What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-01 compared with 2022-11-02 · 303 added, 570 removed, 339 unchanged (72% of the section changed)

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

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.

Throughout the Management’s Discussion and Analysis (MD&A) that follows, 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.

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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 $21 million at September 30, 2022.

In January of 2023, all Xerox Ventures LLC investments were transferred and are held by Xerox Ventures Fund I, LLC, a subsidiary of Xerox Ventures LLC.

Xerox Ventures Fund I, LLC had investments of approximately $24 million at March 31, 2023.

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.

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

installed, including orders with future installation dates.

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

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.

Balanced execution drove growth in revenue and profits for the first quarter.

Amid a challenging operating environment, Xerox remains focused on the execution of our 2023 priorities and the goal of delivering client success through products and services that address the productivity challenges of today’s hybrid workplace.

Demand for our print equipment and related services remains resilient despite continued economic uncertainty, as evidenced by another quarter of growth in both equipment revenue and constant currency 1 Post sale revenue, which included a benefit from prior year acquisitions.

Consistent with recent quarters, we are seeing isolated pockets of softer installation activity - often the result of delays in project deployments rather than order reductions.

This softness, however, is being offset by continued strength in our office print business, particularly for state and local government, education and mid-market accounts, as well as strength in our print and digital service offerings.

As a result, we continue to expect a stable revenue and demand outlook for the full year.

Equipment sales revenue of $391 million in first quarter 2023 increased 24.5% in actual currency and 27.0% in constant currency 1 as compared to the prior year.

Growth was driven by better availability of product in both the Americas and EMEA, particularly for our higher margin A3 devices and production equipment.

Backlog 2 declined for the third consecutive quarter as supply chain conditions further normalized.

Post-sale revenue declined 2.2% in actual currency and increased 0.5% in constant currency 1 .

Post-sale growth in constant currency 1 was driven by growth in consumables and contractual print and digital services 3 , including the acquisition of Go Inspire, partially offset by lower sales of IT Hardware.

Pre-tax income and adjusted 1 operating income were both higher year-over-year, primarily due to increased revenues as well the benefits from continued cost reduction actions, supply chain-related cost improvements, price increases and lower bad debt expense due to reserve releases.

We expect to deliver low-to-mid single digit gross operating cost efficiencies for the year, driven by continuous productivity improvement and specific cost reductions.

Xerox 2023 Form 10-Q 39

Russia-Ukraine Conflict

With respect to the war in Ukraine, in the first quarter 2022, we halted shipments to Russia and Belorussia when sanctions were imposed and the resulting financial impact has thus far been minimal.

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

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

During the first quarter of 2022, the Company made a change to its reportable segments from one reportable segment to two reportable segments - Print and Other, and Financing (FITTLE) - to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies.

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

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

Donation of Palo Alto Research Center (PARC)

On April 29, 2023, Xerox completed the donation of its Palo Alto Research Center (PARC) subsidiary to SRI International (SRI), a nonprofit research institute.

Refer to Note 21 - Subsequent Event in the Condensed Consolidated Financial Statements for additional information regarding this donation.

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(1) Refer to 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 installed, including orders with future installation dates.

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

First quarter 2023 backlog of $179 million excludes sales orders from Russia and Powerland Computers Ltd.

(3) Includes revenue from Services, maintenance and rentals.

First Quarter 2023 Review

Total revenue of $1.72 billion for first quarter 2023 increased 2.8% from first quarter 2022, which included a 2.2-percentage point benefit from acquisitions, offset by a 2.7-percentage point adverse impact from currency.

Total revenue reflected a decrease of 2.2% in Post sale revenue, which included a 2.7-percentage point adverse impact from currency, offset by a 2.8-percentage point benefit from acquisitions.

Equipment sales revenue increased 24.5%, which included a 2.5-percentage point adverse impact from currency.

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

Three Months Ended March 31,

(in millions) 2023 2022 B/(W)

Net Income (Loss) Attributable to Xerox Holdings $ 71 $ (56) $ 127

Adjusted (1) Net income (loss) attributable to Xerox Holdings

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

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

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

First quarter 2023 Net income attributable to Xerox Holdings of $71 million was an increase of $127 million as compared to first quarter 2022 Net loss attributable to Xerox Holdings of $56 million.

