What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2023-10-30 · 290 added, 509 removed, 339 unchanged (70% of the section changed)

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

Currently, Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations.

Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations.

Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition.

1 unchanged sentence

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

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

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 September 30, 2023.

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

In January 2024, Myriad Ventures Fund I LP (Myriad) was established, and the investments held by Xerox Ventures, LLC were transferred to Myriad, which will continue to be fully consolidated by Xerox Holdings.

At March 31, 2024 and December 31, 2023, Xerox Ventures LLC had investments in Myriad of approximately $27 million and $26 million, respectively.

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.

In the third quarter 2023, earnings and cash flow grew despite a decline in revenue, evidencing an ability to manage profitability amid fluctuations in revenue through strategic initiatives, cost efficiency actions and productivity.

The decline in revenue for the third quarter 2023 reflects declines in certain transactional low-margin post-sale revenue categories, as well as declines in revenue associated with strategic actions put in place to simplify our business, partially offset by a stable demand for our products and services.

Equipment sales of $386 million in the third quarter 2023 declined 1.0% in actual currency, or 2.1% in constant currency 1 , primarily due to the prior year reduction in backlog 2 .

Consistent with recent quarters, revenue trends outpaced equipment installation activity, due to favorable product and geographic mix, as well as higher prices.

This was particularly true with our A3 products, which experienced unfavorable geographic mix effects in the prior year due to backlog 2 reductions in EMEA.

Entry A4 installations were lower again this quarter, due to the ongoing normalization of work-from-home trends.

Post sale revenue of $1,266 million declined 7.0% in actual currency or 9.0% in constant currency 1 .

Post sale declines were primarily driven by reductions in transactional items, most notably a significant decline in lower-margin paper sales and IT endpoint devices.

Post sale revenue was further impacted by the termination of Fuji royalty income and specific strategic actions, resulting in lower financing and PARC revenue.

Pre-tax income increased year-over-year primarily due to the Goodwill impairment charge in the prior year period and lower RD&E expenses, Other expenses, net and Restructuring and related costs, net.

Adjusted 1 operating income was up slightly year-over-year as the effects of lower revenue and gross profit, along with higher incentive compensation and bad debt expenses, were offset by ongoing operating efficiencies and pricing actions.

In the first quarter of 2024, Xerox implemented a comprehensive organizational redesign, marking an important milestone in the Company's multi-year journey to build a stronger, more stable business that is operationally efficient and responsive to the evolving workplace needs of our clients.

During the quarter, we took initial actions to unlock savings associated with simplified product offerings and global routes to market, including the decision to exit certain production print manufacturing operations and sell, or agree to sell, direct operations in four Latin American countries.

Equipment sales of $290 million in the first quarter 2024 declined 25.8% in actual currency, or 26.3% in constant currency 1 , as compared to the first quarter 2023.

The prior year effect of backlog 2 reduction and geographic simplification drove a 16-percentage point year-over-year decline.

Total equipment revenue outpaced equipment installation activity, due to favorable product mix.

Installations declined across all product groups primarily due to prior year backlog 2 reductions.

Post-sale revenue of $1.2 billion declined 8.5% in actual currency, or 9.3% in constant currency 1 , as compared to first quarter 2023.

The decline was primarily due to reductions in non-strategic, lower margin paper and IT endpoint device placements, as well as the effects of geographic simplification, the termination of the Fuji Royalty and the absence of PARC revenue.

Excluding these effects, post sale revenue decreased low-single digits in actual currency.

The pre-tax (loss) was $(150) million for the first quarter 2024, as compared to pre-tax income of $85 million in the first quarter 2023.

The pre-tax (loss) in 2024 primarily reflected lower revenues and associated gross profit, a loss related to the divestitures of certain direct business operations in Latin America, higher Restructuring and related costs, net and Other expenses, net, partially offset by lower Research, development and engineering expenses as well as lower Selling, administrative and general expenses, reflecting structural actions to improve our cost

Xerox 2024 Form 10-Q 42

Segment Reporting Change

During the second quarter of 2023, the Company recast FITTLE’s segment revenues and profits measures to reflect the recent strategic shift in the Company’s approach to funding FITTLE through finance receivable funding agreements that involve the sale of lease receivables.

Refer to Note 4 - Segment Reporting in the Condensed Consolidated Financial Statements for additional information regarding this reporting change.

Donation of Palo Alto Research Center (PARC)

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

Refer to Note 6 - Divestiture in the Condensed Consolidated Financial Statements for additional information regarding this donation.

Adjusted 1 operating income decreased $85 million as compared to first quarter 2023 due to lower equipment and post sale revenue, including the termination of Fuji royalty income and PARC revenue, lower gross profit and higher bad debt expense, which primarily related to a reserve release in the prior year period.

These impacts were partially offset by the cost savings associated with structural simplification efforts.

In March 2024, Xerox completed the sales of its direct business operations in Argentina and Chile to Grupo Datco.

Refer to Note 6 - Divestitures in the Condensed Consolidated Financial Statements for additional information regarding these sales.

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

Third Quarter 2023 Review

Total revenue of $1.65 billion for third quarter 2023 decreased 5.7% from third quarter 2022, which included a 1.7-percentage point benefit from currency.

Total revenue of $5.12 billion for the nine months ended September 30, 2023 decreased 0.9% as compared to the prior year period, which included a 0.3-percentage point adverse impact from currency, as well as a 1.1-percentage point benefit from an acquisition.

Net income (loss) 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) 2023 2022 B/(W) 2023 2022 B/(W)

Net Income (Loss) Attributable to Xerox Holdings $ 49 $ (383) $ 432 $ 59 $ (443) $ 502

Adjusted (1) Net income attributable to Xerox Holdings

77 33 44 231 43 188

First Quarter 2024 Review

Total revenue of $1.50 billion for first quarter 2024 decreased 12.4% from first quarter 2023, which included a 0.8-percentage point benefit from currency.

Net (loss) income and adjusted 1 Net income were as follows:

Three Months Ended March 31,

(in millions) 2024 2023 B/(W)

Net (Loss) Income $ (113) $ 71 $ (184)

Adjusted (1) Net income

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

Third quarter 2023 Net income attributable to Xerox Holdings was $49 million as compared to the third quarter 2022 Net (loss) attributable to Xerox Holdings of $(383) million.

The increase in Net Income is primarily due to the Goodwill impairment charge in the prior year period, as well as lower RD&E expenses, Other expenses, net, and Restructuring and related costs, net.

These favorable impacts were partially offset by lower revenue and gross profit, as well as higher Income tax expense.

Third quarter 2023 Adjusted 1 Net income attributable to Xerox Holdings of $77 million increased $44 million as compared to the prior year period, primarily reflecting lower RD&E expenses, Other expenses, net and Income tax expense.

These favorable impacts were partially offset by lower revenue and gross profit.

Net income attributable to Xerox Holdings for the nine months ended September 30, 2023 was $59 million as compared to a Net (loss) attributable to Xerox Holdings of $(443) million in the prior year period.

The increase in Net Income is primarily due to the Goodwill impairment charge in the prior year period, as well as higher gross profit, which includes the impact of lower supply chain-related costs, lower Selling, administrative and general expenses, lower RD&E expenses, and lower Other expenses, net.

These favorable impacts were partially offset by the after-tax PARC donation charge of $92 million ($132 million pre-tax) in the second quarter 2023, as well as lower revenues and higher Income tax expense.

