What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-04 compared with 2024-08-01 · 344 added, 282 removed, 503 unchanged (55% of the section changed)

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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 June 30, 2024 Myriad had investments of approximately $34 million.

At September 30, 2024 Myriad had investments of approximately $41 million.

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 second quarter of 2024, Xerox progressed in the design, planning and implementation of structural changes that will drive the Company's multi-year Reinvention strategy.

The intended benefits of the new operating model implemented in the first quarter 2024 are materializing in financial results.

In second quarter 2024, adjusted 1 operating income margin, cash flow and revenue trajectory all improved sequentially.

These improvements, and ongoing enhancements to management processes, further our confidence that we have the right strategy in place to deliver our targeted $300 million of improvement in adjusted 1 operating income by the end of 2026.

Equipment sales of $356 million in the second quarter 2024 declined 15.2% in actual currency, or 14.9% in constant currency 1 , as compared to the second quarter 2023.

The prior year effect of backlog 2 reduction and geographic simplification drove an approximate 14-percentage point year-over-year decline.

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

Revenue declined across all product groups, primarily due to the effects of backlog 2 fluctuations in the current and prior year.

Post-sale revenue of $1.2 billion declined 8.4% in actual currency, or 7.9% in constant currency 1 , as compared to second quarter 2023.

The decline was primarily due to lower outsourcing and service revenue, reductions in non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification.

Excluding non-strategic effects, post sale revenue declined mid-single digits.

Pre-tax income of $25 million for the second quarter 2024 increased by $114 million as compared to a pre-tax (loss) of $(89) million in the second quarter 2023, and was primarily driven by the net pre-tax charge of $132 million related to the donation of our Palo Alto Research Center (PARC), in the prior year period.

The increase also reflects lower Selling, administrative and general expenses, due to actions taken to improve our cost structure, and lower Restructuring and related costs, net.

These benefits were partially offset by lower revenues and associated gross

In the third quarter of 2024, the benefits of Reinvention drove improved financial results, albeit at a slower pace than expected.

Third quarter 2024 included a second consecutive period of moderating revenue declines, year over year improvements in adjusted 1 operating income and income margin, and more than 100 percent free cash flow 2 conversion from adjusted 1 operating income.

Further, the pending acquisition of ITsavvy is expected to improve our mix of revenue from complementary, value-added businesses with higher underlying rates of revenue growth.

Equipment sales of $339 million in the third quarter 2024 declined 12.2% in actual and constant currency 1 , as compared to the third quarter 2023.

The effects of fluctuations in backlog 3 in the prior and current years and other Reinvention actions drove approximately 4.0-percentage points of the year-over-year decline.

The remainder of the decline primarily reflects the delayed global launch of two new products, lower-than-expected improvements in sales force productivity, delays in the timing of installations associated with Hurricane Helene, unfavorable mix, and a large Production equipment sale in the prior year.

Total equipment installations increased approximately 17.0% year-over-year, due to growth in entry level equipment.

Post-sale revenue of $1.2 billion declined 6.1% in actual currency, or 5.7% in constant currency 1 , as compared to third quarter 2023.

The decline was primarily due to lower outsourcing and service revenue, intentional reductions in non-strategic revenue, and the effects of geographic simplification.

Excluding non-strategic effects, post sale revenue decreased low-single digits.

Pre-tax loss of approximately $1.1 billion for the third quarter 2024 decreased by approximately $1.2 billion as compared to pre-tax income of $64 million in the third quarter 2023.

Third quarter 2024 includes a pre-tax, non-cash goodwill impairment charge of $1.1 billion ($1.0 billion after-tax) or $8.16 per diluted share.

As a result of a sustained market capitalization below our book value and current results, in the third quarter 2024 we performed a

Xerox 2024 Form 10-Q 47

Adjusted 1 operating income decreased $22 million as compared to second quarter 2023, due to lower equipment and post sale revenue, and associated gross profits.

These impacts were partially offset by benefits from cost reduction actions associated with structural simplification efforts and lower bad debt expense.

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.

quantitative assessment of Goodwill.

Although operating results and related cash flows are expected to sequentially improve in the fourth quarter 2024, and in 2025, we see greater risk to our previous outlooks and estimates, at least in the near term.

This impact and the resulting effect on discounted future cash flows, continued to negatively impact the Company’s valuation resulting in the goodwill impairment charge for the third quarter 2024.

The decrease associated with this charge was partially offset by an increase in adjusted 1 operating income.

Adjusted 1 operating income increased by $12 million as compared to third quarter 2023, reflecting lower Selling, administrative and general expenses associated with actions taken to simplify our organization, Research, development and engineering expenses (RD&E), and partially offset by lower equipment and post sale revenue and associated gross profits.

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

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

(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.

Total revenue of $1.58 billion for second quarter 2024 decreased 10.0% from second quarter 2023, which included a 0.4-percentage point unfavorable impact from currency.

Total revenue of $3.08 billion for the six months ended June 30, 2024 decreased 11.2% as compared to the prior year period, including a 0.2-percentage point benefit from currency.

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

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

Goodwill - Quantitative Impairment Evaluation

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

During the third quarter 2024, we identified events and conditions that required a quantitative assessment of Goodwill.

Refer to Note 1 - Basis of Presentation in the Condensed Consolidated Financial Statements for additional information regarding the assessment of Goodwill.

Valuation Allowance

During the third quarter 2024, a valuation allowance was recorded primarily related to certain deferred tax assets in a non-U.S tax jurisdiction.

Refer to Note 1 - Basis of Presentation in the Condensed Consolidated Financial Statements for additional information regarding the valuation allowance.

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.

Xerox 2024 Form 10-Q 48

Total revenue of $1.53 billion for third quarter 2024 decreased 7.5% from third quarter 2023, which included a 0.2-percentage point unfavorable impact from currency.

Total revenue of $4.61 billion for the nine months ended September 30, 2024 decreased 10.0% as compared to the prior year period, with no impact from currency.

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

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

(in millions) 2024 2023 B/(W) 2024 2023 B/(W)

Net Income (Loss) $ 18 $ (61) $ 79 $ (95) $ 10 $ (105)

Net (Loss) Income $ (1,205) $ 49 $ (1,254) $ (1,300) $ 59 $ (1,359)

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.

Second quarter 2024 Net income was $18 million as compared to the second quarter 2023 Net (loss) of $(61) million.

The increase in Net income of $79 million primarily reflects the net after-tax PARC donation charge of $92 million ($132 million pre-tax) in the prior year period, as well as lower Selling, administrative and general expenses, Restructuring and related costs, net, and Research, development and engineering expenses (RD&E).

These positive impacts were partially offset by lower revenue and gross profit, which includes the exit of certain production print manufacturing operations, as well as, higher Other expenses, net, which included the impacts of higher non-service retirement-related costs and insurance proceeds related to a legal settlement, and higher Income tax expense.

Second quarter 2024 Adjusted 1 Net income of $41 million decreased $31 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net.

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

Net (loss) for the six months ended June 30, 2024 was $(95) million as compared to the prior year period Net income of $10 million, which reflects the net after-tax PARC donation charge of $92 million ($132 million pre-tax).

The decrease in Net income reflects lower revenue and gross profit, as well as the loss from 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 impacts of higher non-service retirement-related costs as well as insurance proceeds related to a legal settlement.

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

A djusted 1 Net income for the six months ended June 30, 2024 of $52 million decreased $102 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net.

Third quarter 2024 Net (loss) was $(1,205) million as compared to the third quarter 2023 Net income of $49 million.

The decrease in Net income of $1,254 million primarily reflects the after-tax non-cash Goodwill impairment charge of $1,015 million ($1,058 million pre-tax) in the third quarter 2024, as well as lower revenue and gross profit, higher Other expenses, net, which included the impacts of higher non-service retirement-related costs, higher Restructuring and related costs, net, and higher Income tax expense.

These negative impacts were partially offset by lower Selling, administrative and general expenses and Research, development and engineering expenses (RD&E).

Third quarter 2024 Adjusted 1 Net income of $34 million decreased $43 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net, and Income tax expense.

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

Net (loss) for the nine months ended September 30, 2024 was $(1,300) million as compared to the prior year period Net income of $59 million.

The decrease in Net income of $1,359 million primarily reflects the after-tax non-cash Goodwill impairment charge of $1,015 million ($1,058 million pre-tax) in the third quarter 2024, as well as lower revenue and gross profit, higher Other expenses, net, which included the impacts of higher non-service retirement-related costs, higher Income tax expense, higher Restructuring and related costs, net, the loss from divestitures of certain direct business operations in Latin America, and the exit of certain production print manufacturing operations.

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

A djusted 1 Net income for the nine months ended September 30, 2024 of $86 million decreased $145 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net.

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

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

Xerox 2024 Form 10-Q 45

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

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

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

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

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(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.

Cash flows from operating activities during the six months ended June 30, 2024 was a source of $44 million and decreased $129 million as compared to the prior year period, primarily related to lower net income as well as higher payments for accrued compensation and restructuring, partially offset by net proceeds of approximately $377 million from the on-going sales of finance receivables under the finance receivables funding agreement, as well as lower finance receivable originations, and improvements in cash for working capital 1 .

Cash used in investing activities during the six months ended June 30, 2024 was $19 million, reflecting capital expenditures of $18 million, $11 million related to the impact of the deconsolidation of an entity that is now accounted for using the equity method of accounting, and $9 million for investments in noncontrolling interests, all of which was partially offset by net cash proceeds of approximately $11 million from the sale of assets, and $7 million from the sales of our business operations in Argentina and Chile.

Cash used in financing activities during the six months ended June 30, 2024 was $75 million reflecting net payments of approximately $658 million on Senior Notes due in 2024 and 2025, $178 million on secured financing arrangements, $15 million for debt issuance costs, and $14 million on the Term Loan B facility.