The increase primarily reflects higher revenues and gross margin, as well as the impact of lower supply chain-related costs, a lower rate of investments in new businesses, lower bad debt provisions, primarily due to reserve releases, lower Restructuring and related costs, net, and lower Other expenses, net, all of which were partially offset by higher Income tax expense.

First quarter 2023 Adjusted 1 Net income attributable to Xerox Holdings of $82 million increased $96 million as compared to the prior year period, primarily due to higher revenues and gross margin, as well as the impact of lower supply chain-related costs, a lower rate of investments in new businesses, and lower bad debt provisions, primarily due to reserve releases, all of which were partially offset by higher Income tax expense.

A summary of our segments - Print and Other and Financing (FITTLE) - is as follows:

Three Months Ended March 31, % of Total

(in millions) 2023 2022 % Change 2023 2022

Print and Other $ 1,613 $ 1,550 4.1 % 94 % 93 %

Financing (FITTLE) 150 171 (12.3) % 459 528 (13.1) % 9 % 10 %

FITTLE 154 158 (2.5) % 9 % 9 %

Intersegment Elimination (1)

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Total Revenue $ 1,715 $ 1,668 2.8 % 100 % 100 %

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

Financing (FITTLE)

Print and Other $ 106 $ (20) nm 90 % nm

12 17 (29.4) % 10 % nm

Total Profit $ 118 $ (3) nm 100 % nm

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Total Profit $ 65 $ 74 (12.2) % $ 97 $ 289 (66.4) % 100 % 100 %

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

nm - Change is not meaningful.

Xerox 2023 Form 10-Q 40

Cash flows from operating activities during the three months ended March 31, 2023 was a source of $78 million and increased $12 million as compared to the prior year period, primarily related to higher net income as well as proceeds from the on-going sales of finance receivables under the Receivable Funding Agreement, partially offset by higher finance receivable originations, and an increased use of cash for working capital 1 .

Cash used in investing activities during the three months ended March 31, 2023 was $17 million reflecting capital expenditures of $8 million, acquisitions of $7 million and $3 million of noncontrolling investments as part of our corporate venture capital fund.

Cash used in financing activities during the three months ended March 31, 2023 was $505 million reflecting $300 million for Senior Notes that matured in 2023, payments of $152 million on existing secured financing arrangements and dividend payments of $45 million.

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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.

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.

(1) Working capital, net reflects Accounts receivable, Billed portion of finance receivables, Inventories and Accounts payable.

We continue to expect total Revenue to be flat to down low-single-digits in constant currency 1 in 2023.

We also continue to expect pre-tax and adjusted 1 operating income and margin to increase over 2022 levels, with a slightly higher increase expected for adjusted 1 operating margin reflecting better than expected profitability in the first quarter of 2023 and the success of ongoing efficiency programs.

Lastly, we continue to expect Operating cash flows to be at least $550 million, which reflects the benefits of FITTLE's finance receivables funding agreement, and capital expenditures to be approximately $50 million.

Our capital allocation policy of returning at least 50% of free cash flow 2 to shareholders remains unchanged.

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

(2) Working capital, net reflects Accounts receivable, net, Inventories and Accounts payable.

Xerox 2022 Form 10-Q 47

Critical Accounting Policies and Estimates - Update

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).

As a result of the new operating and reportable segments, we also reassessed our reporting units for the evaluation of Goodwill.

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 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.

This determination was largely based on the fact that at this stage in the stand-up of the Financing (FITTLE) business, its separate valuation is constrained and limited because the operation is significantly integrated with the Print and Other segment and is primarily an extension or enabler to facilitate the sale of the Company’s products.

The change in reporting units was also considered a triggering event indicating a test for Goodwill impairment was required as of January 1, 2022 before and after the change in reporting units.

The Company performed those impairment tests, which did not result in the identification of an impairment loss as of January 1, 2022.

We perform an assessment of Goodwill, utilizing either a qualitative or quantitative impairment test.

As a result of our impairment charge in the fourth quarter 2021, we elected to bypass the qualitative impairment test and proceed to the quantitative test for the assessment of the recoverability of our Goodwill balance effective January 1, 2022 before and after the change in segments.

In estimating the fair value of our single reporting unit before the change in segments, our analysis reflected a 75/25 allocation between the income and market approach and the application of a discount rate applied to our projected cash flows of approximately 7.50%.

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

The applied discount rate was 25 basis points lower than the rate applied in the fourth quarter 2021 assessment largely due to changes in market inputs with respect to the Cost of Equity as well as a slightly higher Cost of Debt weighting, which carries a lower cost.