A djusted 1 Net income attributable to Xerox Holdings for the nine months ended September 30, 2023 of $231 million increased $188 million as compared to the prior year period, primarily reflecting higher gross profit, which includes the impact of lower supply chain-related costs, as well as lower Selling, administrative and general expenses, RD&E expenses, and Other expenses, net.

These favorable impacts were partially offset by lower revenue and higher Income tax expense.

First quarter 2024 Net (loss) was $(113) million as compared to the first quarter 2023 Net income of $71 million.

The decrease in Net income is primarily due to lower revenue and gross profit, as well as the divestitures of certain direct business operations in Latin America, the exit of certain production print manufacturing operations, higher Restructuring and related costs, net, and higher Other expenses, net, which included the impact of higher non-service retirement-related costs.

These negative impacts were partially offset by higher Income tax benefits, as well as lower Research, development and engineering expenses (RD&E) and lower Selling, administrative and general expenses.

First quarter 2024 Adjusted 1 Net income of $11 million decreased $71 million as compared to the prior year period, primarily reflecting lower revenue and gross profit.

These negative impacts were partially offset by higher Income tax benefits, as well as lower RD&E and lower Selling, administrative and general expenses.

____________________________

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

Xerox 2023 Form 10-Q 48

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

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

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

The following is a summary of our segments - Print and Other and Xerox Financial Services (XFS) (formerly FITTLE) :

Three Months Ended March 31,

(in millions) 2024 2023 % Change

Print and Other $ 1,430 $ 1,636 (12.6) %

FITTLE 98 98 — % 301 292 3.1 %

Xerox Financial Services (XFS) 91 102 (10.8) %

Intersegment Elimination (1)

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Total Revenue $ 1,502 $ 1,715 (12.4) %

Print and Other $ 64 $ 63 1.6 % $ 271 $ 81 nm

4 2 nm 22 16 37.5 %

Total Profit $ 68 $ 65 4.6 % $ 293 $ 97 nm

Print and Other $ 33 $ 100 (67.0) %

Xerox Financial Services (XFS) — 18 (100.0) %

Total Profit $ 33 $ 118 (72.0) %

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(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.

Cash flows from operating activities during the nine months ended September 30, 2023 was a source of $297 million and increased $324 million as compared to the prior year period, primarily related to higher net income as well as proceeds of approximately $850 million from the on-going sales of finance receivables under the finance receivables funding agreement, partially offset by higher finance receivable originations, and an increased use of cash for working capital 1 .

Cash provided by investing activities during the nine months ended September 30, 2023 was $3 million, primarily reflecting gains from sales of non-core surplus business assets of $40 million, partially offset by capital expenditures of $27 million and acquisitions of $7 million.

Cash used in financing activities during the nine months ended September 30, 2023 was $819 million primarily reflecting $544 million of share repurchases, as well as net debt payments of $131 million.

Net debt payments include payments of $644 million on existing secured financing arrangements, which includes the early repayment of $185 million on a U.S.

secured borrowing, and $300 million for Senior Notes that matured in 2023.

These payments were partially offset by net proceeds of $549 million from the Bridge Loan Facility, which was used to fund the share repurchase, net proceeds of $213 million from the new Asset Based Loan Facility (ABL), and net proceeds of $52 million from the refinance of our Canadian securitization.

The remaining use of cash was for dividend payments of $131 million.

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

Xerox 2024 Form 10-Q 43

Cash flows from operating activities during the three months ended March 31, 2024 was a use of $79 million and decreased $157 million as compared to the prior year period, primarily related to lower net income as well as an increased use of cash for working capital 1 , and higher payments for accrued compensation in the prior year, partially offset by proceeds of approximately $185 million from the on-going sales of finance receivables under the finance receivables funding agreement, as well as lower finance receivable originations.

Cash used in investing activities during the three months ended March 31, 2024 was $17 million, reflecting capital expenditures of $10 million and $11 million related to the impact of the deconsolidation of an entity that is now accounted for using the equity method of accounting, both of which were partially offset by net cash proceeds of approximately $3 million from the sales of our business operations in Argentina and Chile.

Cash provided by financing activities during the three months ended March 31, 2024 was $261 million primarily reflecting net debt proceeds of $335 million.

Net debt proceeds include proceeds from the issuance of Senior Notes during first quarter 2024 of approximately $900 million which were partially offset by related debt issuance costs of approximately $15 million, as well as the early partial repayment, via tender offer, of approximately $445 million on Senior Notes due in 2024 and 2025, and approximately $103 million on secured financing arrangements.

The net proceeds were partially offset by dividend payments of $37 million and purchases of capped calls for $23 million in connection with the issuance of Convertible Senior Notes.

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(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 for full-year 2023.

There continues to be momentum in demand for our products and services in the Americas, particularly for our faster-growing Digital Services.

However, during third quarter 2023 there has been a mild softening of demand in our European markets, reflecting weaker macroeconomic conditions.

As a result, revenue is expected to come in at the lower end of the expected range.

The Company expects a difficult equipment sales revenue comparison in the fourth quarter 2023 due to the significant prior year reduction in backlog 2 .

Further, the headwinds affecting post sale revenue in third quarter 2023 are expected to persist in fourth quarter 2023.

Due to better-than-expected profitability, reflecting the successful implementation of ongoing cost efficiency programs and a focus on generating profitable revenue, we expect full-year 2023 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.

Lastly, we continue to expect Operating cash flows to be at least $650 million and capital expenditures to be approximately $50 million.

We continue to expect a total Revenue decline of 3% to 5% in constant currency 1 in 2024, which includes effects of prior year backlog 2 reductions and the exit of non-strategic businesses.

Core business revenue is expected to be roughly flat year-over-year, reflecting stable Print demand, growth in Digital and IT Services and neutral macroeconomic conditions.

In addition, we expect pre-tax income and adjusted 1 operating income margins to improve in 2024, primarily driven by structural simplification actions enabled by our reorganization, including the effects of the workforce reduction decisions announced in January 2024.

We continue to expect Operating cash flows to be at least $650 million, which is expected to benefit from a reduction in our finance receivables balance, partially offset by approximately $50 million of higher contributions to our pension plans.

Capital expenditures are expected to be approximately $50 million.

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Three Months Ended

September 30, Nine Months Ended

September 30, % of Total Revenue

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

March 31, % of Total Revenue

(in millions) 2024 2023 % Change CC % Change 2024 2023

Equipment sales $ 290 $ 391 (25.8) % (26.3) % 19 % 23 %

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Total Revenue $ 1,502 $ 1,715 (12.4) % (13.2) % 100 % 100 %

Reconciliation to Condensed Consolidated Statements of Income (Loss):

Reconciliation to Condensed Consolidated Statements of (Loss) Income:

Sales $ 523 $ 659 (20.6) % (21.3) %

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Print and Other $ 1,430 $ 1,636 (12.6) % 95 % 95 %

FITTLE 98 98 — % 301 292 3.1 % 6 % 6 %

Intersegment elimination (1)

Xerox Financial Services (XFS) (1)

91 102 (10.8) % 6 % 6 %

Total Revenue (2)

Intersegment elimination (2)

(19) (23) (17.4) % (1) % (1) %

Go-To-Market Operations

Americas $ 1,103 $ 1,140 (3.2) % (3.6) % $ 3,371 $ 3,361 0.3 % 0.5 % 66 % 65 %

EMEA 526 567 (7.2) % (12.1) % 1,652 1,672 (1.2) % (0.7) % 32 % 32 %

Other 23 44 (47.7) % (47.7) % 98 133 (26.3) % (26.3) % 2 % 3 %

Total Revenue (3)

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

(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.