Xerox 2024 Form 10-Q 49

Cash flows from operating activities during the nine months ended September 30, 2024 was a source of $160 million and decreased $137 million as compared to the prior year period, primarily related to lower net income as well as higher payments for accrued compensation, pension contributions, and restructuring, partially offset by net proceeds of approximately $511 million from the on-going sales of finance receivables under the finance receivables funding agreement, as well as lower finance receivable originations, and improvements in cash for working capital 1 .

Cash used in investing activities during the nine months ended September 30, 2024 was $26 million, reflecting capital expenditures of $27 million, $11 million related to the impact of the deconsolidation of an entity that is now accounted for using the equity method of accounting, and $16 million for investments in noncontrolling interests, all of which was partially offset by net cash proceeds of approximately $20 million from the sale of assets, and $7 million from the sales of our business operations in Argentina and Chile.

Cash used in financing activities during the nine months ended September 30, 2024 was $149 million reflecting net payments of approximately $658 million on Senior Notes due in 2024 and 2025, $211 million on secured financing arrangements, $18 million for debt issuance costs, and $21 million on the Term Loan B facility.

Partially offsetting payments on debt were proceeds from the issuance of Senior Notes during first quarter 2024 of approximately $900 million.

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

Due primarily to incremental reductions in revenue associated with geographic simplification and the decision to exit the manufacturing of certain Production equipment, we are lowering our full-year revenue guidance from a decline of 3% to 5% in constant currency 1 to a decline of 5% to 6% in constant currency 1 .

Core business revenue in 2024 is expected to be roughly flat year-over-year in constant currency 1 consistent with our prior outlook, reflecting growing demand for our products and services in the second half of the year.

As a result of lower expected revenues, and to a lesser extent rising freight and product costs, we are lowering adjusted 1 operating income margin guidance from at least 7.5% to at least 6.5%.

Operating cash flows is now expected to be at least $600 million in 2024 versus prior guidance of at least $650 million.

The reduction in operating cash flows is in-line with the after-tax reduction in adjusted 1 operating income expectations.

We continue to expect capital expenditures to be approximately $50 million.

Revenue guidance was reduced from a decline of 5% to 6% in constant currency 1 to a decline of about 10% in constant currency 1 , reflecting the incremental effects of intentional reductions in non-strategic revenue and lower equipment revenue associated with the delayed global launch of two new products and lower-than-expected improvements in sales force productivity.

Adjusted 1 operating income guidance was reduced from at least 6.5% to about 5.0%, reflecting the effects of gross profit declines associated with the decline in revenue guidance, and to a lesser extent, delays in the implementation of certain cost reduction initiatives to 2025.

Operating cash flows are now expected to be to be within a range of $490 million to $540 million, versus prior guidance of at least $600 million, reflecting the after-tax effects of the reduction in adjusted 1 operating income guidance.

We now expect capital expenditures to be approximately $40 million, as compared to previous guidance of approximately $50 million.

Due to lower-than-expected revenue in 2024, we no longer expect to grow adjusted 1 operating income $300 million above 2023 levels by 2026.

However, we continue to expect growth in adjusted 1 operating income and a return to double-digit adjusted 1 operating income margin over the course of our Reinvention.

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Three Months Ended

June 30, Six Months Ended

June 30, % of Total Revenue

September 30, Nine Months Ended

September 30, % of Total Revenue

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

2 unchanged sentences

Total Revenue $ 1,528 $ 1,652 (7.5) % (7.3) % $ 4,608 $ 5,121 (10.0) % (10.0) % 100 % 100 %

Reconciliation to Condensed Consolidated Statements of Income (Loss):

Reconciliation to Condensed Consolidated Statements of (Loss) Income):

Sales $ 588 $ 644 (8.7) % (8.3) % $ 1,722 $ 1,999 (13.9) % (13.9) %

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

Second quarter 2024 total revenue decreased 10.0% as compared to second quarter 2023, and included a 0.4-percentage point adverse impact from currency, while total revenue for the six months ended June 30, 2024 decreased 11.2%, and included a 0.2-percentage point benefit from currency.

The decrease in equipment sales revenue at constant currency 1 for both the three and six months ended June 30, 2024 was primarily attributable to the effects of backlog fluctuations in the current and prior year quarters, along with non-strategic reductions in revenue, including offering and geographic simplification.

The six months ended June 30, 2024 was also impacted by the organizational changes implemented during the first quarter 2024.

Post sale revenue decreased at constant currency 1 for both the three and six months ended June 30, 2024 primarily due to the decline in Contractual print services 2 driven by lower service and outsourcing revenue, as well as reductions in non-strategic, lower margin IT endpoint device placements and paper sales, lower Finance income, and the effects of geographic simplification.

Post sale revenue for the six months ended June 30, 2024, was also negatively impacted by the termination of Fuji royalty income and PARC revenue.

Total revenue for the three and six months ended June 30, 2024 reflected the following:

Third quarter 2024 total revenue decreased 7.5% as compared to third quarter 2023, and included a 0.2-percentage point adverse impact from currency, while total revenue for the nine months ended September 30, 2024 decreased 10.0%, with no impact from currency.

The decrease in equipment sales revenue at constant currency 1 for the three months ended September 30, 2024 was primarily attributable to a delay in the global launch of two new products, lower-than-expected improvements in sales productivity, unfavorable mix, and a large production equipment sale in the third quarter 2023.

Equipment sales revenue for the three months ended September 30, 2024 was also impacted by the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including geographic simplification.

For the nine months ended September 30, 2024, equipment sales revenue was primarily impacted by lower-than-expected improvements in sales productivity and unfavorable mix, as well as the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including geographic simplification.

Third quarter 2024 Post sale revenue decreased at constant currency 1 due to a decline in contractual print services 2 revenue, driven by lower service and outsourcing revenue, and reductions in lower margin IT endpoint device placements.

These negative impacts were partially offset by higher supplies revenue and digital and managed IT services revenue.

For the nine months ended September 30, 2024, Post sale revenue decreased at constant currency 1 primarily due to the decline in Contractual print services 2 driven by lower service and outsourcing revenue, and reductions in lower margin IT endpoint device placements, as well as the termination of Fuji royalty income and PARC revenue, lower paper sales, lower Finance income, and the effects of geographic simplification.

These negative impacts were partially offset by higher supplies revenue and digital and managed IT services revenue.

Total revenue for the three and nine months ended September 30, 2024 reflected the following:

Xerox 2024 Form 10-Q 51

Post sale revenue

1 unchanged sentence

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 8.4% as compared to second quarter 2023, which included a 0.5-percentage point adverse impact from currency, while Post sale revenue decreased 8.4% for the six months ended June 30, 2024 as compared to the prior year period, including a 0.2-percentage point benefit from currency.

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.

Post sale revenue decreased 6.1% as compared to third quarter 2023, which included a 0.4-percentage point adverse impact from currency, while Post sale revenue decreased 7.7% for the nine months ended September 30, 2024 as compared to the prior year period, with no impact from currency.

Post sale revenue reflected the following:

Xerox 2024 Form 10-Q 47

• 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.

For the three months ended June 30, 2024, these revenues decreased 7.9% as compared to second quarter 2023, which included a 0.6-percentage point adverse impact from currency, while for the six months ended June 30, 2024 these revenues decreased 7.3% as compared to the prior year period, including a 0.1-percentage point benefit from currency.

The decline at constant currency 1 for both the three and six months ended June 30, 2024, respectively, was primarily due to Contractual print services 2 declines and the absence of PARC revenue.

Contractual print services 2 revenue declined mid-single digits for the three and six months ended June 30, 2024 as compared to the respective prior year periods, driven by lower outsourcing and service revenue and the effects of geographic simplification, which was partially offset by gains, commissions, and servicing revenue on sales of finance receivables.

The decline for the six months ended June 30, 2024 was also negatively impacted by the termination of Fuji royalty income.

For the three months ended September 30, 2024, these revenues decreased 6.2% as compared to third quarter 2023, which included a 0.1-percentage point adverse impact from currency, while for the nine months ended September 30, 2024 these revenues decreased 7.0% as compared to the prior year period, with no impact from currency.

The decline at constant currency 1 for both the three and nine months ended September 30, 2024, respectively, was primarily due to Contractual print services 2 declines.

Contractual print services 2 revenue declined mid-single digits for the three and nine months ended September 30, 2024 as compared to the respective prior year periods, driven by lower outsourcing and service revenue, which includes the effects of geographic simplification, which were partially offset by higher digital and IT managed services, as well as gains, commissions, and servicing revenue on sales of finance receivables.

The decline for the nine months ended September 30, 2024 was also driven by the termination of Fuji royalty income and PARC revenue.

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

For the three months ended June 30, 2024, these revenues decreased 7.6% as compared to second quarter 2023, including a 0.1-percentage point benefit from currency, while for the six months ended June 30, 2024 the revenues decreased 10.3% as compared to the prior year period, including a 0.5-percentage point benefit from currency.

The decline at constant currency 1 for both the three and six months ended June 30, 2024, respectively, primarily reflected lower sales of non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification.

For the three months ended September 30, 2024, these revenues decreased 3.5% as compared to third quarter 2023, including a 1.2-percentage point adverse impact from currency, while for the nine months ended September 30, 2024 the revenues decreased 8.1% as compared to the prior year period with no impact from currency.

The decline at constant currency 1 for both the three and nine months ended September 30, 2024, respectively, primarily reflected lower sales of non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification.

The decline in both periods was partially offset by higher supplies revenue.

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

These revenues decreased 22.4% as compared to second quarter 2023, including a 1.2-percentage point adverse impact from currency.