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, 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.

As with the assessment before the segment change, we continue to 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.

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%.

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.

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.

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

(2) Free cash flow is Net cash provided by operating activities less capital expenditures.

Xerox 2023 Form 10-Q 41

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Three Months Ended

September 30, Nine Months Ended

September 30, % of Total Revenue

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

March 31, % of Total Revenue

(in millions) 2023 2022 % Change CC % Change 2023 2022

Equipment sales $ 391 $ 314 24.5 % 27.0 % 23 % 19 %

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Total Revenue $ 1,715 $ 1,668 2.8 % 5.5 % 100 % 100 %

Reconciliation to Condensed Consolidated Statements of (Loss) Income:

Reconciliation to Condensed Consolidated Statements of Income (Loss):

Sales $ 659 $ 592 11.3 % 13.1 %

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Print and Other $ 1,613 $ 1,550 4.1 % 94 % 93 %

Financing (FITTLE) 150 171 (12.3) % 459 528 (13.1) % 9 % 10 %

FITTLE 154 158 (2.5) % 9 % 9 %

Intersegment elimination (1)

2 unchanged sentences

$ 1,715 $ 1,668 2.8 % 100 % 100 %

Go-To-Market Operations

Americas $ 1,114 $ 1,071 4.0 % 4.6 % 65 % 64 %

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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 (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

Xerox 2022 Form 10-Q 50

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:

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

(2) Refer to Note 4 - Segment Reporting in the Condensed Consolidated Financial Statements for additional information regarding our reportable segments.

(3) Refer to the "Geographic Sales Channels" section.

First quarter 2023 total revenue increased 2.8% as compared to first quarter 2022, which included a 2.2-percentage point benefit from acquisitions, as well as a 2.7-percentage point adverse impact from currency.

The increase in constant currency 1 revenue reflected growth in equipment sales revenue, primarily due to stable order flows, improved product supply and pricing actions taken in 2022.

Post sale revenue also increased at constant currency 1 , primarily reflecting growth in outsourcing revenues and consumables, as well as the benefits from acquisitions.

Geographically, revenue increased 4.0% in our Americas region as compared to first quarter 2022, primarily reflecting higher equipment sales resulting from increased product availability, and the benefits from recent acquisitions, partially offset by a 0.6-percentage point adverse impact from currency.

Revenue in our EMEA operations increased 0.4%, as compared to first quarter 2022 and included a 6.9-percentage point adverse impact from currency.

On a constant currency 1 basis, revenue increased 7.3% driven by strength in equipment sales revenue and the benefits from recent acquisitions.

Total revenue for the three months ended March 31, 2023 reflected the following:

Post sale revenue

Post sale revenue primarily reflects contracted services, equipment maintenance, supplies and financing.

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.

These revenues are associated not only with the population of devices in the field, which is 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.

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.

Xerox 2023 Form 10-Q 42

Post sale revenue decreased 2.2% for the three months ended March 31, 2023 as compared to the prior year period and included a 2.7-percentage point adverse impact from currency, offset by a 2.8-percentage point benefit from acquisitions.

Post sale revenue reflected the following:

• 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.

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

These revenues decreased 1.9% as compared to first quarter 2022, including a 3.3-percentage point adverse impact from currency.

In constant currency 1 , revenue growth was primarily driven by contractual print and digital services, including the acquisition of Go Inspire.

Contractual print and digital services 2 revenue grew as compared to first quarter 2022, due in large part to the expansion of our digital services offerings and price increases, which were partially offset by overall page volume declines associated with lower device placements in prior years.

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

◦ 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 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

These revenues decreased 3.6% as compared to first quarter 2022, including a 1.0-percentage point adverse impact from currency, and primarily reflected lower IT hardware sales, partially offset by higher paper sales.

• Financing revenue is generated from financed Xerox equipment sale transactions and third-party equipment placements.

These revenues decreased 1.9% as compared to first quarter 2022, including a 2.2-percentage point adverse impact from currency.

The essentially flat financing revenue at constant currency 1 reflects a steady average finance receivable portfolio as increased new originations for Xerox and third-party equipment were offset by ongoing sales under FITTLE's finance receivables funding agreement entered into in the fourth quarter 2022.

Equipment sales revenue

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).

Equipment sales revenue increased 24.5% as compared to the first quarter 2022, including a 2.5-percentage point adverse impact from currency.

