Xerox Holdings Corp 10-Q

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. References to "Xerox Holdings Corporation" refer to the stand-alone parent company and do not include its subsidiaries. References to "Xerox Corporation" refer to the stand-alone company and do not include its subsidiaries. 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. The MD&A is provided as a supplement to, and should be read in conjunction with, the Condensed Consolidated Financial Statements and the accompanying notes. Throughout this MD&A, references are made to various notes in the Condensed Consolidated Financial Statements which appear in Item 1 of this combined Quarterly Report on Form 10-Q (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 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. Currency Impact To understand the trends in the business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as "constant currency," “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate. This impact is calculated for all countries where the functional currency is the local country currency. We do not hedge the translation effect of revenues or expenses denominated in currencies where the local currency is the functional currency. Management believes the constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference between actual growth rates and constant currency growth rates. Overview 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 structure. 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. Divestitures 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. ____________________________ (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 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 11 82 (71) ____________________________ (1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure. 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. 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 Revenue Print and Other $ 1,430 $ 1,636 (12.6) % Xerox Financial Services (XFS) 91 102 (10.8) % Intersegment Elimination (1) (19) (23) (17.4) % Total Revenue $ 1,502 $ 1,715 (12.4) % Profit Print and Other $ 33 $ 100 (67.0) % Xerox Financial Services (XFS) — 18 (100.0) % Total Profit $ 33 $ 118 (72.0) % ____________________________ (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. ____________________________ (1) Working capital, net reflects Accounts receivable, Billed portion of finance receivables, Inventories and Accounts payable. 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. ____________________________ (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. Xerox 2024 Form 10-Q 44 Financial Review Revenues Three Months Ended March 31, % of Total Revenue (in millions) 2024 2023 % Change CC % Change 2024 2023 Equipment sales $ 290 $ 391 (25.8) % (26.3) % 19 % 23 % Post sale revenue 1,212 1,324 (8.5) % (9.3) % 81 % 77 % Total Revenue $ 1,502 $ 1,715 (12.4) % (13.2) % 100 % 100 % Reconciliation to Condensed Consolidated Statements of (Loss) Income: Sales $ 523 $ 659 (20.6) % (21.3) % Less: Supplies, paper and other sales (233) (268) (13.1) % (14.1) % Equipment sales $ 290 $ 391 (25.8) % (26.3) % Services, maintenance and rentals $ 937 $ 1,004 (6.7) % (7.4) % Add: Supplies, paper and other sales 233 268 (13.1) % (14.1) % Add: Financing 42 52 (19.2) % (20.8) % Post sale revenue $ 1,212 $ 1,324 (8.5) % (9.3) % Segments Print and Other $ 1,430 $ 1,636 (12.6) % 95 % 95 % Xerox Financial Services (XFS) (1) 91 102 (10.8) % 6 % 6 % Intersegment elimination (2) (19) (23) (17.4) % (1) % (1) % Total Revenue (3) $ 1,502 $ 1,715 (12.4) % 100 % 100 % _____________ CC - See "Currency Impact" section for a description of Constant Currency. (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. 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 Post sale revenue reflects revenues from Contractual print services 2 , supplies and financing. 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, 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, 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. 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 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. ____________________________ (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 services offerings. Xerox 2024 Form 10-Q 46 Costs, Expenses and Other Income Summary of Key Financial Ratios The following is a summary of key financial ratios used to assess our performance: Three Months Ended March 31, (in millions) 2024 2023 B/(W) Gross Profit $ 443 $ 589 $ (146) RD&E 49 64 15 SAG 397 407 10 Equipment Gross Margin 31.0 % 36.5 % (5.5) pts. Post sale Gross Margin 29.1 % 33.7 % (4.6) pts. Total Gross Margin 29.5 % 34.3 % (4.8) pts. RD&E as a % of Revenue 3.3 % 3.7 % 0.4 pts. SAG as a % of Revenue 26.4 % 23.7 % (2.7) pts. Pre-tax (Loss) Income $ (150) $ 85 $ (235) Pre-tax (Loss) Income Margin (10.0) % 5.0 % (15.0) pts. Adjusted (1) Operating Income $ 33 $ 118 $ (85) Adjusted (1) Operating Income Margin 2.2 % 6.9 % (4.7) pts. ____________ (1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure. Gross Margin 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 March 31, (in millions) 2024 2023 Change R&D $ 37 $ 52 $ (15) Sustaining engineering 12 12 — Total RD&E Expenses $ 49 $ 64 $ (15) 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 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. 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 $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 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 March 31, (in millions) 2024 2023 Non-financing interest expense $ 26 $ 14 Interest income (3) (5) Non-service retirement-related costs 23 (1) Currency losses, net 11 11 Gain on early extinguishment of debt (3) — Gain on release of contingent consideration (5) — All other expenses, net (5) 1 Other expenses, net $ 44 $ 20 Non-Financing Interest Expense 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. Non-Service Retirement-Related Costs 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 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. Income Taxes 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. In addition, the effective tax rate will change based on discrete or other nonrecurring events that may not be predictable. _____________ (1) Refer to the Adjusted Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section. 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 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; 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) $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 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 March 31, (in millions) External Revenue Intersegment Revenue (1) Total Segment Revenue % of Total Revenue Segment Profit Segment Margin (2) 2024 Print and Other $ 1,411 $ 19 $ 1,430 94 % $ 33 2.3 % XFS 91 — 91 6 % — — % Total $ 1,502 $ 19 $ 1,521 100 % $ 33 2.2 % 2023 Print and Other $ 1,613 $ 23 $ 1,636 94 % $ 100 6.2 % 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 XFS segment to the Print and Other segment for the lease of Xerox equipment placements. (2) Segment margin based on external revenue only. Xerox 2024 Form 10-Q 50 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 Digital and IT services and software. Revenue Three Months Ended March 31, (in millions) 2024 2023 % Change Equipment sales $ 285 $ 385 (26.0)% Post sale revenue 1,126 1,228 (8.3)% Intersegment revenue (1) 19 23 (17.4)% Total Print and Other Revenue $ 1,430 $ 1,636 (12.6)% _____________ (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. Detail by product group is shown below. Three Months Ended March 31, % of Equipment Sales (in millions) 2024 2023 % Change CC % Change 2024 2023 Entry $ 45 $ 62 (27.4)% (27.2)% 15% 16% Mid-range 193 252 (23.4)% (24.0)% 67% 64% High-end 47 73 (35.6)% (35.9)% 16% 19% Other 5 4 25.0% 25.0% 2% 1% Equipment sales (1)(2) $ 290 $ 391 (25.8)% (26.3)% 100% 100% _____________ CC - See "Currency Impact" section for a description of constant currency. (1) Refer to the Products and Offerings Definitions section. (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 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 “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 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. Installs include activity for Xerox and non-Xerox branded products installed by our XBS sales unit. Detail by product group (see Products and Offerings Definitions ) is shown below. Installs for the three months ended March 31, 2024 as compared to prior year period reflect the following: Entry • 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. Mid-Range • 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. High-End • 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 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 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. Segment Margin 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 Xerox Financial Services Xerox Financial Services (XFS) (formerly FITTLE) represents a global financing solutions business, primarily enabling the sale of our equipment and services. Revenue Three Months Ended March 31, (in millions) 2024 2023 % Change Equipment sales $ 5 $ 6 (16.7)% Financing 42 52 (19.2)% Other Post sale revenue (1) 44 44 —% Total XFS Revenue $ 91 $ 102 (10.8)% _____________ (1) Other Post sale revenue includes lease renewal and fee income as well as gains, commissions and servicing revenue associated with sold finance receivables. First quarter 2024 XFS segment revenue decreased 10.8% as compared to first quarter 2023 and reflected the following: Financing revenue is generated from direct and indirectly financed Xerox equipment sale transactions. For the three months ended March 31, 2024, 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, as well as lower originations. Finance receivables are approximately $720 million lower in March of 2024 as compared to March of 2023. Other Post sale revenue was flat for the three months ended March 31, 2024 as compared to first quarter 2023. Other Post sale revenue reflected gains, commissions and servicing revenue from increased sal es of receivables under our finance receivables funding agreement, which was $8 million for the three months ended March 31, 2024. _____________ (1) Refer to the “Currency Impact” section for a description of constant currency. Segment Margin First quarter 2024 XFS segment margin of 0.0% decreased 17.6-percentage points as compared to first quarter 2023. Segment profit for XFS was $18 million lower as compared to first quarter 2023 mainly due to higher bad debt expense, which was partially offset by modestly higher gross profit and lower intercompany commissions. Xerox 2024 Form 10-Q 53 Capital Resources and Liquidity The following is a summary of our liquidity position: • As of March 31, 2024 and December 31, 2023, total cash, cash equivalents and restricted cash were $772 million and $617 million, respectively, and apart from restricted cash of $87 million and $98 million at March 31, 2024 and December 31, 2023, respectively, was readily accessible for use. The increase in total cash, cash equivalents and restricted cash of $155 million primarily reflects cash provided by financing activities of $261 million, which was partially offset by a use in operating cash activities of $79 million. • Total debt at March 31, 2024 was $3,604 million, of which $2,200 million is allocated to and supports the Company's finance assets. The remaining debt of $1,404 million is attributable to the non-financing business and increased from $849 million at December 31, 2023. Debt consists of senior unsecured notes, secured borrowings through the securitization of finance assets, and borrowings under a Term Loan B facility. • In March 2024, Xerox Holdings Corporation issued $500 million of 8.875% Senior Notes due in 2029, as well as an aggregate $400 million of 3.75% Convertible Senior Notes due in 2030. In connection with the issuance of the 2030 Notes, the Company entered into privately negotiated capped call transactions, with the option counterparties, including certain of the initial purchasers of the 2030 Notes or their respective affiliates at a cost of approximately $23 million. A portion of the aggregate net proceeds were used to repay, via tender offer, approximately $83 million of the 3.80% Xerox Corporation Senior Notes due in 2024 and approximately $362 million of the 5.00% Xerox Holdings Corporation Senior Notes due in 2025. The Company plans to use the remaining aggregate net debt proceeds to repay debt, including the remaining outstanding 3.80% Senior Notes of approximately $217 million, that were not redeemed as part of the Senior Notes tender offer when they come due in May 2024. Other than the May 2024 Senior Notes, no repayments for Senior Notes are due within the next twelve months. • As of March 31, 2024, there were no borrowings or letters of credit outstanding under our ABL facility, under which we can borrow up to a maximum of $300 million. We were in full compliance with the covenants and other provisions of the ABL Facility. • We continue to expect Operating cash flows for 2024 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. Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt activity. Cash Flow Analysis The following summarizes our cash, cash equivalents and restricted cash: Three Months Ended March 31, Change (in millions) 2024 2023 Net cash (used in) provided by operating activities $ (79) $ 78 $ (157) Net cash used in investing activities (17) (17) — Net cash provided by (used in) financing activities 261 (505) 766 Effect of exchange rate changes on cash, cash equivalents and restricted cash (10) 2 (12) Increase (decrease) in cash, cash equivalents and restricted cash 155 (442) 597 Cash, cash equivalents and restricted cash at beginning of period 617 1,139 (522) Cash, Cash Equivalents and Restricted Cash at End of Period $ 772 $ 697 $ 75 Cash Flows from Operating Activities Net cash used in operating activities was $79 million for the three months ended March 31, 2024. The $157 million decrease in operating cash from the prior year period was primarily due to the following: • $70 million decrease in pre-tax income before depreciation and amortization, provisions, divestitures, stock-based compensation, restructuring and related costs, net and non-service retirement-related costs. • $70 million decrease from accrued compensation due to the timing of payments of higher year-end accruals. • $69 million decrease from inventory primarily due to higher purchases related to a change in contractual terms with a large OEM vendor. • $58 million decrease from accounts receivable primarily due to the timing of collections. • $19 million decrease from higher restructuring and related payments. • $58 million increase from accounts payable primarily due to the timing of supplier and vendor payments. Xerox 2024 Form 10-Q 54 • $50 million increase from finance receivables primarily due to a higher level of run-off as a result of lower originations, partially offset by lower sales of finance receivables under the finance receivables funding agreement. Refer to Note 8 – Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding the sale of finance receivables. • $18 million increase due to lower placements of equipment on operating leases. Cash Flows from Investing Activities Net cash used in investing activities was $17 million for the three months ended March 31, 2024, which was flat as compared to the prior year period. Cash Flows from Financing Activities Net cash provided by financing activities was $261 million for the three months ended March 31, 2024. The $766 million increase in cash from the prior year period was primarily due to the following: • $787 million increase from net debt activity. 2024 reflects proceeds of $500 million on Senior Notes and $400 million on Convertible Senior Notes offset by net payments of $441 million on Senior Notes, deferred debt issuance costs of $15 million from Senior Notes issuances, $103 million on secured financing arrangements and $7 million on the Term Loan B facility. The $441 million of net payments on Senior Notes includes $83 million on Senior Notes maturing in May 2024 and $362 million for the early redemption of 2025 Senior Notes offset by early redemption premium of $4 million. 2023 reflects payments of $300 million on Senior Notes and $152 million on secured financing arrangements. • $23 million decrease from purchases of capped calls. Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt activity. Cash, Cash Equivalents and Restricted Cash Refer to Note 12 - Supplementary Financial Information in the Condensed Consolidated Financial Statements for additional information regarding Cash, cash equivalents and restricted cash. Operating Leases We have operating leases for real estate and vehicles in our domestic and international operations, and for certain equipment in our domestic operations. Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations. Our leases have remaining terms of up to eleven years and a variety of renewal and/or termination options. As of March 31, 2024 and December 31, 2023, total operating lease liabilities were $186 million and $182 million, respectively. Refer to Note 10 - Lessee in the Condensed Consolidated Financial Statements for additional information regarding our leases accounted for under lessee accounting. Debt and Customer Financing Activities The following summarizes our debt: (in millions) March 31, 2024 December 31, 2023 Xerox Holdings Corporation $ 2,038 $ 1,500 Xerox Corporation 1,360 1,450 Xerox - Other Subsidiaries (1) 253 361 Subtotal - Principal debt balance 3,651 3,311 Debt issuance costs Xerox Holdings Corporation (20) (6) Xerox Corporation (12) (12) Xerox - Other Subsidiaries (1) (1) (1) Subtotal - Debt issuance costs (33) (19) Net unamortized premium (14) (15) Total Debt $ 3,604 $ 3,277 _____________ (1) Represents secured debt issued by subsidiaries of Xerox Corporation as part of the securitization of Finance Receivables. Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt. Xerox 2024 Form 10-Q 55 Finance Assets and Related Debt The following represents our total finance assets, net associated with our lease and finance operations: (in millions) March 31, 2024 December 31, 2023 Total finance receivables, net (1) $ 2,258 $ 2,510 Equipment on operating leases, net 257 265 Total Finance Assets, net (2) $ 2,515 $ 2,775 _____________ (1) Includes (i) Billed portion of finance receivables, net, (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in our Condensed Consolidated Balance Sheets. (2) The change from December 31, 2023 includes an increase of $32 million due to currency. Our lease contracts permit customers to pay for equipment over time rather than at the date of installation; therefore, we maintain a certain level of debt (that we refer to as financing debt) to support our investment in these lease contracts, which are reflected in Total finance assets, net. For this financing aspect of our business, we maintain an assumed 7:1 leverage ratio of debt to equity as compared to our finance assets. Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt: (in millions) March 31, 2024 December 31, 2023 Finance receivables debt (1) $ 1,975 $ 2,196 Equipment on operating leases debt 225 232 Financing debt 2,200 2,428 Core debt 1,404 849 Total Debt $ 3,604 $ 3,277 __________________ (1) Finance receivables debt is the basis for our calculation of "Cost of financing" expense in the Condensed Consolidated Statements of (Loss) Income. Sales of Finance Receivables and Third Party Leasing Programs Refer to Note 8 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our sales of finance receivables and our third party leasing programs. Capital Market/Debt Activity Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding our debt activity. Xerox 2024 Form 10-Q 56 Liquidity and Financial Flexibility We manage our worldwide liquidity using internal cash management practices, which are subject to i) the statutes, regulations and practices of each of the local jurisdictions in which we operate, ii) the legal requirements of the agreements to which we are a party, and iii) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services. Our principal debt maturities are spread over the next five years as follows: (in millions) Xerox Holdings Corporation Xerox Corporation Xerox - Other Subsidiaries (1) Total 2024 Q2 $ — $ 224 $ 73 $ 297 2024 Q3 — 7 32 39 2024 Q4 — 7 31 38 2025 388 28 104 520 2026 — 41 13 54 2027 — 55 — 55 2028 750 55 — 805 2029 and thereafter 900 943 — 1,843 Total $ 2,038 $ 1,360 $ 253 $ 3,651 _____________ (1) Represents secured debt issued by subsidiaries of Xerox Corporation as part of the securitization of Finance Receivables.. Refer to Note 13 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt. Treasury Stock Xerox Holdings Corporation made no open-market repurchases of its Common Stock in first quarter 2024. Xerox 2024 Form 10-Q 57 Financial Risk Management We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. We utilize derivative financial instruments to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates. We enter into limited types of derivative contracts, including interest rate swap agreements, interest rate caps, foreign currency spot, forward and swap contracts and net purchased foreign currency options to manage interest rate and foreign currency exposures. Our primary foreign currency market exposures include the Euro, U.K. Pound Sterling and Japanese Yen. The fair market values of all our derivative contracts change with fluctuations in interest rates and/or currency exchange rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities. We are required to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. As permitted, certain of these derivative contracts have been designated for hedge accounting treatment. Certain of our derivatives that do not qualify for hedge accounting are effective as economic hedges. These derivative contracts are likewise required to be recognized each period at fair value and therefore do result in some level of volatility. The level of volatility will vary with the type and amount of derivative hedges outstanding, as well as fluctuations in the currency and interest rate markets during the period. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities. By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange and interest rate movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a diversified group of major financial institutions. Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties. The current market events have not required us to materially modify or change our financial risk management strategies with respect to our exposures to interest rate and foreign currency risk. Refer to Note 14 – Financial Instruments in the Condensed Consolidated Financial Statements for further discussion and information on our financial risk management strategies. Xerox 2024 Form 10-Q 58 Non-GAAP Financial Measures We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below. We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below. Adjusted Earnings Measures • Adjusted Net Income and Earnings per Share (EPS) • Adjusted Effective Tax Rate The above measures were adjusted for the following items: Restructuring and related costs, net: Restructuring and related costs, net include restructuring and asset impairment charges as well as costs associated with our transformation programs beyond those normally included in restructuring and asset impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other strategic business changes. Additional costs for our transformation programs are primarily related to the implementation of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges since we do not believe they provide meaningful insight into our current or past operating performance, nor do we believe they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and savings with respect to our operational performance. Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods. Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets as well as those that are predominantly legacy in nature and related to employees who are no longer providing current service to the Company (e.g. retirees and ex-employees). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be outside the operational performance of the business or legacy costs and not necessarily indicative of current or future cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans. Xerox 2024 Form 10-Q 59 Discrete, unusual or infrequent items: We exclude these item(s), when applicable, given their discrete, unusual or infrequent nature and their impact on the comparability of our results for the period to prior periods and future expected trends. • Inventory-related impact - exit of certain production print manufacturing operations • Divestitures • Gain on early extinguishment of debt Adjusted Operating Income and Margin We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax (loss) income and margin amounts. In addition to the costs and expenses noted above as adjustments for our adjusted earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses. We exclude these amounts in order to evaluate our current and past operating performance and to better understand the expected future trends in our business. Constant Currency (CC) Refer to "Currency Impact" for a discussion of this measure and its use in our analysis of revenue growth. Adjusted Net Income and EPS reconciliation: Three Months Ended March 31, 2024 2023 (in millions, except per share amounts) Net (Loss) Income Diluted EPS Net Income Diluted EPS Reported (1) $ (113) $ (0.94) $ 71 $ 0.43 Adjustments: Inventory-related impact - exit of certain production print manufacturing operations 36 — Restructuring and related costs, net 39 2 Amortization of intangible assets 10 11 Divestitures 54 — Non-service retirement-related costs 23 (1) Gain on early extinguishment of debt (3) — Income tax on adjustments (2) (35) (1) Adjusted $ 11 $ 0.06 $ 82 $ 0.49 Dividends on preferred stock used in adjusted EPS calculation (3) $ 4 $ 4 Weighted average shares for adjusted EPS (3) 125 158 Fully diluted shares at March 31, 2024 (4) 126 ____________________________ (1) Net (Loss) Income and EPS. (2) Refer to Adjusted Effective Tax Rate reconciliation. (3) For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with our Series A convertible preferred stock. (4) Reflects common shares outstanding at March 31, 2024, plus potential dilutive common shares used for the calculation of adjusted diluted EPS for the first quarter 2024. Excludes shares associated with our Series A convertible preferred stock, which were anti-dilutive for the first quarter 2024. Xerox 2024 Form 10-Q 60 Adjusted Effective Tax Rate reconciliation: Three Months Ended March 31, 2024 2023 (in millions) Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income Income Tax Expense Effective Tax Rate Reported (1) $ (150) $ (37) 24.7 % $ 85 $ 14 16.5 % Non-GAAP Adjustments (2) 159 35 12 1 Adjusted (3) $ 9 $ (2) (22.2) % $ 97 $ 15 15.5 % ____________________________ (1) Pre-tax (loss) income and Income tax (benefit) expense. (2) Refer to Adjusted Net Income and EPS reconciliation for details. (3) The tax impact on Adjusted Pre-tax income is calculated under the same accounting principles applied to the Reported Pre-tax (loss) income under ASC 740, which employs an annual effective tax rate method to the results. Adjusted Operating Income and Margin reconciliation: Three Months Ended March 31, 2024 2023 (in millions) (Loss) Profit Revenue Margin Profit Revenue Margin Reported (1) $ (113) $ 1,502 $ 71 $ 1,715 Income tax (benefit) expense (37) 14 Pre-tax (loss) income $ (150) $ 1,502 (10.0) % $ 85 $ 1,715 5.0 % Adjustments: Inventory-related impact - exit of certain production print manufacturing operations 36 — Restructuring and related costs, net 39 2 Amortization of intangible assets 10 11 Divestitures 54 — Other expenses, net (2) 44 20 Adjusted $ 33 $ 1,502 2.2 % $ 118 $ 1,715 6.9 % ____________________________ (1) Net (Loss) Income (2) Includes non-service retirement-related costs. Xerox 2024 Form 10-Q 61 ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information set forth under the “Financial Risk Management” section of this Quarterly Report on Form 10-Q is hereby incorporated by reference in answer to this Item.