Financing revenue for the six months ended June 30, 2024 decreased 20.8% as compared to the prior year period, including a 0.2-percentage point benefit from currency.

The decline at constant currency 1 for both the three and six months ended June 30, 2024, respectively, reflects a reduction of the average finance receivables balance in the first half of 2024 as a result of the sales of finance receivables to HPS Investment Partners (HPS), as well as lower originations.

Finance receivables are approximately $650 million lower in June of 2024 as compared to June of 2023.

These revenues decreased 17.4% as compared to third quarter 2023, including a 0.2-percentage point benefit from currency.

Financing revenue for the nine months ended September 30, 2024 decreased 19.7% as compared to the prior year period, including a 0.2-percentage point benefit from currency.

The decline at constant currency 1 for both the three and nine months ended September 30, 2024, respectively, reflects a continued reduction of the average finance receivables balance in 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 $630 million lower as of September 30, 2024 when compared with September 30, 2023.

Equipment sales revenue

Equipment sales revenue decreased 15.2% as compared to second quarter 2023, including a 0.3-percentage point adverse impact from currency.

The decrease in both actual and constant currency 1 reflects backlog fluctuations in the current and prior year quarters, as well as effects of non-strategic reductions in revenue, including offering and geographic simplification.

Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

For the six months ended June 30, 2024 Equipment sales revenue decreased 20.3%, including a 0.1-percentage point benefit from currency.

The decrease in both actual and constant currency 1 reflects the significant reduction in backlog in the first quarter 2023 as compared to the first quarter 2024, as well as organizational changes implemented during the first quarter 2024, and the effects of non-strategic reductions in revenue, including offering and geographic simplification.

Equipment sales revenue decreased 12.2% as compared to third quarter 2023, with no impact from currency.

The decrease in constant currency 1 was primarily attributable to a delay in the global launch of two new products, lower-than-expected improvements in sales productivity, unfavorable mix, and a large production equipment sale in the prior year.

Equipment sales revenue was also impacted by the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including geographic simplification.

Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in entry production color products.

For the nine months ended September 30, 2024 Equipment sales revenue decreased 17.7%, with no impact from currency.

The decrease in constant currency 1 was primarily impacted by lower-than-expected improvements in sales productivity, unfavorable mix, as well as the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including offering and geographic simplification.

Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

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

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

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

(in millions) 2024 2023 B/(W) 2024 2023 B/(W)

12 unchanged sentences

25.2 % 24.5 % (0.7) pts.

Pre-tax Income (Loss) $ 25 $ (89) $ 114 $ (125) $ (4) $ (121)

Pre-tax Income (Loss) Margin 1.6 % (5.1) % 6.7 pts.

Pre-tax (Loss) Income $ (1,087) $ 64 $ (1,151) $ (1,212) $ 60 $ (1,272)

Pre-tax (Loss) Income Margin (71.1) % 3.9 % (75.0) pts.

(26.3) % 1.2 % (27.5) pts.

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

Second quarter 2024 gross margin of 33.0% decreased by 1.0-percentage points as compared to second quarter 2023, primarily reflecting lower revenue and gross profit, higher transportation and product costs, and the exit of certain production print manufacturing operations.

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

Gross margin for the six months ended June 30, 2024 of 31.3% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, primarily due to charges associated with the exit of certain production print manufacturing operations, which had a 1.4-percentage point unfavorable impact on gross margin, as well as higher transportation and product costs.

Third quarter 2024 gross margin of 32.4% was flat as compared to third quarter 2023, primarily reflecting lower revenue and gross profit, higher transportation costs, as well as unfavorable equipment mix and lower print volumes.

These impacts were offset by the benefits associated with recent cost and productivity actions, and favorable currency.

Gross margin for the nine months ended September 30, 2024 of 31.6% decreased by 2.0-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, primarily due to charges associated with the exit of certain production print manufacturing operations, which had a 1.0-percentage point unfavorable impact on gross margin, as well as higher transportation and product costs, an unfavorable equipment mix and lower print volumes.

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

Second quarter 2024 Equipment gross margin of 34.5% decreased by 0.7-percentage points as compared to second quarter 2023, reflecting lower revenue and gross profit, and higher transportation and product costs.

Third quarter 2024 Equipment gross margin of 28.5% decreased by 2.5-percentage points as compared to third quarter 2023, reflecting lower revenue and gross profit, higher transportation costs, and the release of a tariff accrual in the prior year period.

These impacts were partially offset by favorable currency.

Equipment gross margin for the six months ended June 30, 2024 of 32.9% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, the exit of certain production print manufacturing operations, and higher product and transportation costs.

Equipment gross margin for the nine months ended September 30, 2024 of 31.4% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, higher product and transportation costs, and the release of a tariff accrual in the prior year period.

These impacts were partially offset by favorable currency.

Second quarter 2024 Post sale gross margin of 32.5% decreased by 1.1-percentage points as compared to second quarter 2023, reflecting lower revenue and gross profit, including lower page volumes, charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, and higher transportation and product costs.

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

Post sale gross margin for the six months ended June 30, 2024 of 30.8% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, 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 1.9-percentage point unfavorable impact on gross margin.

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

Third quarter 2024 Post sale gross margin of 33.5% increased by 0.6-percentage points as compared to third quarter 2023, reflecting the benefits associated with recent Reinvention-related cost and productivity actions and favorable currency.

These benefits were partially offset by lower revenue and gross profit, including lower page volumes.

Post sale gross margin for the nine months ended September 30, 2024 of 31.7% decreased by 1.7-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, 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 1.2-percentage point unfavorable impact on gross margin.

Higher transportation costs also adversely impacted gross margin.

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

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Research, Development and Engineering Expenses (RD&E)

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

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

(in millions) 2024 2023 Change 2024 2023 Change

2 unchanged sentences

Total RD&E Expenses $ 45 $ 52 $ (7) $ 144 $ 173 $ (29)

Second quarter 2024 RD&E as a percentage of revenue of 3.2% was flat as compared to second quarter 2023, primarily due to lower RD&E and revenues.

RD&E as a percentage of revenue for the six months ended June 30, 2024 of 3.2% decreased by 0.3-percentage points as compared to the prior year period, primarily due to the strategic decision to donate PARC in second quarter 2023.

Second quarter 2024 RD&E of $50 million decreased $7 million as compared to second quarter 2023.

For the six months ended June 30, 2024 RD&E of $99 million decreased $22 million as compared to the prior year period.

The decrease, as compared to the respective prior year periods was 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 decrease also reflects productivity and cost savings related to the Company's Reinvention.

Third quarter 2024 RD&E as a percentage of revenue of 2.9% decreased 0.2-percentage points as compared to third quarter 2023, primarily due to lower revenues and lower RD&E.

RD&E as a percentage of revenue for the nine months ended September 30, 2024 of 3.1% decreased by 0.3-percentage points as compared to the prior year period, primarily due to the strategic decision to donate PARC in second quarter 2023.

Third quarter 2024 RD&E of $45 million decreased $7 million as compared to third quarter 2023.

For the nine months ended September 30, 2024 RD&E of $144 million decreased $29 million as compared to the prior year period.

The decrease, as compared to the respective prior year periods, was primarily due to productivity and cost savings related to the Company's Reinvention, the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, and the 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.

The decrease for the nine months ended September 30, 2024 also reflected the strategic decision to donate PARC in second quarter 2023.

Selling, Administrative and General Expenses (SAG)

Second quarter 2024 SAG as a percentage of revenue of 24.9% increased by 0.2-percentage points as compared to second quarter 2023, primarily due to lower revenues.

Second quarter 2024 SAG of $393 million decreased by $40 million as compared to second quarter 2023, primarily reflecting productivity and cost savings related to the Company's Reinvention, lower bad debt and incentive compensation expenses, as well as favorable currency.

SAG as a percentage of revenue for the six months ended June 30, 2024 of 25.6% increased by 1.4-percentage points as compared to the prior year period, primarily due to lower revenues, as well as higher bad debt expense, which were partially offset by lower selling and other administrative and general expenses.

SAG for the six months ended June 30, 2024 of $790 million decreased by $50 million as compared to the prior year period, primarily reflecting productivity and cost savings related to the Company's Reinvention, as well as, lower incentive compensation expense, lower litigation costs, and the strategic decision to donate PARC in the prior year.

Third quarter 2024 SAG as a percentage of revenue of 24.2% decreased by 1.0-percentage points as compared to third quarter 2023, primarily due to lower revenue, as well lower selling and other administrative and general expenses.

Third quarter 2024 SAG of $370 million decreased by $46 million as compared to third quarter 2023, primarily reflecting productivity and cost savings related to the Company's Reinvention, and lower incentive compensation expenses.

SAG as a percentage of revenue for the nine months ended September 30, 2024 of 25.2% increased by 0.7-percentage points as compared to the prior year period, primarily due to lower revenue, as well as higher bad debt expense, which were partially offset by lower selling and other administrative and general expenses.

SAG for the nine months ended September 30, 2024 of $1,160 million decreased by $96 million as compared to the prior year period, primarily reflecting productivity and cost savings related to the Company's Reinvention, as well as, lower incentive compensation expense, lower IT, litigation, and advertising costs, and the strategic decision to donate PARC in the prior year.

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

The bad debt provision for the second quarter 2024 of $10 million decreased $5 million as compared to the second quarter 2023, primarily related to lower sales revenue.

The bad debt provision for six months ended June 30, 2024 of $25 million, increased by $18 million as compared to the prior year period.

The increase reflects 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.

The bad debt provision for the third quarter 2024 of $10 million was flat as compared to the third quarter 2023, and includes a reserve release of approximately $8 million due in part to a lower finance receivables balance, as a result of sales of finance receivables in recent quarters to HPS Investment Partners, mostly offset by an increased provision for aged accounts receivables.