(1) Xerox Financial Services (XFS) (formerly FITTLE).

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

(3) 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, for definitions.

Third quarter 2023 total revenue decreased 5.7% as compared to third quarter 2022, and included a 1.7-percentage point benefit from currency.

The decrease in equipment sales revenue at constant currency 1 was primarily attributable to EMEA backlog reductions in the prior year quarter.

This impact was partially offset by recent pricing actions and a favorable product and geographic mix.

Post sale revenue decreased at constant currency 1 due to the decline of lower-margin paper sales and IT endpoint device revenue, lower finance income, the termination of Fuji royalty income and PARC revenue.

Contractual print services 2 declined modestly, primarily due to lower service revenue from our economically-sensitive Production customers, and was partially offset by Digital and Managed IT Services revenue growth.

Total revenue for the nine months ended September 30, 2023 decreased 0.9%, and included a 0.3-percentage point adverse impact from currency, as well as a 1.1-percentage point benefit from an acquisition.

The decrease at constant currency 1 revenue is attributable to a decrease in Post sale revenue due to the decline in lower-margin paper sales and IT hardware revenue, lower finance income, and the termination of Fuji royalty income and PARC revenue.

Contractual print services revenue 2 declined modestly, primarily due to lower service revenue from our economically-sensitive Production customers, and was partially offset by Digital and Managed IT Services revenue growth, which included the benefits of an acquisition.

Growth in Equipment sales revenue, partially offset the decline in Post sale revenue, reflecting a stable demand environment, improved product supply, recent pricing actions, and a favorable mix.

Xerox 2023 Form 10-Q 50

Geographically, third quarter 2023 revenue decreased 3.2% in the Americas as compared to third quarter 2022, and included a 0.4-percentage point benefit from currency.

The decrease at constant currency 1 reflected lower post sale revenue, due to the decline in paper sales, finance income, and Contractual print services revenue 2 , partially offset by higher equipment sales revenue.

The increase in equipment sales in the Americas is due to increased product availability as compared to third quarter 2022.

Revenue in EMEA operations decreased 7.2%, as compared to third quarter 2022 and included a 4.9-percentage point benefit from currency.

On a constant currency 1 basis, revenue decreased 12.1% driven by lower equipment sales, primarily due to prior year backlog reductions, as well as lower post sale revenue due to a significant decline in paper sales.

Revenue in the Americas increased 0.3% for the nine months ended September 30, 2023, as compared to the prior year period, and included a 0.2-percentage point adverse impact from currency.

The increase in the Americas, as compared to the prior year period, was due to higher equipment sales revenue resulting from increased product availability, which was partially offset by lower post sale revenue.

Revenue in EMEA operations decreased 1.2% for the nine months ended September 30, 2023 as compared to the prior year period, and included a 0.5-percentage point adverse impact from currency.

On a constant currency 1 basis, revenue in EMEA operations decreased 0.7% for the nine months ended September 30, 2023, as compared to the prior year period, driven by lower equipment sales revenue, due to prior year backlog reductions, which was partially offset by higher post sale revenue.

The increase in post sale revenue primarily reflected the benefits of a recent acquisition, partially offset by lower paper sales.

Total revenue for the three and nine months ended September 30, 2023 reflected the following:

First quarter 2024 total revenue decreased 12.4% as compared to first quarter 2023, and included a 0.8-percentage point benefit from currency.

The decrease in equipment sales revenue at constant currency 1 was primarily attributable to higher backlog reductions in the prior year quarter, as well as organizational changes implemented during the quarter and constraints in Entry, A4 devices.

Post sale revenue decreased at constant currency 1 primarily due to reductions in non-strategic, lower margin paper and IT endpoint device placements, as well as the effects of geographic simplification, the termination of the Fuji Royalty and the absence of PARC revenue.

The decline in Contractual print services 2 revenue, driven by lower service revenue, as well as a decline in Finance income, also contributed to the decline in post sale revenue.

Total revenue for the three months ended March 31, 2024 reflected the following:

Post sale revenue

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These revenues are associated not only with the population of devices in the field, which 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 other Managed IT services, as well as gains and commissions, and servicing revenue on the sale of finance receivables.

For the three months ended September 30, 2023, Post sale revenue decreased 7.0% as compared to third quarter 2022, including a 2.0-percentage point benefit from currency.

Post sale revenue decreased 4.2% for the nine months ended September 30, 2023 as compared to the prior year period, which included a 1.4-percentage point benefit from an acquisition, partially offset by a 0.3-percentage point adverse impact from currency.

Post sale revenue also includes transactional IT hardware sales and other Managed IT services, as well as gains, commissions, and servicing revenue on the sale of finance receivables.

Post sale revenue decreased 8.5% as compared to first quarter 2023, which included a 0.8-percentage point benefit from currency.

Post sale revenue reflected the following:

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

◦ For the three months ended September 30, 2023, these revenues decreased 4.8% as compared to third quarter 2022, including a 1.6-percentage point benefit from currency.

The decline in constant currency 1 was due in part to the termination of Fuji royalty income and PARC revenue.

Contractual print services 2 revenue decreased as compared to third quarter 2022, reflecting declines in Production equipment print services, which were partially offset by revenue growth in Digital and Managed IT Services and price increases, as well as gains and commissions, and servicing revenue on sales of finance receivables.

◦ For the nine months ended September 30, 2023, these revenues decreased 2.8% as compared to the prior year period, including a 0.6-percentage point adverse impact from currency.

The decline in constant currency 1 was due in part to the termination of Fuji royalty income and PARC revenue.

Contractual print services 2 revenue decreased modestly as compared to the prior year period, reflecting declines in Production equipment print services.

These declines were partially offset by revenue growth in Digital and Managed IT Services, which includes the benefits of a recent acquisition, and price increases, as well as gains and commissions, and servicing revenue on sales of finance receivables.

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

For the three months ended September 30, 2023, these revenues decreased 14.0% as compared to third quarter 2022, including a 2.7-percentage point benefit from currency.

Supplies, paper and other sales for the nine months ended September 30, 2023 decreased 8.8% as compared to the prior year period, including a 0.6-percentage point benefit from currency.

The respective decline at constant currency 1 for both the three and nine months ended September 30, 2023, primarily reflected lower paper sales, as well as IT hardware, particularly endpoint devices, and unbundled supplies revenue.

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

These revenues decreased 6.7% as compared to first quarter 2023, which included a 0.7-percentage point benefit from currency.

The decline in constant currency 1 was primarily due to the termination of Fuji royalty income and PARC revenue.

Contractual print services 2 revenue declined mid-single digits as compared to first quarter 2023, driven by lower service revenue, which was partially offset by gains, commissions, and servicing revenue on sales of finance receivables.

Xerox 2024 Form 10-Q 45

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

These revenues decreased 13.1% as compared to first quarter 2023, including a 1.0-percentage point benefit from currency, and primarily reflected lower sales of non-strategic, lower margin paper and IT endpoint device placements, as well as the effects of geographic simplification associated with our strategic Reinvention actions.

• Financing revenue is generated from direct and indirect financing of Xerox equipment.

For the three months ended September 30, 2023, these revenues decreased 9.8% as compared to third quarter 2022, including a 3.7-percentage point benefit from currency.

Financing revenue for the nine months ended September 30, 2023 decreased 5.8% as compared to the prior year period, including a 0.2-percentage point adverse impact from currency.