The increase in both actual and constant currency 1 reflected improvement in product availability in both the Americas and EMEA regions, particularly for our higher margin mid-range devices and high-end entry production equipment.

Backlog 3 declined 27.1% on a sequential basis and 58.8% on a year-over-year basis but remained above pre-pandemic levels.

Approximately 50% of the backlog is related to mid-range devices.

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

____________________________

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

(2) Includes revenues from Services, maintenance and rentals.

(3) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates.

It includes printing devices as well as IT hardware associated with our IT service offerings.

First quarter 2023 backlog of $179 million excludes sales orders from Russia and Powerland Computers, Ltd.

Geographic Sales Channels

We also operate a matrix organization that includes a geographic focus that is primarily organized from a sales perspective on the basis of “go-to-market” (GTM) sales channels as follows:

• Americas , which includes our sales channels in the U.S.

and Canada, as well as Mexico, Brazil and Central and South America.

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

• Other , which includes royalties and licensing revenue.

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

Accordingly, we will continue to provide information, primarily revenue related, with respect to our principal GTM sales channels.

Xerox 2023 Form 10-Q 43

2 unchanged sentences

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

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

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

Three Months Ended March 31,

(in millions) 2023 2022 B/(W)

Gross Profit $ 589 $ 530 $ 59

2 unchanged sentences

Equipment Gross Margin 36.5 % 20.4 % 16.1 pts.

21.7 % 24.9 % (3.2) pts.

Post sale Gross Margin 33.7 % 34.4 % (0.7) pts.

34.5 % 37.5 % (3.0) pts.

Total Gross Margin 34.3 % 31.8 % 2.5 pts.

31.8 % 34.6 % (2.8) pts.

RD&E as a % of Revenue 3.7 % 4.7 % 1.0 pts.

4.5 % 4.5 % — pts.

SAG as a % of Revenue 23.7 % 27.3 % 3.6 pts.

25.8 % 24.6 % (1.2) pts.

Pre-tax (Loss) Income $ (380) $ 84 $ (464) $ (474) $ 236 $ (710)

Pre-tax (Loss) Income Margin (21.7) % 4.8 % (26.5) pts.

(9.2) % 4.5 % (13.7) pts.

Adjusted (1) Operating Profit

Pre-tax Income (Loss) $ 85 $ (89) $ 174

Pre-tax Income (Loss) Margin 5.0 % (5.3) % 10.3 pts.

Adjusted (1) Operating Profit (Loss)

$ 118 $ (3) $ 121

Adjusted (1) Operating Income Margin

3.7 % 4.2 % (0.5) pts.

Adjusted (1) Operating Income (Loss) Margin

6.9 % (0.2) % 7.1 pts.

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

Pre-tax (Loss) Income Margin

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.

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

Pre-tax Income (Loss) Margin

First quarter 2023 pre-tax income margin of 5.0% increased 10.3-percentage points as compared to first quarter 2022 pre-tax (loss) margin of (5.3)%.

The increase primarily reflected higher adjusted 1 operating margin (see below) and revenues, as well as lower Restructuring and related cost, net and Other expenses, net.

Adjusted 1 Operating Margin

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.

First quarter 2023 adjusted 1 operating income margin of 6.9% increased by 7.1-percentage points as compared to first quarter 2022 primarily reflecting higher revenue and gross margin, which includes the impact of lower supply chain-related costs, a lower rate of investments in new businesses and lower bad debt provisions due primarily to reserve releases (a 1.4-percentage point favorable impact).

Adjusted 1 operating margin also benefited from pricing actions and cost and productivity savings.

______________

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

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

First quarter 2023 gross margin of 34.3% increased by 2.5-percentage points as compared to first quarter 2022, reflecting higher revenue, lower supply chain-related costs, benefits associated with pricing actions and cost and productivity savings as well as a favorable product mix, and currency.

These impacts were partially offset by higher product costs.

First quarter 2023 equipment gross margin of 36.5% increased by 16.1-percentage points as compared to first quarter 2022, primarily reflecting higher revenue, a favorable product and channel mix, lower supply chain-related costs, pricing benefits and favorable currency.

These impacts were partially offset by higher product costs.

First quarter 2023 Post sale gross margin of 33.7% decreased by 0.7-percentage points as compared to first quarter 2022, reflecting lower revenue, higher component costs, a competitive pricing environment and the impacts from recent acquisitions and IT hardware/services revenue that have a lower gross margin.