The bad debt provision for nine months ended September 30, 2024 of $35 million, increased by $18 million as compared to the prior year period.

The increase reflects 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 an increased provision for aged accounts receivables in the current year, both of which were offset by a reserve release of approximately $8 million, in the current year, due in part to a lower finance receivables balance, as a result of sales of finance receivables in recent quarters to HPS Investment Partners.

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 June 30, 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 (excluding the reserve release in the first quarter 2023).

As of September 30, 2024, on a trailing twelve-month basis, bad debt expense (excluding the reserve release in the third quarter 2024) was approximately 1.6% of total receivables, as compared to approximately 1.0% for the prior year comparable period, primarily due to a lower finance receivables balance, as well the reserve release of approximately $8 million in third quarter 2024.

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.

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Restructuring and Related Costs, Net

We incurred Restructuring and related costs, net of $12 million for the second quarter 2024, as compared to $23 million for the second quarter 2023, and $51 million for the six months ended June 30, 2024, as compared to $25 million in the prior year period.

Charges incurred during 2024 are associated with strategic actions taken as a result of the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations and geographic simplification.

Second quarter 2024 actions entirely impacted gross margins improvements.

Second quarter 2023 actions impacted several functional areas, with approximately 50% focused on SAG reductions and approximately 50% focused on RD&E Optimization.

The Restructuring and related costs, net reserve balance for all programs as of June 30, 2024 was $97 million, of which $87 million is expected to be paid over the next twelve months.

We incurred Restructuring and related costs, net of $56 million for the third quarter 2024, as compared to $10 million for the third quarter 2023, and $107 million for the nine months ended September 30, 2024, as compared to $35 million in the prior year period.

Charges incurred during 2024 are associated with strategic actions taken as a result of the Company's Reinvention, primarily related to optimizing operations, the exit of certain production print manufacturing operations, and geographic simplification.

Third quarter 2024 actions impacted several functional areas, with approximately 65% focused on gross margins improvements, approximately 30% focused on SAG reductions, and the remainder focused on RD&E optimization.

Third quarter 2023 actions impacted several functional areas, with approximately 80% focused on SAG reductions and approximately 20% focused on RD&E optimization.

The Restructuring and related costs, net reserve balance for all programs as of September 30, 2024 was $132 million, of which $112 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 18,100 as of June 30, 2024, a decrease of approximately 2,000 from December 31, 2023.

Worldwide employment was approximately 17,300 as of September 30, 2024, a decrease of approximately 2,800 from December 31, 2023.

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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 2024 2023

2 unchanged sentences

Non-service retirement-related costs 25 4 74 14

Gains on sales of businesses and assets (2) (35) (3) (37)

Currency losses, net 2 6 15 22

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

Transaction related costs, net (15) — (38) —

Loss (gain) on early extinguishment of debt — 3 (3) 3

(Gain) loss on early extinguishment of debt — — (3) 3

Gain on release of contingent consideration — — (5) —

2 unchanged sentences

Non-Financing Interest Expense

Second quarter 2024 non-financing interest expense of $31 million was $19 million higher than second quarter 2023.

Non-financing interest expense for the six months ended June 30, 2024 of $57 million was $31 million higher than the prior year period.

The respective increase in both periods is primarily due to higher interest rates on new debt issued in the first quarter of 2024, 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) for the three months ended June 30, 2024, total interest expense increased by $14 million as compared to second quarter 2023, while for the six months ended June 30, 2024, total interest expense of $113 million increased by $17 million from the prior year period.

Third quarter 2024 non-financing interest expense of $31 million was $17 million higher than third quarter 2023.

Non-financing interest expense for the nine months ended September 30, 2024 of $88 million was $48 million higher than the prior year period.

The respective increase in both periods is primarily due to higher interest rates on new debt issued in the first quarter of 2024, partially offset by a lower average debt balance 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) for the three months ended September 30, 2024, total interest expense increased by $13 million as compared to third quarter 2023, while for the nine months ended September 30, 2024, total interest expense of $170 million increased by $30 million from the prior year period.

The respective increase in both periods reflects the impact of higher interest rates on new debt partially offset by a lower average debt balance, due in part to the reduction of the average finance receivables balance, due to the sales of finance receivables to HPS Investment Partners, as well as lower originations.

1 unchanged sentence

Non-Service Retirement-Related Costs

Second quarter 2024 non-service retirement-related costs of $26 million were $15 million higher than the second quarter 2023, while non-service retirement-related costs of $49 million for the six months ended June 30, 2024 were $39 million higher than the prior year period.

Xerox 2024 Form 10-Q 55

Third quarter 2024 non-service retirement-related costs of $25 million were $21 million higher than the third quarter 2023, while non-service retirement-related costs of $74 million for the nine months ended September 30, 2024 were $60 million higher than the prior year period.

The respective increase in both periods is 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.

Xerox 2024 Form 10-Q 51

Gains on sales of businesses and assets

For the three and nine months ended September 30, 2024, gains on sales of businesses and assets decreased $33 million and $34 million, respectively, as compared to their respective prior year periods, due to the sales of non-core surplus business assets in the prior year period.

Currency losses, net

For the three and nine months ended September 30, 2024, currency losses, net decreased $4 million and $7 million, respectively, as compared to their respective prior year periods, primarily due to the prior period sales of our Russian subsidiary, and our direct business operations in Argentina.

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.

Transaction and related costs, net

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain major and strategic M&A projects.

Second quarter 2024 Transaction and related costs, net reflect insurance proceeds related to a legal settlement, for the reimbursement of certain legal and other professional costs, associated with the terminated proposal to acquire HP Inc.

in early 2020.

Loss (Gain) on early extinguishment of debt

The (gain) on early extinguishment of debt of $(3) million for the six months ended June 30, 2024 reflects a $(4) million (gain) on the repayment of Senior Notes (via tender offer) in the first quarter of 2024, partially offset by a loss of approximately $1 million on the write-off of deferred debt issuance costs.

The loss on early extinguishment of debt of $3 million for the three and six months ended June 30, 2023 related to the early repayment on secured borrowings and the termination of our $250 million Credit Facility prior to entering into our 5-year Asset Based Lending (ABL) Facility.

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain major or strategic M&A projects.

For the three and nine months ended September 30, 2024, Transaction and related costs, net reflect insurance proceeds related to a legal settlement, for the reimbursement of certain legal and other professional costs, associated with a past potential merger.

(Gain) loss on early extinguishment of debt

The (gain) on early extinguishment of debt of $(3) million for the nine months ended September 30, 2024 reflects a $(4) million (gain) on the repayment of Senior Notes (via tender offer) in the first quarter of 2024, partially offset by a loss of approximately $1 million on the write-off of deferred debt issuance costs.

The loss on early extinguishment of debt of $3 million for the nine months ended September 30, 2023 related to the early repayment on secured borrowings and the termination of our $250 million Credit Facility prior to entering into our 5-year Asset Based Lending (ABL) Facility.

Gain on release of contingent consideration

The gain on the release of contingent consideration of $5 million for the six months ended June 30, 2024 reflects a reserve release related to earn-out provisions which were not met, in connection with a prior acquisition.

Pre-tax Income (Loss) Margin

Second quarter 2024 pre-tax income margin of 1.6% increased 6.7-percentage points, as compared to second quarter 2023 pre-tax (loss) margin of (5.1)%.

The increase was primarily due to the PARC donation charge in the prior year period, which resulted in a 7.6-percentage point favorable impact when compared to second quarter 2024.

The increase also reflects lower Selling, administrative and general expenses and Restructuring and related costs, net, as well as insurance proceeds related to a legal settlement, which resulted in a 1.5-percentage point favorable impact.

These impacts were partially offset by lower revenues and associated gross profits, which included higher transportation and product costs.

Pre-tax (loss) margin of (4.1)% for the six months ended June 30, 2024 decreased 4.0-percentage points, as compared to the prior year period pre-tax (loss) margin of (0.1)%.

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, and higher Restructuring and related costs, net.

These impacts were partially offset by the PARC donation charge in 2023, which resulted in a 3.8-percentage point favorable impact when comparing the pre-tax loss margin for the six months ended June 30, 2024 to the prior year period, as well as lower Selling, administrative and general expenses, insurance proceeds related to a legal settlement, which resulted in a 0.7-percentage point favorable impact, and lower RD&E expenses.

The gain on the release of contingent consideration of $5 million for the nine months ended September 30, 2024 reflects a reserve release related to earn-out provisions which were not met, in connection with a prior acquisition.

Pre-tax (Loss) Income Margin

Third quarter 2024 pre-tax (loss) margin of (71.1)% increased 75.0-percentage points, as compared to third quarter 2023 pre-tax income margin of 3.9%.

The increase was due to the pre-tax non-cash goodwill impairment charge of $1,058 million, as a result of a sustained market capitalization below our book value, current results and expected future projections.

In addition, the pre-tax (loss) margin also reflects lower revenue and associated gross profit, higher Restructuring and related costs, net, as well as higher Other expenses, net.

These impacts were partially offset by lower Selling, administrative and general expenses.

Pre-tax (loss) margin of (26.3)% for the nine months ended September 30, 2024 increased 27.5-percentage points, as compared to the prior year period pre-tax income margin of 1.2%.

The increase was primarily due to the pre-tax goodwill non-cash impairment charge of $1,058 million recorded in the third quarter 2024.

In addition, the pre-tax (loss) margin also reflects lower revenues and associated gross profit, higher Restructuring and related costs, net, the divestitures of certain direct business operations in Latin America, the exit of certain production print manufacturing operations, as well as higher Other expense, net.