The decline at constant currency 1 for both the three and nine months ended September 30, 2023, respectively, reflects a reduction of the average finance receivables balance in the quarter and year-to-date periods as a result of the sales of finance receivables in 2023 and the fourth quarter 2022 to HPS Investment Partners (HPS).

Finance receivables are approximately $300 million lower in September of 2023 as compared to September of 2022.

These revenues decreased 19.2% as compared to first quarter 2023, including a 1.6-percentage point benefit from currency.

The decline at constant currency 1 reflects a reduction of the average finance receivables balance in the first quarter 2024 as a result of the sales of finance receivables in recent quarters to HPS Investment Partners (HPS), as well as lower originations.

Finance receivables are approximately $720 million lower in March of 2024 as compared to March of 2023.

Equipment sales revenue

Equipment sales revenue decreased 1.0% for the three months ended September 30, 2023 as compared to the third quarter 2022, including a 1.1-percentage point benefit from currency.

The decrease in constant currency 1 reflects the significant reduction in backlog, primarily in EMEA operations, in the third quarter 2022 as compared to the third quarter 2023.

The decrease in revenue was driven by the Entry product group, primarily in EMEA operations, mostly offset by growth in higher-margin mid-range and high-end devices, in the Americas region, as well as recent pricing actions and stable demand conditions.

Entry device revenues were down as compared to the prior year period due to the ongoing normalization of work-from-home trends.

For the nine months ended September 30, 2023 Equipment sales revenue increased 11.9%, including a 0.2-percentage point adverse impact from currency.

The increase in constant currency 1 reflects improvement in product availability for higher-margin mid-range and high-end devices, in the Americas region, as well as recent pricing actions and stable demand conditions.

These increases were partially offset by lower revenue from the Entry product group, primarily in EMEA operations, as compared to the prior year period, due to the ongoing normalization of work-from-home trends.

Equipment sales revenue decreased 25.8% as compared to first quarter 2023, including a 0.5-percentage point benefit from currency.

The decrease in both actual and constant currency 1 reflects the significant reduction in backlog 3 in the first quarter 2023 as compared to the first quarter 2024, as well as organizational changes implemented during the quarter and constraints in Entry A4, devices.

Backlog 3 declined sequentially by approximately $2 million in the first quarter 2024 as compared to a decline of approximately $70 million in the first quarter 2023.

Revenue declined across all product groups.

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

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

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.

(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 services offerings.

Xerox 2024 Form 10-Q 46

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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) 2023 2022 B/(W) 2023 2022 B/(W)

Three Months Ended March 31,

(in millions) 2024 2023 B/(W)

Gross Profit $ 443 $ 589 $ (146)

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Equipment Gross Margin 31.0 % 36.5 % (5.5) pts.

34.3 % 21.7 % 12.6 pts.

Post sale Gross Margin 29.1 % 33.7 % (4.6) pts.

33.4 % 34.5 % (1.1) pts.

Total Gross Margin 29.5 % 34.3 % (4.8) pts.

33.6 % 31.8 % 1.8 pts.

RD&E as a % of Revenue 3.3 % 3.7 % 0.4 pts.

3.4 % 4.5 % 1.1 pts.

SAG as a % of Revenue 26.4 % 23.7 % (2.7) pts.

24.5 % 25.8 % 1.3 pts.

Pre-tax Income (Loss) $ 63 $ (380) $ 443 $ 59 $ (474) $ 533

Pre-tax Income (Loss) Margin 3.8 % (21.7) % 25.5 pts.

1.2 % (9.2) % 10.4 pts.

Pre-tax (Loss) Income $ (150) $ 85 $ (235)

Pre-tax (Loss) Income Margin (10.0) % 5.0 % (15.0) pts.

Adjusted (1) Operating Income

2 unchanged sentences

2.2 % 6.9 % (4.7) pts.

5.7 % 1.9 % 3.8 pts.

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

Pre-tax Income (Loss) Margin

Third quarter 2023 pre-tax income margin of 3.8% increased 25.5-percentage points as compared to third quarter 2022 pre-tax (loss) margin of (21.7)%.

The increase was primarily due to the Goodwill impairment charge in the prior year period and lower RD&E expenses, Other expenses, net, and Restructuring and related costs, net.

These favorable impacts were partially offset by lower revenue and gross profit.

Pre-tax income margin for the nine months ended September 30, 2023 of 1.2% increased 10.4-percentage points as compared to the prior year period pre-tax (loss) margin of (9.2)%.

The improvement in the pre-tax margin was primarily due to the Goodwill impairment charge in the prior year, as well as multiple items which resulted in higher adjusted 1 operating margin (see below), and lower Other expenses, net and Restructuring and related costs, net.

These favorable impacts were partially offset by the PARC donation charge which had a 2.6-percentage point adverse impact on pre-tax margin, and lower revenue.

Adjusted 1 Operating Margin

Third quarter 2023 adjusted 1 operating income margin of 4.1% increased by 0.4-percentage points as compared to third quarter 2022, reflecting higher gross margin, the strategic decision to donate PARC and shutdown certain other PARC-related activities, as well as the benefits from pricing and cost and productivity actions.

These favorable impacts were partially offset by lower revenue, which includes the termination of Fuji royalty income, and higher incentive compensation expense.

Adjusted 1 operating margin income for the nine months ended September 30, 2023 of 5.7% increased by 3.8-percentage points as compared to the prior year period, primarily reflecting higher gross margin, which includes the impacts of lower supply chain-related costs, lower RD&E expense, and Selling, administrative and general expenses, due primarily to reserve releases in the first quarter of 2023 partially offset by higher incentive compensation expense, as well as the benefits from pricing and cost and productivity actions.

Partially offsetting these benefits was lower revenue, which includes the termination of Fuji royalty income.

______________

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

Third quarter 2023 gross margin of 32.4% increased by 0.6-percentage points as compared to third quarter 2022, reflecting the benefits associated with recent pricing and cost and productivity actions, as well as gains and commissions, and servicing revenues on sales of finance receivables.

These favorable impacts were partially offset by lower revenue, which includes the termination of Fuji royalty income, and lost revenues associated with the donation of PARC.

Xerox 2023 Form 10-Q 53

Gross margin for the nine months ended September 30, 2023 of 33.6% increased by 1.8-percentage points as compared to the prior year period, reflecting lower supply chain-related costs, the benefits associated with recent pricing and cost and productivity actions, as well as gains and commissions, and servicing revenues on sales of finance receivables.

These favorable impacts were partially offset by lower revenue, which includes the termination of Fuji royalty income, and lost revenue associated with the donation of PARC.

Third quarter 2023 equipment gross margin of 31.0% increased by 10.0-percentage points as compared to third quarter 2022, reflecting a favorable product and channel mix, as well as the benefits associated with recent pricing actions.

These favorable impacts were slightly offset by lower revenue and higher transportation costs.

Equipment gross margin for the nine months ended September 30, 2023 of 34.3% increased by 12.6-percentage points as compared to the prior year period, reflecting higher revenue, a favorable product and channel mix, lower supply chain-related costs, and the benefits associated with recent pricing actions.

Third quarter 2023 Post sale gross margin of 32.9% decreased by 2.0-percentage points as compared to third quarter 2022, reflecting lower activity, the termination of Fuji royalty income, and lower financing margin.

Financing margin decreased primarily due to higher interest costs.

These impacts were partially offset by the benefits associated with cost and productivity actions, as well as gains and commissions, and servicing revenue on sales of finance receivables.