Financing margin also declined due to higher borrowing costs.

These impacts were partially offset by lower supply chain-related costs and benefits associated with pricing actions and cost and productivity savings.

Xerox 2023 Form 10-Q 44

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.

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 pricing environment.

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 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

September 30, Nine Months Ended

September 30,

(in millions) 2022 2021 Change 2022 2021 Change

(in millions) 2023 2022 Change

R&D $ 52 $ 64 $ (12)

1 unchanged sentence

Total RD&E Expenses $ 64 $ 78 $ (14)

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

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.

First quarter 2023 RD&E as a percentage of revenue of 3.7% decreased by 1.0-percentage point as compared to first quarter 2022, primarily due to a lower rate of investments in new businesses, including the spin-off of Innovation businesses within PARC Innovation, and higher revenues.

RD&E of $64 million decreased $14 million as compared to first quarter 2022 primarily reflecting lower spending in our innovation portfolio as well as modest savings from restructuring and productivity.

The lower spending in innovation reflects the decision made to focus more on projects within Print, Digital and IT Services and the spinout or shutdown of certain other PARC-related activities.

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.

First quarter 2023 SAG as a percentage of revenue of 23.7% decreased by 3.6-percentage points as compared to first quarter 2022, primarily due to lower selling and administrative expenses and higher revenues, as well as a 1.4 percentage-point favorable impact from lower bad debt expense.

First quarter 2023 SAG of $407 million decreased by $48 million as compared to first quarter 2022, reflecting lower selling and administrative expenses, which benefited from productivity and cost savings as well as lower labor costs associated with a higher-than-expected number of open positions.

Additionally, SAG benefited from a favorable impact of currency, and lower bad debt expense primarily due to reserve releases.

Our bad debt provision for three months ended March 31, 2023 was an $8 million credit, a decrease of $23 million as compared to first quarter 2022, primarily related to a reserve release of approximately $12 million due to the favorable reassessment of the credit exposure on a large customer receivable balance after a contract amendment which improved our credit position, and a reserve release of approximately $5 million related to the sale of finance receivables on a non-recourse basis as part of the on-going FITTLE finance receivables funding agreement.

The remainder of the decrease is related to the prior year, which includes an increase in reserves related to Russia, as well an assessment of lower expected write-offs in our finance receivables portfolio, particularly in the Americas region, due to an overall improvement in credit exposures during the quarter.

We believe our current reserve position remains sufficient to cover expected future losses that may result from current and future macro-economic conditions including higher inflation and interest rates.

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 reserve releases in the first quarter 2023).

Refer to Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our bad debt provision.

1 unchanged sentence

Restructuring and Related Costs, Net

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.

We incurred Restructuring and related costs, net of $2 million for the first quarter 2023 , as compared to $18 million for first quarter 2022.

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

The following is a breakdown of those costs:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

Severance (1)

$ 15 $ 5 $ 59 $ 25

Asset impairments - leased right-of-use assets (2)

Asset impairments - owned assets (2)

Other contractual termination costs (3)

Other charges/credits (4)

(3) (3) (28) (12)

Other credits (3)

Restructuring and asset impairment costs 1 20

Retention-related severance/bonuses (4)

Contractual severance costs (6)

Consulting and other costs (7)

Total $ 2 $ 18

_____________

(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.

(1) Reflects headcount reductions of approximately 100 and 450 employees worldwide in first quarter 2023 and 2022, 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 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.

(3) Reflects net reversals for changes in estimated reserves from prior period initiatives.

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

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.

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.

First quarter 2023 actions impacted several functional areas, with approximately 30% focused on gross margin improvements and approximately 70% focused on SAG reductions.

First quarter 2022 actions impacted several functional areas, with approximately 30% focused on gross margin improvements, approximately 60% 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 March 31, 2023 was $50 million, of which $46 million is expected to be paid over the next twelve months.

Refer to Note 11 - 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 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 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

Worldwide employment was approximately 20,300 as of March 31, 2023, a decrease of approximately 200 from December 31, 2022.

The decrease resulted from net attrition (attrition net of gross hires) and restructuring.

Other Expenses, Net

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022

2 unchanged sentences

Non-service retirement-related costs (1) (7)

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

Currency losses, net 11 —

Loss on early extinguishment of debt — — 4 —

Contract termination costs - product supply — 33

Excess contribution refund — — (16) —

All other expenses, net 1 3

1 unchanged sentence

Non-Financing Interest Expense

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.