These impacts were partially offset by the PARC donation charge in 2023, as well as lower Selling, administrative and general expenses, and lower RD&E expenses.

Xerox 2024 Form 10-Q 56

Adjusted 1 Operating Margin

Second quarter 2024 adjusted 1 operating income margin of 5.4% decreased by 0.7-percentage points as compared to second quarter 2023, primarily reflecting lower revenue and lower gross margin, which included higher product and transportation costs.

These impacts were partially offset by the benefits from cost and productivity actions, lower Selling, administrative and general expenses, including lower bad debt and incentive compensation expenses, as well as, the benefits from the strategic decision to donate PARC, 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.

Currency also positively impacted adjusted 1 operating income margin.

Adjusted 1 operating income margin of 3.8% for the six months ended June 30, 2024 decreased by 2.7-percentage points as compared to prior year period, reflecting lower revenue and lower gross margin, which included the termination of Fuji royalty income, and higher transportation and product costs, as well as higher bad debt expense primarily related to a reserve release in the first quarter of 2023.

These impacts were partially offset by lower Selling, administrative and general expenses, the benefits from 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.

Third quarter 2024 adjusted 1 operating income margin of 5.2% increased by 1.1-percentage points as compared to third quarter 2023, primarily reflecting the benefits from Reinvention related cost and productivity actions, lower Selling, administrative and general expenses, including lower incentive compensation expenses, favorable currency, and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses.

These benefits were partially offset by lower revenue and lower gross profit, and higher transportation costs.

Adjusted 1 operating income margin of 4.3% for the nine months ended September 30, 2024 decreased by 1.4-percentage points as compared to prior year period, reflecting lower revenue and lower gross profit, which included higher transportation and product costs, and the termination of Fuji royalty income, as well as higher bad debt expense.

These impacts were partially offset by lower Selling, administrative and general expenses, including lower incentive compensation expenses, and the benefits from Reinvention related cost and productivity actions, benefits from 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.

______________

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

Xerox 2024 Form 10-Q 52

Second quarter 2024 effective tax rate was 28.0% which was higher than the U.S.

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

On an adjusted 1 basis, second quarter 2024 effective tax rate was 25.5% which was higher than the U.S.

federal statutory tax rate of 21% primarily due to changes in our uncertain tax positions and the geographical mix of earnings.

Second quarter 2023 effective tax rate was a 31.5% tax benefit and includes the loss on the PARC donation as well as the associated tax benefits.

Excluding this impact, the effective tax rate was a 27.9% tax expense, which is higher than the U.S.

federal statutory tax rate of 21%, primarily due to the tax impacts associated with restructuring and asset impairment charges and the geographical mix of earnings.

On an adjusted 1 basis, second quarter 2023 effective tax rate was 20.0%, which is lower than the U.S.

federal statutory tax rate of 21% primarily due to tax benefits from the change in tax filing positions and the redetermination of certain unrecognized tax positions of approximately 10%, which were offset by the geographical mix of earnings.

The effective tax rate for the six months ended June 30, 2024 was 24.0% 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, partially offset by the geographical mix of earnings, including the mix associated with charges related to the Company's Reinvention.

On an adjusted 1 basis, the effective tax rate for the six months ended June 30, 2024 was 18.8%.

The difference between this rate and the U.S.

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

The effective tax rate for the six months ended June 30, 2023 was a 350.0% tax benefit and includes the loss on the PARC donation as well as the associated tax benefits.

Excluding this impact, the effective tax rate was a 20.3% tax expense, which is lower than the U.S.

federal statutory tax rate of 21% primarily due to the tax benefits from the redetermination of certain unrecognized tax positions and the change in the tax filing positions predominately offset by the tax impacts associated with restructuring and asset impairment charges and the geographical mix of earnings.

On an adjusted 1 basis, the effective tax rate for the six months ended June 30, 2023 was 17.6%.

Third quarter 2024 effective tax rate was (10.9)%.

This rate was lower than the U.S.

federal statutory tax rate of 21% but resulted in a tax expense, primarily due to the goodwill impairment charge, the establishment of a valuation allowance on certain deferred tax assets including not benefiting related current year losses as well as the geographical mix of earnings.

On an adjusted 1 basis, third quarter 2024 effective tax rate was 27.7%, which was higher than the U.S.

federal statutory tax rate of 21% primarily due to not benefiting certain current year losses and the geographical mix of adjusted earnings, partially offset by the redetermination of certain unrecognized tax positions.

Third quarter 2023 effective tax rate was a 23.4%, which is higher than the U.S.

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

On an adjusted 1 basis, third quarter 2023 effective tax rate was 7.2%, 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 adjusted earnings.

The effective tax rate for the nine months ended September 30, 2024 was (7.3)%.

This rate was lower than the U.S.

On an adjusted 1 basis, the effective tax rate for the nine months ended September 30, 2024 was 22.5%, which was higher than the U.S.

The effective tax rate for the nine months ended September 30, 2023 was a 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 14.4%.

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

federal statutory tax rate of 21% primarily due to tax benefits from the redetermination of certain unrecognized tax positions and the change in tax filing positions, partially offset by the geographical mix of earnings.

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 adjusted 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.

Net Income (Loss)

Second quarter 2024 Net Income was $18 million, or $0.11 per diluted share.

Xerox 2024 Form 10-Q 57

Net (Loss) Income

Third quarter 2024 Net (Loss) was $(1,205) million, or $(9.71) per diluted share, which includes an after-tax non-cash goodwill impairment charge of approximately $1,015 billion (approximately $1,058 billion pre-tax), or $8.16 per diluted share.

In addition, third quarter 2024 includes a tax expense charge of $161 million, or $1.29 per diluted share, related to the establishment of a valuation allowance against certain non-U.S.

tax jurisdiction deferred tax assets to reflect their realizability.

On an adjusted 1 basis, Net Income was $34 million, or $0.25 per diluted share.

Second quarter 2023 Net (Loss) was $(61) million, or $(0.41) per diluted share, which included the net after-tax PARC donation charge of $92 million ($132 million pre-tax), or $0.58 per diluted share.

Third quarter 2023 Net income was $49 million, or $0.28 per diluted share.

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

Net (Loss) for the six months ended June 30, 2024 was $(95) million, or $(0.83) per diluted share.

Net (Loss) for the nine months ended September 30, 2024 was $(1,300) million, or $(10.55) per diluted share, which includes an after-tax non-cash goodwill impairment charge of approximately $1,015 billion (approximately $1,058 billion pre-tax), or $8.16 per diluted share.

In addition, 2024 includes a tax expense charge of $161 million, or $1.29 per diluted share, related to the establishment of a valuation allowance against certain non-U.S.

tax jurisdiction deferred tax assets to reflect their realizability.

On an adjusted 1 basis, Net Income was $86 million, or $0.60 per diluted share.

Net Income for the six months ended June 30, 2023 was $10 million, or $0.02 per diluted share, which included the net after-tax PARC donation charge of $92 million ($132 million pre-tax), or $0.58 per diluted share.

Net Income for the nine months ended September 30, 2023 was $59 million, or $0.30 per diluted share, which included the net 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 was $231 million, or $1.39 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.

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

_____________

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

For the calculations of basis and diluted earnings (loss) per share, refer to Note 20 - Earnings (Loss) per Share in the Notes to the Condensed Consolidated Financial Statements.

Xerox 2024 Form 10-Q 53

Other Comprehensive (Loss) Income

Second quarter 2024 Other Comprehensive Loss, Net was $14 million and included the following:

i) net translation adjustment losses of $20 million reflecting the weakening of most of our major foreign currencies against the U.S.

Dollar during the quarter;

and ii) $6 million of net gains from the changes in defined benefit plans reflecting the amortization of actuarial losses, partially offset by actuarial losses.

This compares to Other Comprehensive Income, Net of $17 million for the second quarter 2023, which included the following:

i) net translation adjustment gains of $49 million reflecting the strengthening of most of our major foreign currencies against the U.S.

For the calculations of basis and diluted (loss) earnings per share, refer to Note 20 - (Loss) Earnings per Share in the Notes to the Condensed Consolidated Financial Statements.

Other Comprehensive Income (Loss)

Third quarter 2024 Other Comprehensive Income, Net was $173 million and included the following:

i) net translation adjustment gains of $192 million reflecting the strengthening of all of our major foreign currencies against the U.S.

Dollar during the quarter;

ii) $27 million of net losses from the changes in defined benefit plans primarily due to plan remeasurements and the adverse impact of currency, partially offset by amortization of actuarial losses;

and iii) $5 million of net unrealized losses.

Other Comprehensive Loss, Net for the six months ended June 30, 2024 was $11 million and included the following:

ii) $5 million of net unrealized gains;

and iii) $24 million of net losses from the changes in defined benefit plans primarily reflecting the negative impact of currency, partially offset by the amortization of actuarial losses, as well as actuarial gains.

This compares to Other Comprehensive Loss, Net of $67 million for the third quarter 2023, which included the following:

i) net translation adjustment losses of $123 million reflecting the weakening of our major foreign currencies against the U.S.

ii) $1 million of net unrealized losses;

and iii) $42 million of net gains from the changes in defined benefit plans primarily reflecting the amortization of actuarial losses, the positive impact of currency, partially offset by actuarial losses.

This compares to Other Comprehensive Income, Net for the six months ended June 30, 2023 of $100 million, which included the following:

Dollar during the quarter;

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

and iii) $1 million of net unrealized gains.

Other Comprehensive Income, Net for the nine months ended September 30, 2024 was $162 million and included the following:

i) net translation adjustment gains of $140 million reflecting the strengthening of the British Pound and the Euro against the U.S.

ii) $18 million of net gains from the changes in defined benefit plans primarily reflecting the amortization of actuarial losses, as well as actuarial gains, partially offset by the negative impact of currency;

and iii) $4 million of net unrealized gains.