Post sale gross margin for the nine months ended September 30, 2023 of 33.4% decreased by 1.1-percentage points as compared to the prior year period, reflecting lower revenue, which includes the termination of Fuji royalty income and lost revenues associated with the donation of PARC, as well as lower financing margin.

Financing margin decreased primarily due to higher interest costs.

These impacts were partially offset by the benefits associated cost and productivity actions, and lower supply chain-related costs as well as gains and commissions, and servicing revenues on sales of finance receivables.

First quarter 2024 gross margin of 29.5% decreased by 4.8-percentage points as compared to first quarter 2023, reflecting lower revenue and gross profit primarily due to charges associated with the Company's Reinvention, which had a 2.4-percentage point unfavorable impact on gross margin, as well as higher product costs.

These impacts were partially offset by the benefits associated with recent cost and productivity actions.

First quarter 2024 Equipment gross margin of 31.0% decreased by 5.5-percentage points as compared to first quarter 2023, reflecting lower revenue, pricing benefits in the prior year and higher product and transportation costs, partially offset by product mix.

First quarter 2024 Post sale gross margin of 29.1% decreased by 4.6-percentage points as compared to first quarter 2023, including lower page volumes, and charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, which had a 3.0-percentage point unfavorable impact on gross margin.

Higher product and transportation costs, and the termination of Fuji royalty income also adversely impacted gross margin in the quarter.

These impacts were partially offset by the benefits associated with recent cost and productivity actions.

Research, Development and Engineering Expenses (RD&E)

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022 Change 2023 2022 Change

Three Months Ended March 31,

(in millions) 2024 2023 Change

R&D $ 37 $ 52 $ (15)

1 unchanged sentence

Total RD&E Expenses $ 49 $ 64 $ (15)

Third quarter 2023 RD&E as a percentage of revenue of 3.1% decreased by 1.1-percentage points as compared to third quarter 2022, due to the lower rate of investments, as a result of the strategic decision to donate PARC.

RD&E as a percentage of revenue for the nine months ended September 30, 2023 of 3.4% decreased by 1.1-percentage points as compared to the prior year period, primarily due to the strategic decision to donate PARC, including the spin-off of Innovation businesses and the shutdown of certain other PARC-related activities, as well as a lower rate of investments in new businesses.

RD&E of $52 million decreased $21 million as compared to third quarter 2022.

For the nine months ended September 30, 2023 RD&E of $173 million decreased $62 million as compared to the prior year period.

The decrease, as compared to the respective prior year periods, was primarily driven by lower spending in our innovation portfolio due to the strategic decision to donate PARC, including the spin-off of Innovation businesses, and the shutdown of certain other PARC-related activities, as well as modest savings from restructuring and productivity actions.

The lower spending in innovation for both the three and the nine months ended September 30, 2023, as compared to their respective prior year periods, reflects decisions which provide greater focus and financial flexibility to pursue growth opportunities adjacent to our core operations within Print, Digital and Managed IT services.

Selling, Administrative and General Expenses (SAG)

Third quarter 2023 SAG as a percentage of revenue of 25.2% increased by 1.3-percentage points as compared to third quarter 2022, due to lower revenues, as well as higher selling and bad debt expenses.

These impacts were partially offset by lower administrative expense.

Third quarter 2023 SAG of $416 million decreased by $2 million as compared to third quarter 2022, primarily reflecting productivity and cost savings, including savings related to the strategic decision to donate PARC, and lower litigation costs.

These benefits were partially offset by higher incentive compensation expense, unfavorable currency, and bad debt expense.

First quarter 2024 RD&E as a percentage of revenue of 3.3% decreased by 0.4-percentage points as compared to first quarter 2023, primarily due to the strategic decision to donate PARC in second quarter 2023.

First quarter 2024 RD&E of $49 million decreased $15 million as compared to first quarter 2023, primarily due to the strategic decision to donate PARC in second quarter 2023, and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, as well as a corresponding reduction in real estate.

The lower spending in innovation reflects decisions which provide greater focus and financial flexibility to pursue growth opportunities adjacent to our core operations within Print, Digital and IT Services.

Xerox 2024 Form 10-Q 47

SAG as a percentage of revenue for the nine months ended September 30, 2023 of 24.5% decreased by 1.3-percentage points as compared to the prior year period, due to lower administrative and selling expenses, as well as a 0.2 percentage-point favorable impact from lower bad debt expense.

These favorable impacts were partially offset by lower revenues.

SAG for the nine months ended September 30, 2023 of $1,256 million decreased by $76 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 in the second quarter 2022.

Additionally, SAG benefited from productivity and cost savings, including savings related to the strategic decision to donate PARC, as well as lower labor costs associated with a higher-than-expected number of open positions, lower bad debt expense, lower supply chain-related costs, lower litigation costs, and the favorable impact of currency.

These benefits were partially offset by higher incentive compensation expense and marketing expenses, as well as the impact of an acquisition.

The bad debt provision for the third quarter 2022 of $10 million increased $3 million as compared to the third quarter 2022 primarily due to i ncreased provisions for accounts receivables as a result of favorable adjustments in the prior year and the timing of aged write-offs.

The bad debt provision for nine months ended September 30, 2023 of $17 million, decreased by $12 million as compared to the prior year period.

The decrease reflects the first quarter 2023 reserve release of approximately $12 million as a result of a favorable reassessment of the credit exposure on a large customer receivable balance after a contract amendment that improved our credit position, and the benefits related to the sale of finance receivables on a non-recourse basis as part of the on-going finance receivables funding agreement.

Selling, Administrative and General Expenses (SAG)

First quarter 2024 SAG as a percentage of revenue of 26.4% increased by 2.7-percentage points as compared to first quarter 2023, primarily due to lower revenues.

First quarter 2024 SAG of $397 million decreased by $10 million as compared to first quarter 2023, primarily reflecting lower incentive compensation expense, productivity and cost savings related to the Company's Reinvention as well as the strategic decision to donate PARC in the prior year, and lower litigation costs.

These favorable impacts were partially offset by higher bad debt expenses and unfavorable currency.

The bad debt provision for the first quarter 2024 of $15 million increased $23 million as compared to the first quarter 2023, primarily related to a reserve release in the prior year period of approximately $12 million due to a favorable reassessment of the credit exposure on a large customer receivable balance, as well as the benefits related to the sale of finance receivables on a non-recourse basis as part of our on-going finance receivables funding agreement.

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 release in the first quarter 2023).

As of March 31, 2024, on a trailing twelve-month basis, bad debt expense was approximately 1.5% of total receivables, as compared to approximately 1.0% for the prior year comparable period.

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.

Restructuring and Related Costs, Net

We incurred Restructuring and related costs, net of $10 million for the third quarter 2023, as compared to $22 million for third quarter 2022, and $35 million for the nine months ended September 30, 2023, as compared to $41 million in the prior year period.

These costs were primarily related to the implementation of initiatives under our business transformation projects to reduce and realign our cost structure to the changing nature of our business.

Third quarter 2023 activity includes impairment associated with the Company's sale of its Russian subsidiary, which was completed in October 2023.

Third quarter 2023 actions impacted several functional areas, with approximately 80% focused on SAG reductions and approximately 20% focused on gross margin improvements.

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.

The Restructuring and related costs, net reserve balance for all programs as of September 30, 2023 was $33 million, of which $32 million is expected to be paid over the next twelve months.