First quarter 2023 non-financing interest expense of $14 million was $15 million lower than first quarter 2022.

The decrease was primarily related to lower non-financing debt as a result of the repayment of Senior Notes in 2022 and the first quarter 2023.

When non-financing interest is combined with financing interest expense (Cost of financing), total interest expense of $50 million decreased by $3 million as compared to first quarter 2022, primarily reflecting a lower average debt balance, partially offset by higher average interest rates.

Refer to Note 12 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt activity and interest expense.

Xerox 2023 Form 10-Q 46

Interest Income

First quarter 2023 interest income was $4 million higher than first quarter 2022 primarily due to higher interest rates, partially offset by a lower cash balance.

Non-Service Retirement-Related Costs

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.

First quarter 2023 non-service retirement-related costs were $6 million higher than first quarter 2022, primarily due to higher interest cost driven by higher discount rates, partially offset by lower settlement losses.

Service retirement-related costs, which are included in operating expenses, were $1 million and $4 million for the three months ended March 31, 2023 and 2022, respectively.

Refer to Note 15 - 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'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.

Currency Losses, Net

First quarter 2023 currency losses, net were $11 million higher than first quarter 2022, primarily due to increased volatility in the global exchange rates, particularly in our Eurasia and Middle East operations, which could not be fully hedged.

Contract Termination Costs

In the first quarter 2022, we recorded a $33 million charge ($25 million after-tax) associated with the termination of a product supply agreement.

First quarter 2022 reflects a $33 million charge ($25 million after-tax) associated with the termination of a product supply agreement.

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

In the second quarter 2022, we received a refund of $16 million, which reflects the return of excess employer contributions to a defined contribution plan for one of our Latin American subsidiaries as a result of employee forfeitures.

The excess contributions accumulated over the past 20 plus years.

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 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%.

First quarter 2023 effective tax rate was 16.5%.

On an adjusted 1 basis, first quarter 2023 effective tax rate was 15.5%.

The difference between these rates and the U.S.

federal statutory tax rate of 21% primarily reflects the benefits from the redetermination of certain unrecognized tax positions of approximately 10% partially offset by the geographical mix of earnings.

First quarter 2022 effective tax rate was 34.8% and included benefits from additional tax incentives as well as a change in our indefinite reinvestment tax liability, due to an acquisition, of approximately 10%.

On an adjusted 1 basis, first quarter 2022 effective tax rate was 52.9%.

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

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 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.

federal statutory tax rate of 21% primarily due to benefits from additional tax incentives as well as a change in our indefinite reinvestment tax liability, due to an acquisition, of approximately 25% 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.

1 unchanged sentence

_____________

(1) Refer to the Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section.

(1) Refer to the Adjusted Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section.

Xerox 2023 Form 10-Q 47

Equity in Net Income of Unconsolidated Affiliates

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 nine months ended September 30, 2022 was relatively flat as compared to the prior year period.

Net (Loss) Income

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.

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 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.

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.

Equity in net income of unconsolidated affiliates for the three months ended March 31, 2023 was relatively flat as compared to the prior year period.

Net Income (Loss)

First quarter 2023 Net Income Attributable to Xerox Holdings was $71 million, or $0.43 per diluted share.

On an adjusted 1 basis, Net Income Attributable to Xerox Holdings was $82 million, or $0.49 per diluted share.

Refer to Note 21 - (Loss) Earnings per Share in the Condensed Consolidated Financial Statements for additional information regarding the calculation of basic and diluted earnings per share.

First quarter 2022 Net (Loss) Attributable to Xerox Holdings was $(56) million, or $(0.38) per diluted share.

On an adjusted 1 basis, Net (Loss) Attributable to Xerox Holdings was $(14) million, or $(0.12) per diluted share.

Refer to Note 19 - Earnings (Loss) per Share in the Condensed Consolidated Financial Statements for additional information regarding the calculation of basic and diluted earnings per share.

_____________

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

Other Comprehensive (Loss) Income

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) $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.

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

Other Comprehensive Income (Loss)

First quarter 2023 Other Comprehensive Income, Net Attributable to Xerox Holdings was $83 million and included the following:

i) net translation adjustment gains of $92 million reflecting the strengthening of our major foreign currencies against the U.S.