This compares to Other Comprehensive Income, Net for the nine months ended September 30, 2023 of $33 million, which 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.

ii) $41 million of net losses from the changes in defined benefit plans primarily due to the adverse impact of currency and plan remeasurements, partially offset by amortization of actuarial losses and settlement losses;

and iii) $1 million of net unrealized losses.

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.

and ii) $14 million of net gains from the changes in defined benefit plans primarily due 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.

Refer to Note 19 - Other Comprehensive Income (Loss) in the Condensed Consolidated Financial Statements for the components of Other Comprehensive Income (Loss), Note 14 - Financial Instruments in the Condensed Consolidated Financial Statements for additional information regarding unrealized gains (losses), net, and Note 16 - Employee Benefit Plans in the Condensed Consolidated Financial Statements for additional information regarding net changes in our defined benefit plans.

Xerox 2024 Form 10-Q 58

4 unchanged sentences

Segment Review

Three Months Ended June 30,

Three Months Ended September 30,

(in millions) External Revenue Intersegment Revenue (1)

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) External Revenue Intersegment Revenue (1)

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 %

7 unchanged sentences

(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.

Second quarter 2024 Print and Other segment revenue decreased 9.9% as compared to second quarter 2023 and Print and Other segment revenue decreased 11.2% for the six months ended June 30, 2024 as compared to the prior year period.

Third quarter 2024 Print and Other segment revenue decreased 7.5% as compared to third quarter 2023, and Print and Other segment revenue decreased 10.0% for the nine months ended September 30, 2024 as compared to the prior year period.

Print and Other segment revenue included the following:

Xerox 2024 Form 10-Q 59

Equipment sales revenue decreased 15.2% during the second quarter 2024 as compared to second quarter 2023, while Equipment sales revenue decreased 20.4% for the six months ended June 30, 2024 as compared to the prior year period.

The respective decrease as compared to the prior year periods reflects the effects of backlog fluctuations in the current and prior year, along with non-strategic reductions in revenue, including offering and geographic simplification.

Equipment sales revenue decreased 12.1% during the third quarter 2024 as compared to third quarter 2023, and was primarily attributable to a delay in the global launch of two new products, lower-than-expected improvements in sales productivity, unfavorable mix, and a large production equipment sale in the prior year.

Equipment sales revenue was also impacted by the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including geographic simplification.

Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in entry production color products.

Equipment sales revenue decreased 17.7% for the nine months ended September 30, 2024 as compared to the prior year period and was primarily impacted by unfavorable mix, as well as the effects of backlog fluctuations in the current and prior year quarters, non-strategic reductions in revenue, including offering and geographic simplification, and lower-than-expected improvements in sales productivity.

Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

Post sale revenue decreased 8.2% during the second quarter 2024 as compared to second quarter 2023, while Post sale revenue decreased 8.2% for the six months ended June 30, 2024 as compared to the prior year period.

The respective decrease as compared to the prior year periods primarily reflects reductions in non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification, associated with our strategic Reinvention actions.

Contractual print services 1 revenue declined mid-single digits, driven by lower service and outsourcing revenue and the effects of geographic simplification.

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

The decrease for the six months ended June 30, 2024 as compared to the prior year period also reflected the termination of the Fuji royalty income and PARC revenue.

Post sale revenue decreased 5.8% during the third quarter 2024 as compared to third quarter 2023, primarily due to the decline in contractual print services 1 revenue.

Contractual print services 1 revenue declined mid-single digits as compared to third quarter 2023, driven by lower service and outsourcing revenue, as well as reductions in non-strategic, lower margin IT endpoint device placements, rental revenue and paper sales, as well as the effects of geographic simplification.

These impacts were partially offset by higher supplies revenue and digital services revenue.

Post sale revenue decreased 7.4% for the nine months ended September 30, 2024 as compared to the prior year period.

Contractual print services 1 revenue declined, driven by lower service and outsourcing revenue, as well as reductions in non-strategic, lower margin IT endpoint device placements and paper sales, as well as the termination of the Fuji royalty income and PARC revenue, and the effects of geographic simplification.

_____________

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

June 30, % of Equipment Sales

September 30, Nine Months Ended

September 30, % of Equipment Sales

(in millions) 2024 2023 %

9 unchanged sentences

(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 June 30, 2024 and 2023, respectively, and $10 million and $12 million for the six months ended June 30, 2024 and 2023, respectively.

(2) Includes equipment sales related to the XFS segment of $4 million and $5 million for the three months ended September 30, 2024 and 2023, respectively, and $14 million and $17 million for the nine months ended September 30, 2024 and 2023, respectively.

The change at constant currency 1 reflected the effects of non-strategic reductions in revenue, including offering and geographic simplification, as well as the following:

• Entry - The decrease for the three months ended June 30, 2024 primarily reflects higher backlog reductions in the prior year period, and mix toward black-and-white installs.

The decrease for the six months ended June 30, 2024 primarily reflects higher backlog reductions in the prior year period, as well as constraints in Entry, A4 devices during the first quarter of 2024.

• Mid-range - The decrease for both the three and six months ended June 30, 2024 reflects higher backlog reductions in the prior year period, partially offset by favorable mix to color.

• High-end - The decrease for both the three and six months ended June 30, 2024 was primarily due to higher backlog reductions in the prior year period, partially offset by favorable mix to color.

• Entry - The decrease for the three months ended September 30, 2024 reflects declines in color and a mix toward black-and-white installs.

The decrease for the nine months ended September 30, 2024 primarily reflects higher backlog reductions in the prior year period, as well as constraints in Entry, A4 devices during the first quarter of 2024.

• Mid-range - The decrease for the three months ended September 30, 2024 reflects declines in color, driven primarily by a mix within color toward lower-price A3 color devices.

The decrease for the nine months ended September 30, 2024 reflects higher backlog reductions in the prior year period, as well as declines in color devices.

• High-end - The decrease for the three months ended September 30, 2024 was primarily due to lower color installations, and an unfavorable mix toward black-and-white.

The decrease for the nine months ended September 30, 2024 was primarily due to higher backlog reductions in the prior year period, as well as lower an unfavorable mix toward black-and-white.

_____________

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

Installs for the three months ended June 30, 2024 as compared to prior year period reflect the following:

• 13% decrease in entry color installs, with A4 Color MFPs driving the majority of the decline.

• 9% decrease in entry black-and-white installs, with Entry Mono printers driving the decline, partially offset by growth in A4 Mono MFPs.

• 12% decrease in mid-range color installs, driven primarily by declines in A3 Color MFPs.

Installs for the three months ended September 30, 2024 as compared to prior year period reflect the following:

• 4% decrease in entry color installs, driven by declines in Entry Color Printers, partially offset by growth in A4 Color MFPs.

• 34% increase in entry black-and-white installs, driven by growth in A4 Mono MFPs.

• 3% increase in mid-range color installs driven by growth in A3 Color MFPs, partially offset by declines in Entry Production Color Low.

• 12% decrease in mid-range black-and-white installs driven primarily by A3 Mono MFPs.

• 22% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid products.

• 24% decrease in high-end black-and-white primarily reflecting declines in High End Cut Sheet products.

Installs for the six months ended June 30, 2024 as compared to prior year period reflect the following:

• 22% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid and High.

• 29% increase in high-end black-and-white primarily reflecting growth in High End Cut Sheet products.

Installs for the nine months ended September 30, 2024 as compared to prior year period reflect the following:

• 20% decrease in entry color installs, with A4 Color MFPs driving the majority of the decline.

• 28% decrease in entry black-and-white installs, with Entry Mono printers driving the decline.

• 11% decrease in entry black-and-white installs, with Entry Mono printers driving the majority of the decline.

• 10% decrease in mid-range color installs, driven primarily by declines in A3 Color MFPs.

• 24% decrease in mid-range black-and-white installs, driven primarily by A3 Mono MFPs.

• 33% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid products.

• 20% decrease in high-end black-and-white primarily reflecting declines in High End Cut Sheet products.

• 30% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid.

• 2% decrease in high-end black-and-white reflecting declines in High End Cut Sheet products.

Products and Offerings Definitions

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Segment Margin

Second quarter 2024 Print and Other segment margin of 5.4% decreased by 1.1-percentage points as compared to second quarter 2023, primarily due to lower revenue, and higher product and transportation costs, which were partially offset by lower Selling, administrative and general expenses, lower RD&E expense, favorable currency, and the benefits of cost and productivity savings.

Print and Other segment margin of 3.9% for the six months ended June 30, 2024 decreased 2.4-percentage points as compared to the prior year period.

Third quarter 2024 Print and Other segment margin of 4.7% increased by 0.6-percentage points as compared to third quarter 2023, primarily due to lower Selling, administrative and general expenses, including lower incentive compensation expenses, as well as benefits of cost and productivity savings, higher supplies revenue and favorable currency.

This activity was partially offset by lower revenue, higher transportation costs, and the release of a tariff-related accrual in the prior year period.

Print and Other segment margin of 4.2% for the nine months ended September 30, 2024 decreased 1.4-percentage points as compared to the prior year period.

The decrease is primarily due to lower revenue, higher transportation and product costs, and higher bad debts expense.

These adverse impacts were partially offset by lower Selling and other administrative and general expenses, lower RD&E expense, and the benefits of cost and productivity savings.

These adverse impacts were partially offset by lower Selling and other administrative and general expenses, and lower RD&E expense, as well as higher supplies revenue, favorable currency, and the benefits of cost and productivity savings.

Xerox 2024 Form 10-Q 61

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 %

7 unchanged sentences

(1) Other Post sale revenue includes lease renewal and fee income as well as gains, commissions and servicing revenue associated with sold finance receivables.