We incurred Restructuring and related costs, net of $39 million for the three months ended March 31, 2024, as compared to $2 million in the prior year period.

First quarter 2024 charges are associated with strategic actions taken as a result of the Company's Reinvention, including geographic simplification.

First quarter 2024 actions mainly impacted gross margins improvements.

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

The Restructuring and related costs, net reserve balance for all programs as of March 31, 2024 was $123 million, of which $113 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.

Worldwide Employment

Worldwide employment was approximately 20,100 as of September 30, 2023, a decrease of approximately 400 from December 31, 2022.

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

Xerox 2023 Form 10-Q 55

Worldwide employment was approximately 18,700 as of March 31, 2024, a decrease of approximately 1,400 from December 31, 2023.

The decrease primarily relates to the Company's Reinvention, which includes the initial impact of workforce reduction decisions announced in January 2024, as well as net attrition (attrition net of gross hires).

Other Expenses, Net

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023

2 unchanged sentences

Non-service retirement-related costs 23 (1)

Gains on sales of businesses and assets (35) (16) (37) (17)

Currency losses, net 11 11

Tax indemnification - Conduent (7) — (7) —

Loss on early extinguishment of debt — — 3 4

Contract termination costs - product supply — — — 33

Excess contribution refund — — — (16)

Gain on early extinguishment of debt (3) —

Gain on release of contingent consideration (5) —

All other expenses, net (5) 1

1 unchanged sentence

Non-Financing Interest Expense

Third quarter 2023 non-financing interest expense of $14 million was $7 million lower than third quarter 2022.

The decrease was 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 $44 million decreased by $5 million as compared to third quarter 2022, reflecting a lower average debt balance, partially offset by higher average interest rates.

Non-financing interest expense for the nine months ended September 30, 2023 of $40 million was $33 million lower than the prior year period.

The decrease was 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 $140 million decreased by $11 million from the prior year period reflecting a lower average debt balance, partially offset by higher average interest rates.

First quarter 2024 non-financing interest expense of $26 million was $12 million higher than first quarter 2023.

The increase was related to higher interest rates on new debt, partially offset by lower non-financing debt in the prior year period as a result of the repayment of Senior Notes in 2022 and in the first quarter 2023.

When non-financing interest is combined with financing interest expense (Cost of financing), total interest expense increased by $3

Xerox 2024 Form 10-Q 48

million as compared to first quarter 2023.

This reflects the impact of higher interest rates on new debt partially offset by a lower average debt balance, as a result of the continued reduction of the average finance receivables balance, due to the sales of finance receivables in recent quarters to HPS Investment Partners, as well as lower originations.

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

Interest Income

Third quarter 2023 interest income decreased $1 million as compared to the third quarter 2022, while interest income for the nine months ended September 30, 2023 increased $4 million as compared to the prior year period, primarily due to higher interest rates, partially offset by a lower cash balance.

Non-Service Retirement-Related Costs

Non-service retirement-related costs were $11 million and $32 million higher for the three and nine months ended September 30, 2023, respectively, as compared to their respective prior year periods.

The increases reflect higher interest cost associated with higher discount rates, partially offset by lower settlement losses.

The increase in non-service retirement-related costs for the nine months ended September 30, 2023 as compared to the prior year period, also reflected a decrease in the expected return on plan assets due to lower plan asset values

Service retirement-related costs, which are included in operating expenses, were $2 million and $4 million for the three months ended September 30, 2023 and 2022, respectively, and $4 million and $14 million for the nine months ended September 30, 2023 and 2022, respectively.

The decrease in both periods is primarily due to the transition of our pension plan in the Netherlands to a Defined Contribution Plan for future service at the end of 2022.

Non-service retirement-related costs of $23 million were $24 million higher than the prior year period, primarily due to an increase in actuarial losses subject to amortization as well as a decrease in the expected return on plan assets.

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

Gains on sales of businesses and assets

Gains on sales of businesses and assets were $19 million and $20 million higher for the three and nine months ended September 30, 2023, respectively, as compared to their respective prior year periods.

The gains in both 2023 and 2022 reflect the sales of non-core surplus business assets.

Currency Losses, Net

Third quarter 2023 currency losses, net were $5 million higher than third quarter 2022, while currency losses, net for the nine months ended September 30, 2023 increased $20 million as compared to the prior year period.

Xerox 2023 Form 10-Q 56

increase for both periods as compared to their prior year respective periods was due to continued volatility in the global exchange rates, particularly in developing markets, and the cost of hedging.

Currency losses, net for the nine months ended September 30, 2023 also reflect losses associated with the discontinuance of hedging relationships for certain YEN-based currency cash flow hedges in the second quarter 2023.

Tax indemnification - Conduent

Third quarter 2023 credit represents the reversal of a payable to Conduent of an IRS refund Xerox was expected to receive with the settlement of a pre-separation unrecognized tax position.

The matter was resolved during the third quarter 2023 and both the receivable from the IRS and the payable to Conduent were no longer required.

The reversal of the offsetting IRS refund receivable is recorded as a charge in Income tax expense.

Loss on Early Extinguishment of Debt

In the second quarter 2023, we recorded a loss of $3 million related to the early repayment on secured borrowings and the termination of our $250 million Credit Facility prior to entering into the new 5-year Asset Based Lending Facility (ABL).

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

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

Contract Termination Costs

Contract termination costs for the nine months ended September 30, 2022 reflects a $33 million charge ($25 million after-tax) associated with the termination of a product supply agreement.

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

Excess Contributions 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 a certain Latin American subsidiary as a result of employee forfeitures.

The excess contributions accumulated over the past 20 plus years.

Third quarter 2023 effective tax rate was 23.8% which was higher than the U.S.

federal statutory tax rate of 21%, primarily due to geographical mix of earnings, partially offset by tax benefits due to the redetermination of certain unrecognized tax positions upon the conclusion of several audits, and the remeasurement of deferred tax assets.

On an adjusted 1 basis, third quarter 2023 effective tax rate was 7.3%, which is lower than the U.S.

federal statutory tax rate of 21%, primarily due to a tax rate benefit of approximately 15% related to the redetermination of certain unrecognized tax positions upon the conclusion of several audits, as well as the remeasurement of deferred tax assets, partially offset by the geographical mix of earnings.

Third quarter 2022 effective tax rate was (0.8)% and included 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.

The effective tax rate for the nine months ended September 30, 2023 was 1.7% and includes the loss on the PARC donation as well as the associated tax benefits.

Excluding this impact, the effective tax rate was 21.5%.

On an adjusted 1 basis, the effective tax rate for the nine months ended September 30, 2023 was 14.5%.

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

federal statutory tax rate of 21% primarily due to a tax rate benefit of approximately 7% related to the redetermination of certain unrecognized tax positions upon the conclusion of several audits, as well as the change in tax filing positions and the remeasurement of deferred tax assets, partially offset by the geographical mix of earnings.

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

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

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

federal statutory tax rate of 21% primarily due to tax expense associated with changes in elections made to certain tax positions for recently filed returns, offset by

Xerox 2023 Form 10-Q 57

benefits from additional tax incentives and a change in our indefinite reinvestment tax liability due to a recent acquisition.

Gains on early extinguishment of debt

First quarter 2024 gain on early extinguishment of debt of $3 million reflects a $4 million gain on the repayment of Senior Notes (via tender offer), partially offset by a loss of approximately $1 million on the write-off of deferred debt issuance costs.

Gain on release of contingent consideration

First quarter 2024 gain on release of contingent consideration of $5 million reflects a reserve release related to earn-out provisions which were not met, in connection with a prior acquisition.

Pre-tax (Loss) Income Margin

First quarter 2024 pre-tax (loss) margin of (10.0)% decreased 15.0-percentage points, as compared to first quarter 2023 pre-tax income margin of 5.0%.

The decrease was primarily due to lower revenues and associated gross profit, the divestitures of certain direct business operations in Latin America, the exit of certain production print manufacturing operations, higher Restructuring and related costs, net, and Other expenses, net.

These impacts were partially offset by lower RD&E expenses, as well as lower Selling, administrative and general expenses.

Adjusted 1 Operating Margin

First quarter 2024 adjusted 1 operating income margin of 2.2% decreased by 4.7-percentage points as compared to first quarter 2023, reflecting lower revenue, which included the termination of Fuji royalty income, lower gross margin, which included higher product and transportation costs, and higher bad debt expense primarily related to a reserve release in the prior year period.

These impacts were partially offset by the strategic decision to donate PARC in second quarter 2023, and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, as well as a corresponding reduction in real estate, and benefits from cost and productivity actions.

______________

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

First quarter 2024 effective tax rate was 24.7% which resulted in a tax benefit.

This tax benefit is higher than the benefit under the U.S.

federal statutory tax rate of 21% due primarily to the redetermination of certain unrecognized tax positions, primarily offset by geographical mix of earnings, including the mix associated with charges related to the Company's Reinvention.

On an adjusted 1 basis, first quarter 2024 effective tax rate was (22.2)% which resulted in a tax benefit.

The difference between this rate and the U.S.

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

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.

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

2 unchanged sentences

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

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 three and nine months ended September 30, 2023 was relatively flat as compared to their respective prior year periods.

Net Income (Loss)

Third quarter 2023 Net Income Attributable to Xerox Holdings was $49 million, or $0.28 per diluted share.

On an adjusted 1 basis, Net Income Attributable to Xerox Holdings was $77 million, or $0.46 per diluted share.

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

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

Net Income Attributable to Xerox Holdings for the nine months ended September 30, 2023 was $59 million, or $0.30 per diluted share, which included the after-tax PARC donation charge of $92 million ($132 million pre-tax), or $0.58 per diluted share.

On an adjusted 1 basis, Net Income Attributable to Xerox Holdings was $231 million, or $1.39 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 a $2.54 per share.

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

Refer to Note 20 - Earnings (Loss) per Share in the Condensed Consolidated Financial Statements for additional information regarding the calculation of basic and diluted earnings per share.

Xerox 2024 Form 10-Q 49

Net (Loss) Income

First quarter 2024 Net (Loss) was $(113) million, or $(0.94) per diluted share.

On an adjusted 1 basis, Net Income was $11 million, or $0.06 per diluted share.

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

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

Refer to Note 20 - (Loss) Earnings 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 Adjusted Net Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section.

Other Comprehensive (Loss) Income

Third quarter 2023 Other Comprehensive Loss, Net Attributable to Xerox Holdings was $67 million and included the following:

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

Other Comprehensive Income

First quarter 2024 Other Comprehensive Income, Net was $3 million and included the following:

i) $36 million of net gains from the changes in defined benefit plans reflecting the amortization of actuarial losses, the positive impact of currency, and actuarial gains;

ii) net translation adjustment losses of $32 million reflecting the weakening of most of our major foreign currencies against the U.S.

Dollar during the quarter;

ii) $55 million of net gains from the changes in defined benefit plans primarily due to net actuarial gains, the positive impact of currency, and the amortization of actuarial losses;

and iii) $1 million of net unrealized gains.

This compares to Other Comprehensive Loss, Net Attributable to Xerox Holdings of $217 million for the third quarter 2022, which included the following:

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

and iii) $1 million of net unrealized losses.

This compares to Other Comprehensive Income, Net of $83 million for the first quarter 2023, which included the following:

i) net translation adjustment gains of $93 million reflecting the strengthening 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.

Other Comprehensive Income, Net Attributable to Xerox Holdings for the nine months ended September 30, 2023 was $33 million and included the following:

i) net translation adjustment gains of $19 million reflecting the strengthening of most of our major foreign currencies against the U.S.

and ii) $14 million of net gains from the changes in defined benefit plans primarily due to net actuarial gains as well as the amortization of actuarial losses, partially offset by the adverse impact of currency and plan remeasurements.

This compares to Other Comprehensive Loss, Net Attributable to Xerox Holdings for the nine months ended September 30, 2022 of $559 million, which 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 pension plan amendment and remeasurement.

Xerox 2023 Form 10-Q 58

Refer to Note 19 - 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.

ii) $4 million of net unrealized gains;

and $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 the amortization of actuarial losses and settlement losses.

Refer to Note 19 - Other Comprehensive Income in the Condensed Consolidated Financial Statements for the components of Other Comprehensive 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.

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.

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

We have two operating and reportable segments – Print and Other and Xerox Financial Services (XFS) (formerly 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 Revenue Intersegment Revenue (1)

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

Print and Other $ 1,554 $ 21 $ 1,575 94 % $ 64 4.1 %

FITTLE 98 — 98 6 % 4 4.1 %

Total $ 1,652 $ 21 $ 1,673 100 % $ 68 4.1 %

Print and Other $ 1,653 $ 23 $ 1,676 94 % $ 63 3.8 %

FITTLE 98 — 98 6 % 2 2.0 %

Total $ 1,751 $ 23 $ 1,774 100 % $ 65 3.7 %

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) External Revenue Intersegment Revenue (1)

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Print and Other $ 1,411 $ 19 $ 1,430 94 % $ 33 2.3 %

FITTLE 301 — 301 6 % 22 7.3 %

XFS 91 — 91 6 % — — %

Total $ 1,502 $ 19 $ 1,521 100 % $ 33 2.2 %

Print and Other $ 1,613 $ 23 $ 1,636 94 % $ 100 6.2 %

FITTLE 292 — 292 6 % 16 5.5 %

XFS 102 — 102 6 % 18 17.6 %

Total $ 1,715 $ 23 $ 1,738 100 % $ 118 6.9 %

(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.

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

(2) Segment margin based on external revenue only.

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Print and Other

Print and Other includes 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.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 %

Change 2023 2022 %

Equipment sales $ 285 $ 385 (26.0)%

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_____________

(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.

Third quarter 2023 Print and Other segment revenue decreased 6.0% as compared to third quarter 2022, and Print and Other segment revenue decreased 1.2% for the nine months ended September 30, 2023 as compared to the prior year period.

The decrease for both the three and nine months ended September 30, 2023 was driven by lower Post sale revenue, as compared to their respective prior year periods.

Print and Other segment revenues included the following:

Equipment sales revenue decreased 0.8% during the third quarter 2023 as compared to third quarter 2022, driven by the Entry product group, primarily in EMEA operations, which was partially offset by growth in higher-margin mid-range and high-end devices in the Americas, as well as recent pricing actions.

Equipment sales revenue increased 12.0% for the nine months ended September 30, 2023 as compared to the prior year period, driven by improvement in product availability, for higher-margin mid-range and high-end devices in the Americas, as well as recent pricing actions and stable demand conditions, both of which were partially offset by lower revenue from the Entry product group, primarily in EMEA operations, due to the ongoing normalization of work-from-home trends.

Post sale revenue decreased 7.6% during the third quarter 2023 as compared to third quarter 2022, due to lower paper, supplies, and IT endpoint devices revenue, as well as the termination of Fuji royalty income and PARC revenue.

Contractual print services revenue 1 decreased as compared to third quarter 2022, primarily due to lower service revenue from our economically-sensitive Production customers.

These impacts were partially offset by growth in Digital and Managed IT services revenue, price increases, as well as gains and commissions, and servicing revenue on sales of finance receivables.

Post sale revenue decreased 4.7% for the nine months ended September 30, 2023 as compared to the prior year period due to lower paper, IT endpoint devices, and supplies revenues, as well as the termination of Fuji royalty income and PARC revenue.

Contractual print services revenue 1 decreased as compared to the prior year period, primarily due to lower service revenue from our economically-sensitive Production customers.

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

First quarter 2024 Print and Other segment revenue decreased 12.6% as compared to first quarter 2023.

Print and Other segment revenue included the following:

Equipment sales revenue decreased 26.0% during the first quarter 2024 as compared to first quarter 2023, reflecting higher backlog reductions in the prior year quarter.

Backlog 1 declined sequentially by approximately $2 million in the first quarter 2024 as compared to approximately $70 million in the first quarter 2023.

Revenue declined across all product groups.

Post sale revenue decreased 8.3% during the first quarter 2024 as compared to first quarter 2023, primarily due to reductions in non-strategic, lower margin paper and IT endpoint device placements, as well as the effects of geographic simplification, associated with our strategic Reinvention actions, the termination of the Fuji royalty income and PARC revenue.

Contractual print services 2 revenue declined mid-single digits, driven by lower service revenue.

The impacts were partially offset by gains, commissions and servicing revenue on sales of finance receivables.

_____________

(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 offerings.

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

Xerox 2023 Form 10-Q 60

Detail by product group is shown below.

Three Months Ended

September 30, Nine Months Ended

September 30, % of Equipment Sales

(in millions) 2023 2022 %

CC % Change 2023 2022 % Change CC % Change 2023 2022

March 31, % of Equipment Sales

(in millions) 2024 2023 % Change CC % Change 2024 2023

Entry $ 45 $ 62 (27.4)% (27.2)% 15% 16%

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

(2) Includes equipment sales related to the FITTLE segment of $5 million and $6 million for the three months ended September 30, 2023 and 2022, respectively, and $17 million and $16 million for the nine months ended September 30, 2023 and 2022, respectively.

(2) Includes equipment sales related to the XFS segment of $5 million and $6 million for the three months ended March 31, 2024 and 2023, respectively.

The change at constant currency 1 reflected the following:

• Entry - The decrease for the three and nine months ended September 30, 2023 as compared to their respective prior year periods was driven by the on-going normalization of work-from-home trends.

• Mid-range - The increase for the three months ended September 30, 2023 as compared to the third quarter 2022 was driven by growth in the Americas, supported by increased product availability, partially offset by declines in EMEA, reflecting backlog reductions in the prior year.

The increase for the nine months ended September 30, 2023 as compared to the prior year period was driven by higher margin A3 devices due to improved product availability, primarily in the Americas, and price increases, both of which were partially offset by declines in EMEA, which reflected backlog reductions in the prior year.

• High-end - The increase for the three months ended September 30, 2023 was driven by growth in the Americas, which was offset by declines in EMEA.

The increase for the nine months ended September 30, 2023 as compared to the prior year period was driven by revenue growth in the Americas, as well as higher revenue and higher installs of both Entry Production Color devices and iGens, due to improved product availability, and benefits from price increases and Xerox’s complete offering of software, services and technology.

• Entry - The decrease for the three months ended March 31, 2024 primarily reflects higher backlog 2 reductions in the prior year period, and constraints in Entry, A4 devices partially offset by the favorable mix to color.

• Mid-range - The decrease for the three months ended March 31, 2024 reflects higher backlog 2 reductions in the prior year period.

• High-end - The decrease for the three months ended March 31, 2024 was primarily due to higher backlog 2 reductions the prior year period.

_____________

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

(1) Refer to the “Currency Impact” section for a description of constant currency.

(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.

Xerox 2024 Form 10-Q 51

Total Installs

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

Installs for the three months ended September 30, 2023 as compared to prior year period reflect the following:

• 52% decrease in entry color installs primarily due to a softer demand associated with the ongoing normalization of work-from-home trends.

• 28% decrease in entry black-and-white installs driven by EMEA markets, mostly across multi-function printers.

• 18% decrease in mid-range color installs, driven by a decline in EMEA channels, partially offset by growth in the Americas.

• 10% decrease in mid-range black-and-white installs, driven by a decline in EMEA channels, partially offset by growth in the Americas.

• 15% increase in high-end color installs reflecting strong demand for Versant products, primarily in the Americas.

• 16% decrease in high-end black-and-white installs reflecting a decline for Nuvera and Baltoro products in EMEA.

Xerox 2023 Form 10-Q 61

Installs for the nine months ended September 30, 2023 as compared to prior year period reflect the following:

• 37% decrease in entry color installs driven by declines in entry color printers and A4 Color MFPs, associated with the ongoing normalization of work-from-home trends, primarily in EMEA.

• 12% decrease in entry black-and-white installs driven by declines in A4 mono MFPs, primarily in EMEA, which was partially offset by higher entry mono printer installs.

• 7% increase in mid-range color installs, driven by A3 color MFPs, reflecting increased product availability in the Americas.

• 31% increase in mid-range black-and-white installs, driven by A3 mono MFPs, reflecting increased product availability primarily in the Americas.

• 30% increase in high-end color installs reflecting higher demand for iGen and Versant products, primarily in the Americas.

• 16% decrease in high-end black-and-white installs reflecting a decline for Nuvera.

_____________

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

Installs for the three months ended March 31, 2024 as compared to prior year period reflect the following:

• 37% decrease in entry color installs, with A4 Color MFPs driving the majority of the decline.

• 47% decrease in entry black-and-white installs, with declines in both Entry Mono and A4 Mono MFPs.

• 18% decrease in mid-range color installs, driven primarily by declines in A3 Color MFPs.

• 28% decrease in mid-range black-and-white installs, driven primarily by A3 Mono MFPs.

• 42% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid products.

• 22% decrease in high-end black-and-white primarily reflecting declines in High End Cut Sheet products.

Products and Offerings Definitions

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Segment Margin

Print and Other segment margin of 4.1% for the three months ended September 30, 2023 increased by 0.3-percentage points as compared to third quarter 2022, primarily due to lower supply chain-related costs, lower RD&E expense, and benefits of cost and productivity savings.

These positive impacts were partially offset by higher selling and bad debt expenses.

Print and Other segment margin of 5.6% for the nine months ended September 30, 2023 increased 3.9-percentage points as compared to the prior year period primarily due to higher profit margin, which includes lower supply chain-related costs, lower RD&E expense, and lower Selling, administrative and general expenses, which reflect the benefits of cost and productivity savings.

These positive impacts were partially offset by higher bad debt expense.

First quarter 2024 Print and Other segment margin of 2.3% decreased by 3.9-percentage points as compared to first quarter 2023, primarily due to lower revenue.

This activity was offset by lower RD&E expense, and benefits of cost and productivity savings.

Xerox 2024 Form 10-Q 52

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

Xerox Financial Services

Xerox Financial Services (XFS) (formerly 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) 2024 2023 %

Change 2023 2022 %

Equipment sales $ 5 $ 6 (16.7)%

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What changed 10-Q

Item 2. Management’s Discussion and Analysis