Dollar during the quarter;

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.

ii) $19 million of net unrealized losses primarily due to the weakening of the Yen during the first half of 2022 and the associated impact on our Yen based forward exchange contracts hedging forecasted purchases;

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 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:

and iii) $14 million of net losses from the changes in defined benefit plans primarily due to the adverse impact of currency partially offset by net actuarial gains and amortization of actuarial losses and settlement losses.

This compares to Other Comprehensive Loss, Net Attributable to Xerox Holdings of $44 million for the first quarter 2022, which reflected the following:

i) net translation adjustment losses of $72 million reflecting the weakening of our major foreign currencies against the U.S.

Dollar during the quarter;

ii) $11 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.

and iii) $39 million of net gains from the changes in defined benefit plans primarily due to a prior service credit as well as amortization of actuarial losses and settlement losses and the positive impact of currency.

Refer to Note 18 - Other Comprehensive Income (Loss) in the Condensed Consolidated Financial Statements for the components of Other Comprehensive Income (Loss), Note 13 - Financial Instruments in the Condensed Consolidated Financial Statements for additional information regarding unrealized gains (losses), net, and Note 15 - Employee Benefit Plans in the Condensed Consolidated Financial Statements for additional information regarding net changes in our defined benefit plans.

Xerox 2023 Form 10-Q 48

Reportable Segments and Geographic Sales Channels

Reportable Segments

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 three new businesses:

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

As a result of this effort, during the first quarter of 2022, we reassessed our operating and reportable segments and determined that, based on the financial information reviewed by our chief operating decision maker (CODM), who is the Chief Executive Officer (CEO), as well as the CEO’s management and assessment of the Company’s operations, we had two operating and reportable segments – Print and Other and Financing (FITTLE) .

• Print and Other – the design, development and sale of document management systems, solutions, and services as well as associated technology offerings including IT and software products and services.

• Financing (FITTLE) – a financing solutions business primarily providing financing for the sales of Xerox equipment.

We also determined that the other businesses – Software and Innovation – did not meet the requirements to be considered separate operating segments largely due to their continued management through the Print and Other segment as well as their immateriality to our results at this stage.

Accordingly, those groups will continue to be reported as part of the Print and Other segment.

We also operate a matrix organization that includes a geographic focus that is primarily organized from a sales perspective on the basis of “go-to-market” (GTM) sales channels as follows:

• Americas , which includes our sales channels in the U.S.

and Canada, as well as Mexico, and Central and South America.

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

• 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.

Accordingly, we will continue to provide information, primarily revenue related, with respect to our principal GTM sales channels.

Xerox 2022 Form 10-Q 60

We have two operating and reportable segments – Print and Other and FITTLE .

Refer to Note 4 - Segment Reporting in the Condensed Consolidated Financial Statements for additional information regarding our reportable segments.

Segment Review

Three Months Ended September 30,

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

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

Print and Other $ 1,604 $ 37 $ 1,641 92 % $ 57 3.6 %

Financing (FITTLE) 147 3 150 8 % 8 5.4 %

Total $ 1,751 $ 40 $ 1,791 100 % $ 65 3.7 %

Print and Other $ 1,590 $ 46 $ 1,636 91 % $ 50 3.1 %

Financing (FITTLE) 168 3 171 9 % 24 14.3 %

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

Nine Months Ended September 30,

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

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

Three Months Ended March 31,

(in millions) External Revenue Intersegment Revenue (1)

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

Print and Other $ 1,564 $ 49 $ 1,613 91 % $ 106 6.8 %

Financing (FITTLE) 450 9 459 9 % 42 9.3 %

FITTLE 151 3 154 9 % 12 7.9 %

Total $ 1,715 $ 52 $ 1,767 100 % $ 118 6.9 %

Print and Other $ 1,513 $ 37 $ 1,550 91 % $ (20) (1.3) %

Financing (FITTLE) 519 9 528 10 % 57 11.0 %

FITTLE 155 3 158 9 % 17 11.0 %

Total $ 1,668 $ 40 $ 1,708 100 % $ (3) (0.2) %

_____________

(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.

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

(2) Segment margin based on external revenue only.

Print and Other

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022 %

Change 2022 2021 %

Equipment sales $ 385 $ 309 24.6%

Post sale revenue 1,179 1,204 (2.1)%

Intersegment net revenue (1)

37 46 (19.6)% 108 147 (26.5)%

Intersegment revenue (1)

Total Print and Other Revenue $ 1,613 $ 1,550 4.1%

_____________

(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.

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.

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

First quarter 2023 Print and Other segment revenue increased 4.1% as compared to first quarter 2022, driven primarily by Equipment sales revenue growth as compared to the first quarter 2022.

Print and Other segment revenues included the following:

Equipment sales revenue increased 24.6% during the first quarter 2023 as compared to first quarter 2022 due to improvement in product availability and favora ble mix towards mid-range devices.

Equipment backlog declined 27.1% on a sequential basis and 58.8% on a year-over-year basis due to better availability of product but remained above pre-pandemic levels.

Post sale revenue decreased by 2.1% during the first quarter 2023 as compared to first quarter 2022, primarily due to IT hardware revenue declines, currency and lower page volumes associated with lower installations in prior periods.

These decreases were partially offset by growth in outsourcing revenues, which included the acquisition of Go Inspire, and paper sales.

Xerox 2023 Form 10-Q 49

Print and Other segment revenue results included the following:

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.

____________________________

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

installed, including orders with future installation dates.

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

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

September 30, Nine Months Ended

September 30, % of Equipment Sales

(in millions) 2022 2021 %

CC % Change 2022 2021 % Change CC % Change 2022 2021

March 31, % of Equipment Sales

(in millions) 2023 2022 % Change CC % Change 2023 2022

Entry $ 62 $ 61 1.6% 2.3% 16% 19%

7 unchanged sentences

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

(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.

(2) Includes equipment sales related to the FITTLE segment of $6 million and $5 million for the three months ended March 31, 2023 and 2022, respectively.

The change at constant currency 1 reflected the following:

• 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.

• Entry - The increase was driven by strength in color devices and overall price increases.

• Mid-range - The increase was primarily driven by our higher margin A3 devices due to improved product availability, price increases, and a strong backlog going into the quarter.

• High-end - The increase was driven by strong performance in entry production color, improved product availability, as well as benefits from price increases.

_____________

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

Xerox 2022 Form 10-Q 62

Total Installs

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).

Installs reflect new placements of devices only (i.e., 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.

1 unchanged sentence

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

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.

• 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.

• 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.

Installs for the three months ended March 31, 2023 as compared to prior year period reflect the following:

• 9% decrease in entry color installs primarily due to declines in entry color printers, partially offset by growth in A4 Color multi-function printers.

• 1% decrease in entry black-and-white installs primarily driven by A4 mono multi-function printer (MFP) activity declines, partially offset by entry mono printer installs, and increased product availability.

• 26% increase in mid-range color installs primarily reflecting increased product availability.

• 160% increase in mid-range black-and-white installs, primarily reflecting increased product availability.

• 84% increase in high-end color installs primarily reflecting increased product availability and strong demand for entry production color devices.

• 23% decrease in high-end black-and-white installs reflecting lower demand.

_____________

(1) Reflects install activity for total Entry product group.

Xerox 2023 Form 10-Q 50

Products and Offerings Definitions

Our Equipment sale product groupings are as follows:

Our product groupings range from:

• “Entry” , which include A4 devices and desktop printers and multifunction devices that primarily serve small and medium workgroups/work teams.

• “Mid-Range” , which include A3 devices that generally serve large workgroup/work teams environments as well as products in the Light Production monochrome and color segments serving centralized print centers, print for pay and lower volume production print establishments.

• “Mid-Range” , which include A3 devices that generally serve large workgroup/work teams environments as well as products in the Light Production product groups serving centralized print centers, print for pay and lower volume production print establishments.

• “High-End” , which include production printing and publishing systems that generally serve the graphic communications marketplace and print centers in large enterprises.

Xerox 2022 Form 10-Q 63

Segment Margin

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)

Financing (FITTLE) represents a global financing solutions business, primarily enabling the sale of our equipment and services.

Print and Other segment margin of 6.8% for the three months ended March 31, 2023 increased by 8.1-percentage points as compared to first quarter 2022 primarily due to higher revenue, lower supply chain-related costs, lower RD&E expense as well as lower selling and administrative expense, which reflect the benefits of cost and productivity savings.

This activity was partially offset by higher product costs.

FITTLE represents a global financing solutions business, primarily enabling the sale of our equipment and services.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022 %

Change 2022 2021 %

Equipment sales $ 6 $ 5 20.0%

1 unchanged sentence

What changed 10-Q

Item 2. Management’s Discussion and Analysis