Second quarter 2024 XFS segment revenue decreased 11.9% as compared to second quarter 2023, while for the six months ended June 30, 2024 segment revenue decreased 11.3% as compared to the prior year period and reflected the following:

Third quarter 2024 XFS segment revenue decreased 10.2% as compared to third quarter 2023, and for the nine months ended September 30, 2024 segment revenue decreased 11.0% as compared to the prior year period and reflected the following:

Financing revenue is generated from direct and indirectly financed Xerox equipment sale transactions.

For the three months ended June 30, 2024, these revenues decreased 22.4% as compared to second quarter 2023, including a 1.2-percentage point adverse impact from currency.

Financing revenue for the six months ended June 30, 2024 decreased 20.8% as compared to the prior year period, including a 0.2-percentage point benefit from currency.

Finance receivables are approximately $650 million lower in June of 2024 as compared to June of 2023.

Other Post sale revenue was flat for both the three and six months ended June 30, 2024 as compared to the respective prior year periods, and includes gains, commissions and servicing revenue on sales of finance receivables under our finance receivables funding agreement, which were $13 and $11 for the three months ended June 30, 2024 and 2023, respectively, and $21 and $14 for the six months ended June 30, 2024 and 2023, respectively .

For the three months ended September 30, 2024, these revenues decreased 17.4% as compared to third quarter 2023, including a 0.2-percentage point benefit from currency.

Financing revenue for the nine months ended September 30, 2024 decreased 19.7% as compared to the prior year period, including a 0.2-percentage point benefit from currency.

Finance receivables are approximately $630 million lower in September of 2024 as compared to September of 2023.

Other Post sale revenue decreased 2.1% as compared to third quarter 2023, and for the nine months ended September 30, 2024 decreased 0.7% as compared to the prior year period, as a result of the continued reduction of our average finance receivables balance.

Other Post sale revenue includes gains, commissions and servicing revenue on sales of finance receivables under our finance receivables funding agreement, which were $10 and $7 for the three months ended September 30, 2024 and 2023, respectively, and $31 and $21 for the nine months ended September 30, 2024 and 2023, respectively .

_____________

1 unchanged sentence

Segment Margin

Second quarter 2024 XFS segment margin of 4.5% increased 4.5-percentage points as compared to second quarter 2023.

Segment profit for XFS was $4 million higher as compared to second quarter 2023 mainly due to lower bad debt expense of $4 million as compared to second quarter 2023, which was partially offset by lower revenues from reduced assets.

XFS segment margin of 2.2% for the six months ended June 30, 2024 decreased 6.7-percentage points as compared to the prior year period.

Third quarter 2024 XFS segment margin of 14.8% increased 10.7-percentage points as compared to third quarter 2023.

Segment profit for XFS was $9 million higher as compared to third quarter 2023 mainly due to lower Selling administrative and general expenses, as well as a lower bad debt provision, partially offset by lower revenues from reduced assets.

XFS segment margin of 6.3% for the nine months ended September 30, 2024 decreased 1.0-percentage points as compared to the prior year period.

Segment profit for XFS was $5 million lower as compared to the prior year period mainly due to lower revenue from reduced assets and higher bad debt expense of $12 million as compared to the prior year period.

These adverse impacts were partially offset by modestly higher gross profit from fees and lower intercompany commissions.

These adverse impacts were partially offset by lower administrative and general expenses.

Xerox 2024 Form 10-Q 62

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The following is a summary of our liquidity position:

• As of June 30, 2024 and December 31, 2023, total cash, cash equivalents and restricted cash of Xerox Holdings Corporation were $551 million and $617 million, respectively, and apart from restricted cash of $66 million and $98 million at June 30, 2024 and December 31, 2023, respectively, was readily accessible for use.

The decrease in total cash, cash equivalents and restricted cash of $66 million primarily reflects net cash used in financing activities of $75 million, as well as net cash used in investing activities of $19 million, both of which was partially offset by net cash provided by operating cash activities of $44 million.

• Total debt at June 30, 2024 was $3,303 million, of which $2,024 million is allocated to and supports the Company's finance assets.

• As of September 30, 2024 and December 31, 2023, total cash, cash equivalents and restricted cash of Xerox Holdings Corporation were $590 million and $617 million, respectively, and apart from restricted cash of $69 million and $98 million at September 30, 2024 and December 31, 2023, respectively, was readily accessible for use.

The decrease in total cash, cash equivalents and restricted cash of $27 million primarily reflects net cash used in financing activities of $149 million, as well as net cash used in investing activities of $26 million, both of which were partially offset by net cash provided by operating cash activities of $160 million.

• Total debt at September 30, 2024 was $3,271 million, of which $1,963 million is allocated to and supports the Company's finance assets.

The remaining debt of $1,308 million is attributable to the non-financing business and increased from $849 million at December 31, 2023.

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The remaining outstanding 3.80% Senior Notes that were not redeemed as part of the Senior Notes tender offer were repaid in May 2024.

There are no repayments for Senior Notes that are due within the next twelve months.

• In June 2024 we amended our ABL facility dated as of May 22, 2023, to (i) increase the commitments of the lenders under the ABL Credit Agreement from $300 to $425 and (ii) amend the excess availability used to trigger the fixed charge coverage ratio springing covenant from an amount equal to the greater of (A) $22.5 and (B) 10% of the Line Cap (the lesser of the aggregate amount of Revolving Commitments and the then-applicable Borrowing Base), to an amount equal to the greater of (A) $31.875 and (B) 10% of the Line Cap.

Approximately $388 million, which is the remaining portion of our 5.00% Senior Notes, is due in August 2025.

• In June 2024 we amended our ABL facility dated as of May 22, 2023, to (i) increase the commitments of the lenders under the ABL Credit Agreement from $300 million to $425 million and (ii) amend the excess availability used to trigger the fixed charge coverage ratio springing covenant from an amount equal to the greater of (A) $22.5 and (B) 10% of the Line Cap (the lesser of the aggregate amount of Revolving Commitments and the then-applicable Borrowing Base), to an amount equal to the greater of (A) $31.875 million and (B) 10% of the Line Cap.

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

• As of June 30, 2024, there were no borrowings or letters of credit outstanding under our ABL facility, under which we can borrow up to a maximum of $425 million.

• As of September 30, 2024, there were no borrowings or letters of credit outstanding under our ABL facility, under which we can borrow up to a maximum of $425 million.

We were in full compliance with the covenants and other provisions of the ABL Facility.

• As a result of our lowered guidance, we now expect Operating cash flows for 2024 to be at least $600 million, which is a decrease from our original expectation of at least $650 million.

We continue to expect capital expenditures to be approximately $50 million.

• As a result of our lowered guidance, we now expect Operating cash flows for 2024 to be within a range of $490 million to $540 million, versus prior guidance of at least $600 million, reflecting the after-tax effects of the reduction in adjusted 1 operating income guidance.

We now expect capital expenditures to be approximately $40 million, as compared to previous guidance of approximately $50 million.

____________________________

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

Xerox 2024 Form 10-Q 63

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

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(in millions) 2024 2023

Net cash provided by operating activities $ 160 $ 297 $ (137)

Net cash used in investing activities (19) (22) 3

Net cash (used in) provided by investing activities (26) 3 (29)

Net cash used in financing activities (149) (819) 670

4 unchanged sentences

Cash Flows from Operating Activities

Net cash provided by operating activities was $44 million for the six months ended June 30, 2024.

Net cash provided by operating activities was $160 million for the nine months ended September 30, 2024.

The $137 million decrease in operating cash from the prior year period was primarily due to the following:

• $85 million decrease in pre-tax income before depreciation and amortization, provisions, gains on sales of businesses and assets, divestitures, PARC donation, stock-based compensation, restructuring and related costs, net and non-service retirement-related costs.

• $88 million decrease in pre-tax income before depreciation and amortization, provisions, gains on sales of businesses and assets, divestitures, PARC donation, stock-based compensation, goodwill impairment charge, restructuring and related costs, net and non-service retirement-related costs.

• $186 million decrease from inventory primarily due to higher purchases related to a change in contractual terms with a large OEM vendor and decreased sales of equipment and supplies.

1 unchanged sentence

• $53 million decrease from higher restructuring and related payments.

• $31 million decrease from higher net tax payments.

• $39 million decrease from higher pension contributions.

1 unchanged sentence

• $77 million increase from other current and long-term liabilities due to timing of payments.

• $65 million increase from accounts receivable primarily due to the timing of collections.

• $31 million increase due to lower placements of equipment on operating leases.

Cash Flows from Investing Activities

Net cash used in investing activities was $19 million for the six months ended June 30, 2024, which was essentially flat as compared to the prior year period.

Net cash used in investing activities was $26 million for the nine months ended September 30, 2024.

The $29 million change from the prior year period was primarily due to noncontrolling investments as part of our corporate venture capital fund and lower proceeds from the sale of assets.

Cash Flows from Financing Activities

Net cash used in financing activities was $75 million for the six months ended June 30, 2024.

Net cash used in financing activities was $149 million for the nine months ended September 30, 2024.

The $670 million decrease in the use of cash from the prior year period was primarily due to the following:

• $541 million decrease from share repurchases.

• $124 million decrease from net debt activity.

1 unchanged sentence

The $658 million of net payments on Senior Notes includes $300 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 $519 million on secured financing arrangements offset by net proceeds of $193 million from the new ABL Facility, which includes a debt issuance cost payment of $7 million.

2023 reflects net proceeds of $549 million from the Loan Facility, used to fund the share repurchase, and $213 million from the ABL Facility, which include debt issuance costs payments of $6 million and $7 million, respectively, and net proceeds of $52 million from the refinance of our Canadian secured loan.

These borrowings were offset by payments of $644 million on secured financing arrangements and $300 million on Senior Notes.

The $644 million of payments on secured financing arrangements includes the early repayment of $185 million U.S.

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

Xerox 2024 Form 10-Q 64

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.

Xerox 2024 Form 10-Q 60

Operating Leases

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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 June 30, 2024 and December 31, 2023, total operating lease liabilities were $179 million and $182 million, respectively.

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

As of September 30, 2024 and December 31, 2023, total operating lease liabilities were $177 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.

1 unchanged sentence

The following summarizes our debt:

(in millions) June 30, 2024 December 31, 2023

(in millions) September 30, 2024 December 31, 2023

Xerox Holdings Corporation $ 2,038 $ 1,500

14 unchanged sentences

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

(in millions) June 30, 2024 December 31, 2023

(in millions) September 30, 2024 December 31, 2023

Total finance receivables, net (1)

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(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 $42 million due to currency.

(2) The change from December 31, 2023 includes a decrease of $11 million due to currency.

Xerox 2024 Form 10-Q 65

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

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

(in millions) June 30, 2024 December 31, 2023

(in millions) September 30, 2024 December 31, 2023

Finance receivables debt (1)

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(1) Finance receivables debt is the basis for our calculation of "Cost of financing" expense in the Condensed Consolidated Statements of Income (Loss).

Xerox 2024 Form 10-Q 61

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.

Refer to Note 8 - Finance Receivables, Net and Note 22 - Subsequent Events 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

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2024 Q4 $ — $ 7 $ 29 $ 36

2024 Q4 — 7 29 36

2025 388 28 103 519

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Xerox Holdings Corporation made no open-market repurchases of its Common Stock during 2024.

Technology Commitments

Xerox 2024 Form 10-Q 66

In the second quarter 2024, Xerox entered into a seven year agreement with Tata Consulting Services (TCS), for the purpose of consolidating Xerox’s technology services to improve business outcomes, migrate legacy data centers to the cloud, deploy a cloud-based digital ERP platform to transform business processes, and incorporate generative artificial intelligence (GenAI) into operations to help drive sustainable growth.

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there were no changes to the terms of the business processing outsourcing services agreement.

Xerox can terminate the arrangement with 90 days notice, subject to payment of a termination fee.

In connection with the technology agreement with TCS, Xerox also entered into seven year agreements with both SAP Limited (SAP), who will provide Xerox with a cloud-based digital ERP platform, and Microsoft, who will provide their Azure cloud platform services.

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Under the terms of the agreement, Verizon will provide a secure network platform solution delivering network services to Xerox business locations globally.

The approximate aggregate spending commitments as of June 30, 2024 is as follows:

(in millions) June 30, 2024 Agreement Term

TCS $ 355 7 Years

Shared Service Arrangement

In the third quarter 2024, Xerox entered into an agreement with HCL Technologies Limited (HCL), to renew and extend the original shared services arrangement contract, entered into in 2019, in which HCL provides certain global administrative and support functions to Xerox.

In addition to the existing shared services arrangement, HCL will support Xerox's Global Business Services (GBS) organization with professional services support, sales efficiency, and remote problem-solving.

Xerox can terminate the arrangement at any time starting in July 2025, subject to payment of termination fees that decline over the term, or for cause.

The approximate aggregate spending commitments are as follows:

(in millions) September 30, 2024 Agreement Term

$ 590 5 Years

Microsoft 125 7 Years

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Verizon 85 5 Years

_____________

(1) Represents all contractual arrangements between Xerox and the vendor as of September 30, 2024.

Xerox 2024 Form 10-Q 67

63 unchanged sentences

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.

• Goodwill impairment charge

• Inventory-related impact - exit of certain production print manufacturing operations

1 unchanged sentence

• PARC donation

• Loss (gain) on early extinguishment of debt

• (Gain) loss on early extinguishment of debt

• Tax Indemnification - Conduent

• Deferred tax asset valuation allowance

Adjusted Operating Income and Margin

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Adjusted Net Income and EPS reconciliation:

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

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

2024 2023 2024 2023

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

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

$ (1,205) $ (9.71) $ 49 $ 0.28 $ (1,300) $ (10.55) $ 59 $ 0.30

Goodwill impairment 1,058 — 1,058 —

Inventory-related impact - exit of certain production print manufacturing operations (2)

5 unchanged sentences

Transaction and related costs, net (15) — (38) —

Loss (gain) on early extinguishment of debt — 3 (3) 3

(Gain) loss on early extinguishment of debt — — (3) 3

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

Income tax on Goodwill impairment (43) — (43) —

Income tax on PARC donation (3)

— (40) — (40)

Deferred tax asset valuation allowance (3)

Income tax on adjustments (3)

5 unchanged sentences

126 159 126 158

Fully diluted shares at June 30, 2024 (5)

Fully diluted shares at September 30, 2024 (5)

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(1) Net Income (Loss) and EPS.

(2) Reflects the reduction of inventory of approximately $6 and $38 and the cancellation of related purchase contracts of approximately $2 and $6, as a result of the exit of certain production print manufacturing operations during the three and six months ended June 30, 2024, respectively.

(1) Net (Loss) Income and EPS.

For the three and nine months ended September 30, 2024 Net (Loss) and EPS includes an after-tax non-cash goodwill impairment charge of approximately $1,015 million (approximately $1,058 million pre-tax), or $8.16 per diluted share.

In addition, the three and nine months ended September 30, 2024 includes a tax expense charge of $161 million, or $1.29 per diluted share, related to the establishment of a valuation allowance against certain deferred tax assets to reflect their realizability.

This adjustment was excluded due to its unique nature and significant impact which is not considered part of our core operations.

(2) Reflects the reduction of inventory of approximately $0 and $38 and the cancellation of related purchase contracts of approximately $0 and $6, as a result of the exit of certain production print manufacturing operations during the three and nine months ended September 30, 2024, respectively.

(3) Refer to Adjusted Effective Tax Rate reconciliation.

(4) 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.

(5) Reflects common shares outstanding at June 30, 2024, plus potential dilutive common shares used for the calculation of adjusted diluted EPS for the second quarter 2024.

Excludes shares associated with our Series A convertible preferred stock, which were anti-dilutive for the second quarter 2024 and 2023, respectively.

(5) Reflects common shares outstanding at September 30, 2024, plus potential dilutive common shares used for the calculation of adjusted diluted EPS for the third quarter 2024.

Excludes shares associated with our Series A convertible preferred stock, which were anti-dilutive for the third quarter 2024 and 2023, respectively.

Xerox 2024 Form 10-Q 70

Adjusted Effective Tax Rate reconciliation:

Three Months Ended June 30,

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

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

Three Months Ended September 30,

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

Tax Rate Pre-Tax Income Income Tax Expense Effective

$ (1,087) $ 118 (10.9) % $ 64 $ 15 23.4 %

PARC donation (2)

Goodwill impairment (2)

Deferred tax asset valuation allowance (2)

Non-GAAP Adjustments (2)

$ 47 $ 13 27.7 % $ 83 $ 6 7.2 %

Six Months Ended June 30,

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

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

Nine Months Ended September 30,

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

Tax Rate Pre-Tax Income Income Tax Expense Effective

$ (1,212) $ 88 (7.3) % $ 60 $ 1 1.7 %

Goodwill impairment (2)

Deferred tax asset valuation allowance (2)

PARC donation (2)

2 unchanged sentences

$ 111 $ 25 22.5 % $ 270 $ 39 14.4 %

(1) Pre-tax income (loss) and Income tax expense (benefit).

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(1) Pre-tax (loss) income and Income tax expense.

For the three and nine months ended September 30, 2024 Pre-tax (loss) includes a non-cash goodwill impairment charge of approximately $1,058 million (approximately $1,015 million after-tax).

(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 income (loss) under ASC 740, which employs an annual effective tax rate method to the results.

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

Xerox 2024 Form 10-Q 71

Adjusted Operating Income and Margin reconciliation:

Three Months Ended June 30,

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

Three Months Ended September 30,

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

$ (1,205) $ 1,528 $ 49 $ 1,652

Income tax expense (benefit) 7 — (28) —

Pre-tax income (loss) $ 25 $ 1,578 1.6 % $ (89) $ 1,754 (5.1) %

Inventory-related impact - exit of certain production print manufacturing operations (2)

Income tax expense 118 — 15 —

Pre-tax (loss) income $ (1,087) $ 1,528 (71.1) % $ 64 $ 1,652 3.9 %

Goodwill impairment 1,058 —

Restructuring and related costs, net 56 10

Amortization of intangible assets 10 12

Divestitures (3) —

PARC donation — 132

Other expenses, net (3)

Adjusted $ 80 $ 1,528 5.2 % $ 68 $ 1,652 4.1 %

Six Months Ended June 30,

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

Nine Months Ended September 30,

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

$ (1,300) $ 4,608 $ 59 $ 5,121

Income tax benefit (30) (14)

Pre-tax loss $ (125) $ 3,080 (4.1) % $ (4) $ 3,469 (0.1) %

Income tax expense 88 1

Pre-tax (loss) income $ (1,212) $ 4,608 (26.3) % $ 60 $ 5,121 1.2 %

Goodwill impairment 1,058 —

Inventory-related impact - exit of certain production print manufacturing operations (2)

6 unchanged sentences

____________________________

(1) Net Income (Loss)

(1) Net (Loss) Income.

For the three and nine months ended September 30, 2024 Net (Loss) includes an after-tax non-cash goodwill impairment charge of approximately $1,015 million (approximately $1,058 million pre-tax), or $8.16 per diluted share.

This adjustment was excluded due to its unique nature and significant impact which is not considered part of our core operations.

(3) Includes non-service retirement-related costs.

3 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis