net in the Condensed Consolidated Financial Statements for additional information regarding our accounts receivable sales arrangements.

Xerox 2022 Form 10-Q 68

Liquidity and Financial Flexibility

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(in millions) Xerox Holdings Corporation Xerox Corporation Xerox - Other Subsidiaries (1)

2022 Q3 $ — $ — $ 116 $ 116

2022 Q4 — — 109 109

$ — $ — $ 116 $ 116

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2024 — 300 195 495

2025 750 — 4 754

2027 and thereafter 750 600 — 1,350

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(1) Represents secured debt issued by subsidiaries of Xerox Corporation as part of securitization of Finance Receivables.

(2) The Company’s $500 million Credit Facility requires repayment of $350 million of the $650 million 2023 Senior Notes in December 2022.

(3) Includes fair value adjustments.

Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt.

Xerox 2022 Form 10-Q 62

Treasury Stock

Xerox Holdings Corporation made no repurchases of its Common Stock in second quarter 2022.

Xerox Holdings Corporation repurchased 5.2 million shares of our Common Stock for an aggregate cost of $113 million, including fees, during the six months ended June 30, 2022.

Xerox Holdings Corporation made no repurchases of its Common Stock in third quarter 2022.

Xerox Holdings Corporation repurchased 5.2 million shares of our Common Stock for an aggregate cost of $113 million, including fees, during the nine months ended September 30, 2022.

The cumulative total of shares repurchased by Xerox Holdings Corporation under the current share repurchase program is 24.6 million shares for an aggregate cost of approximately $500 million, including fees.

As of June 30, 2022, there was no repurchase authority remaining.

As of September 30, 2022, there was no repurchase authority remaining.

Xerox 2022 Form 10-Q 69

Financial Risk Management

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We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results.

Management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions.

These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods.

Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.

Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects.

Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below as well as in the second quarter 2022 presentation slides available at www.xerox.com/investor.

These non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below, as well as in the third quarter 2022 presentation slides available at www.xerox.com/investor.

Adjusted Earnings Measures

• Net (Loss) Income and EPS

• Effective Tax Rate

• Adjusted Net (Loss) Income and Adjusted EPS

• Adjusted Effective Tax Rate

The above measures were adjusted for the following items:

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Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans.

Other discrete, unusual or infrequent items:

We excluded these items, when applicable, given their discrete, unusual or infrequent nature and its impact on our results for the period.

Xerox 2022 Form 10-Q 71

Discrete, unusual or infrequent items:

We exclude these items, when applicable, given their discrete, unusual or infrequent nature and their impact on our results for the period.

• Non-cash Goodwill impairment charge

• Contract termination costs - product supply

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• Loss on extinguishment of debt

We believe the exclusion of these items allows investors to better understand and analyze the results for the period as compared to prior periods and expected future trends in our business.

Xerox 2022 Form 10-Q 64

Adjusted Operating (Loss) Income and Margin

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Refer to "Currency Impact" for a discussion of this measure and its use in our analysis of revenue growth.

Management believes that all of these non-GAAP financial measures provide an additional means of analyzing the current period’s results against the corresponding prior period’s results.

However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions.

These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods.

Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.

Reconciliations of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth on the following tables:

Net (Loss) Income and EPS reconciliation:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

(in millions, except per share amounts) Net (Loss) Income EPS Net Income EPS Net (Loss) Income EPS Net Income EPS

(in millions, except per share amounts) Net (Loss) Income Diluted EPS Net Income Diluted EPS Net (Loss) Income Diluted EPS Net Income Diluted EPS

$ (383) $ (2.48) $ 90 $ 0.48 $ (443) $ (2.91) $ 220 $ 1.10

Goodwill impairment 412 — 412 —

Restructuring and related costs, net 22 10 41 39

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157 182 157 190

Fully diluted shares at June 30, 2022 (4)

Fully diluted shares at September 30, 2022 (4)

____________________________

(1) Net (Loss) Income and EPS attributable to Xerox Holdings.

Net loss and EPS for the three and nine months ended September 30, 2022 include an after-tax non-cash Goodwill impairment charge of $395 million or $2.54 per share.

(2) Refer to Effective Tax Rate reconciliation.

(3) For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with Xerox Holdings Corporation's Series A convertible preferred stock.

(4) Represents common shares outstanding at June 30, 2022 and excludes potential dilutive common shares used for the calculation of adjusted diluted earnings per share for the second quarter 2022 as well as shares associated with Xerox Holdings Corporation's Series A convertible preferred stock, all of which were anti-dilutive for the second quarter 2022.

(4) Represents common shares outstanding at September 30, 2022 and potential dilutive common shares used for the calculation of adjusted diluted earnings per share for the third quarter 2022.

Excludes shares associated with Xerox Holdings Corporation's Series A convertible preferred stock, all of which were anti-dilutive for the third quarter 2022.

Xerox 2022 Form 10-Q 72

Effective Tax Rate reconciliation:

Three Months Ended June 30,

Three Months Ended September 30,

(in millions) Pre-Tax (Loss) Income Income Tax Expense Effective

Tax Rate Pre-Tax Income Income Tax Expense Effective

Tax Rate Pre-Tax Income Income Tax (Benefit) Effective

$ (380) $ 3 (0.8) % $ 84 $ (4) (4.8) %

Goodwill impairment 412 17 — —

Non-GAAP Adjustments (2)

$ 57 $ 24 42.1 % $ 85 $ (3) (3.5) %

Six Months Ended June 30,

(in millions) Pre-Tax (Loss) Income Tax (Benefit) Expense Effective

Nine Months Ended September 30,

(in millions) Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective

Tax Rate Pre-Tax Income Income Tax Expense Effective

$ (474) $ (27) 5.7 % $ 236 $ 19 8.1 %

Goodwill impairment 412 17 — —

Non-GAAP Adjustments (2)

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(2) Refer to Net (Loss) Income and EPS reconciliation for details.

(3) The tax impact on Adjusted Pre-tax (loss) income is calculated under the same accounting principles applied to the Reported Pre-tax (loss) income under ASC 740, which employs an annual effective tax rate method to the results.

(3) The tax impact on Adjusted Pre-tax income is calculated under the same accounting principles applied to the Reported Pre-tax (loss) income under ASC 740, which employs an annual effective tax rate method to the results.

Operating (Loss) Income and Margin reconciliation:

Three Months Ended June 30,

Three Months Ended September 30,

(in millions) (Loss) Profit Revenue Margin Profit Revenue Margin

$ (380) $ 1,751 (21.7) % $ 84 $ 1,758 4.8 %

Goodwill impairment 412 —

Restructuring and related costs, net 22 10

Amortization of intangible assets 10 13

Accelerated share vesting 21 —

Other expenses, net 1 (33)

Adjusted $ 65 $ 1,751 3.7 % $ 74 $ 1,758 4.2 %

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) (Loss) Profit Revenue Margin Profit Revenue Margin

$ (474) $ 5,166 (9.2) % $ 236 $ 5,261 4.5 %

Goodwill impairment 412 —

Restructuring and related costs, net 41 39

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis