Xerox Holdings Corp 10-Q

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Throughout the Management’s Discussion and Analysis (MD&A) that follows, references to “Xerox Holdings” refer to Xerox Holdings Corporation and its consolidated subsidiaries, while references to “Xerox” refer to Xerox Corporation and its consolidated subsidiaries. References herein to “we,” “us,” “our,” and the “Company” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise. References to "Xerox Holdings Corporation" refer to the stand-alone parent company and do not include its subsidiaries. References to "Xerox Corporation" refer to the stand-alone company and do not include its subsidiaries. Xerox Holdings' primary direct operating subsidiary is Xerox and Xerox reflects nearly all of Xerox Holdings' operations. Accordingly, the following MD&A primarily focuses on the operations of Xerox and is intended to help the reader understand Xerox's business and its results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, the Condensed Consolidated Financial Statements and the accompanying notes. Throughout this MD&A, references are made to various notes in the Condensed Consolidated Financial Statements which appear in Item 1 of this combined Quarterly Report on Form 10-Q (this Form 10-Q), and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made. Xerox Holdings' other direct subsidiary is Myriad Ventures Fund I LP (Myriad), which was established solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. Myriad is fully consolidated by Xerox Holdings. At March 31, 2025 and December 31, 2024 Xerox Ventures, LLC held investments of $39 million and $40 million, respectively. Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion. Currency Impact To understand the trends in the business, we believe that it is helpful to analyze the impact of changes in the translation of foreign currencies into U.S. Dollars on revenue and expenses. We refer to this analysis as "constant currency," “currency impact” or “the impact from currency.” This impact is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate. This impact is calculated for all countries where the functional currency is the local country currency. We do not hedge the translation effect of revenues or expenses denominated in currencies where the local currency is the functional currency. Management believes the constant currency measure provides investors an additional perspective on revenue trends. Currency impact can be determined as the difference between actual growth rates and constant currency growth rates. Overview In the first quarter balanced execution, the benefits of last year’s Reinvention-related organizational changes and ongoing Reinvention initiatives resulted in an improved revenue trajectory and another quarter of double-digit declines in operating expenses, excluding one-time Reinvention costs and the impact from the recent acquisition of ITsavvy. Sales productivity and services metrics have improved, and the ITsavvy integration and cost reduction programs are running ahead of Plan, placing us on a near-term path for revenue stabilization and growth in adjusted 1 operating income. Equipment sales of $284 million in the first quarter 2025 declined 2.1% in actual currency, or 0.7% in constant currency 1 , as compared to the first quarter 2024, an improvement in the pace of decline compared to recent quarters. The decline primarily reflects product mix and reductions in high-end installations, due to exit of certain production print manufacturing operations in the prior year. Total equipment installations increased approximately 24.0% year-over-year, due primarily to growth in entry level equipment and modest growth in mid-range equipment. Post sale revenue of $1.2 billion declined 3.2% in actual currency, or 1.2% in constant currency 1 , as compared to first quarter 2024. First quarter 2025 post sale revenue included an 8.2-percentage point benefit from the recent acquisition of ITsavvy. Excluding ITsavvy, post-sale revenue declined 11.4% in actual currency. The decline was primarily due to lower managed print services 2 revenue. Reinvention-related actions, and lower financing revenue also contributed to the decline. Excluding these effects, excluding growth in legacy IT Solutions’ backlog 3 , post sale revenue declined low single digits. Pre-tax loss of $67 million for the first quarter 2025 improved by approximately $83 million as compared to a pre-tax loss of $150 million in the first quarter 2024. Pre-tax loss margin improved 5.4% for the first quarter 2025 as compared to the first quarter 2024 and included a 0.6-percentage point benefit from the recent acquisition of ITsavvy. Further benefiting the first quarter 2025 was the exit of certain production print manufacturing operations in the prior year period and sales of certain direct business operations in Latin America, which resulted in a net disposal loss of $54 million in the first quarter 2024, lower Restructuring and related costs, net, as well as lower Selling, administrative and general expenses associated with productivity and cost savings related to the Xerox 2025 Form 10-Q 42 Company's Reinvention. These benefits were partially offset by higher Other expenses, net, primarily reflecting fees associated with the recently completed debt offering, and lower revenue and associated gross profit. Adjusted 1 operating income of $22 million decreased by $11 million as compared to first quarter 2024, reflecting lower revenue and gross profit, as well as higher advertising expense, partially offset by productivity and cost savings related to the Company's Reinvention, lower bad debt expense and favorable currency. ____________________________ (1) Refer to the “Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure. (2) Includes revenues from Services, maintenance and rentals. IT Solutions and digital services are not included in managed print services. (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 print-related devices as well as IT hardware associated with our IT Solutions offerings. Recent Developments Tariffs Based on tariffs in place on May 1, 2025, we believe that Xerox’s current exposure to purchases subject to reciprocal tariffs in the U.S., excluding China, is less than 10% of total company cost of sales. Following ongoing adjustments in manufacturing capacity, product purchases imported to the U.S. and subject to all forms of China tariffs is expected to be limited to a low single digit percentage of cost of sales by the end of 2025, impacting only select equipment, parts, and supplies. Plans are in place today to shift most China-produced goods to countries with lower tariffs. Revenues from Print Services and Financing, which is more than 60% of total Print revenue, has minimal reliance on imported products. In IT Solutions, tariff exposure varies by OEM partner, and we expect associated costs to be fully passed through to end users. Based on tariffs in place on May 1, 2025, the expected reduction in operating income, net of price and supply chain mitigation measures already in place or planned, associated with incremental tariff costs, would be approximately $50 million in 2025. If China tariffs are reduced from 145% to 60%, we expect to be able to offset the impact of tariffs through a comprehensive set of price increases, surcharges, geographic rebalancing and supply chain-related mitigation efforts, as well as incremental Reinvention-related savings. We are working with supplier partners to minimize tariff-related cost increases and will monitor client sentiment and demand in response to price increases or surcharges used to mitigate the financial impact of future tariffs. Pending Acquisition of Lexmark We continue to make progress toward the closing of Lexmark International II (Lexmark) (the Lexmark Acquisition). We received several key regulatory approvals in the past few months, including clearance of HSR in the US, anti-trust clearance in the UK and Canada and the clearance of most major EU countries’ Foreign Direct Investment regulatory processes. Remaining approvals are expected in the second quarter 2025. Outside of country-specific approvals, the last significant condition to close is the Ninestar shareholder vote and Chinese securities exchange approval, which is expected to take place in the coming months. We have secured 32% of the required shareholder vote as part of the acquisition agreement and we currently expect closing to occur during the third quarter 2025. We continue to expect adjusted 1 earnings and EPS accretion associated with the Lexmark Acquisition, despite a slightly higher than expected cost of funding and the potential for incremental tariff expenses. Importantly, based on U.S. tariffs currently proposed, we expect no impact from tariffs on Lexmark’s branded business within a few quarters of acquisition close. Lexmark has a large manufacturing facility in Juarez, Mexico that can support all expected imports of branded product into the U.S. market on a USMCA compliant basis. Segments During the first quarter of 2025, the Company updated its determination of reportable segments to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company’s key growth strategies. As such, it was determined that there are two reportable segments - Print and Other, and IT Solutions. Prior to this change, the company had two reportable segments - Print and Other, and Xerox Financial Services (XFS). As a result of this change, prior period reportable segment results and related disclosures have been conformed to reflect the Company’s current reportable segments. Refer to Note 4 - Segment Reporting in the condensed consolidated financial statements for additional information regarding this change. Valuation Allowance During the first quarter 2025, a valuation allowance was recorded primarily related to certain deferred tax assets in the United States. Refer to Note 1 - Basis of Presentation in the Condensed Consolidated Financial Statements for additional information regarding the valuation allowance. ____________________________ (1) Refer to the “Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure. Xerox 2025 Form 10-Q 43 2025 Review Total revenue of $1.46 billion for the three months ended March 31, 2025 decreased 3.0% as compared to the prior year period, including a 6.6-percentage point benefit from the recent acquisition of ITSavvy, partially offset by 1.9-percentage point unfavorable impact from currency. Total revenue reflected a decrease of 3.2% in Post sale revenue, including a 2.0-percentage point unfavorable impact from currency, and a decrease of 2.1% in Equipment sales revenue, including a 1.4-percentage point unfavorable impact from currency. Net loss and adjusted 1 Net (loss) income were as follows: Three Months Ended March 31, (in millions) 2025 2024 B/(W) Net Loss $ (90) $ (113) $ 23 Adjusted (1) Net (Loss) Income (4) 11 (15) ____________________________ (1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure. First quarter 2025 Net loss was $90 million as compared to the first quarter 2024 Net loss of $113 million. Net loss was lower by $23 million primarily reflecting a divestiture of certain direct business operations in Latin America and the exit of certain production print manufacturing operations, both in the prior year. The lower level of (loss) also reflects lower Restructuring and related costs, net, Selling, administrative and general expenses, and Research, development and engineering expenses (RD&E). These positive impacts were partially offset by higher Income tax expense, lower revenues, higher Other expenses, net and lower gross profit. First quarter 2025 adjusted 1 Net loss of $4 million increased by $15 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, Income tax expense and RD&E. ____________________________ (1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure. The following is a summary of our segments - Print and Other and IT Solutions : Three Months Ended March 31, (in millions) 2025 2024 % Change Revenue Print and Other $ 1,294 $ 1,428 (9.4) % IT Solutions 164 74 121.6 % Total Segment revenue 1,458 1,502 (2.9) % Intersegment Elimination (1) (1) — NM Corporate Other — — NM Total Revenue $ 1,457 $ 1,502 (3.0) % Expenses Print and Other $ 1,253 $ 1,370 (8.5) % IT Solutions 159 75 112.0 % Total Segment expenses 1,412 1,445 (2.3) % Intersegment Elimination (1) (1) — NM Corporate Other 24 24 — % Total Expenses $ 1,435 $ 1,469 (2.3) % Profit Print and Other $ 41 $ 58 (29.3) % IT Solutions 5 (1) NM Total Segment profit 46 57 (19.3) % Corporate Other (24) (24) — % Total Profit $ 22 $ 33 (33.3) % ____________________________ (1) Reflects primarily IT hardware, software solutions and services revenues, sold by the IT Solutions segment to the Print and Other segment. (2) Reflects primarily costs related to the sale of IT hardware, software solutions and services by the IT Solutions segment, to the Print and Other segment. Xerox 2025 Form 10-Q 44 Cash flows from operating activities during the three months ended March 31, 2025 were a use of $89 million and decreased $10 million as compared to the prior year period. The decrease primarily related to lower net proceeds from the on-going sales of finance receivables under the finance receivables funding agreements, which were partially offset by the timing of working capital 1 , and lower finance receivable originations. Cash provided by investing activities during the three months ended March 31, 2025 was $6 million, reflecting $19 million related to the sale of a surplus facility, $3 million related to a change in lease classification for certain vehicles, and $5 million from a divestiture, all of which was partially offset by capital expenditures of $20 million. Cash used in financing activities during the three months ended March 31, 2025 was $159 million, reflecting net payments of approximately $72 million on secured financing arrangements, approximately $28 million for payments on secured promissory notes, and $7 million on the Term Loan B facility. Dividend payments were $39 million, and other financing, net was $16 million, reflecting $6 million for repurchases related to stock-based compensation, $5 million related to finance leases, and $4 million for payments of financing commitment fees related to the expected acquisition of Lexmark. ____________________________ (1) Working capital, net reflects Accounts receivable, Billed portion of finance receivables, Inventories and Accounts payable. Outlook Given the evolving and fluid nature of proposed tariff policies, and the uncertain impact of future policy outcomes on macroeconomic conditions, we have not adjusted our full-year outlook. We continue to expect Revenue to grow at low single-digits in constant currency 1 , inclusive of a full year of revenue associated with the recent ITsavvy acquisition, and adjusted 1 operating income margin is expected to be at least 5.0%. We also continue to expect operating cash flows to be between $420 million to $470 million, and capital expenditures to be approximately $70 million in 2025. Guidance does not include any impact from the pending acquisition of Lexmark. Guidance further excludes potential adverse effects of tariff and trade policy, and the resultant impact on the macroeconomic outlook for the second half of the year, as tariff rates and trade policy remain fluid and unpredictable. We currently expect minimal tariff-related impacts to our financial results in the second quarter of 2025. ____________________________ (1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure. Xerox 2025 Form 10-Q 45 Financial Review Revenues Three Months Ended March 31, % of Total Revenue (in millions) 2025 2024 % Change CC % Change 2025 2024 Equipment sales $ 284 $ 290 (2.1) % (0.7) % 19 % 19 % Post sale revenue 1,173 1,212 (3.2) % (1.2) % 81 % 81 % Total Revenue $ 1,457 $ 1,502 (3.0) % (1.1) % 100 % 100 % Reconciliation to Condensed Consolidated Statements of Loss: Sales $ 557 $ 523 6.5 % 8.7 % Less: IT products (1) (105) (47) 123.4 % 122.2 % Less: Supplies, paper and other sales (168) (186) (9.7) % (5.9) % Equipment sales $ 284 $ 290 (2.1) % (0.7) % Services, maintenance, rentals and other (2)(3) $ 900 $ 979 (8.1) % (6.4) % Add: IT products (1) 105 47 123.4 % 122.2 % Add: Supplies, paper and other sales 168 186 (9.7) % (5.9) % Post sale revenue $ 1,173 $ 1,212 (3.2) % (1.2) % Segments Print and Other $ 1,294 $ 1,428 (9.4) % (7.6) % 89 % 95 % IT Solutions 164 74 121.6 % 124.8 % 11 % 5 % Intersegment elimination (4) (1) — NM NM — % — % Total Revenue (5) $ 1,457 $ 1,502 (3.0) % (1.1) % 100 % 100 % _____________ CC - See "Currency Impact" section for a description of Constant Currency. (1) IT Products reflect IT hardware and software solutions provided by the IT Solutions segment. Refer to Reportable Segments - IT Solutions for further information. (2) Includes financing revenue generated from direct and indirectly financed Xerox equipment sale transactions of $33 million and $42 million for the three months ended March 31, 2025 and 2024, respectively. (3) Services, maintenance, rentals and other revenue include IT services support of $58 million and $27 million for the three months ended March 31, 2025 and 2024, respectively, provided by our IT Solutions segment. (4) Primarily reflects IT hardware, software solutions and hardware sold by the IT Solutions segment to the Print and Other segment. (5) Refer to Note 4 - Segment Reporting in the Condensed Consolidated Financial Statements for additional information regarding our reportable segments. First quarter 2025 total revenue decreased 3.0% as compared to first quarter 2024, and included a 1.9-percentage point adverse impact from currency. First quarter 2025 total revenue also included a 6.6-percentage point benefit from the recent acquisition of ITsavvy. First quarter 2025 equipment sales revenue decreased at constant currency 1 , and included a 0.9-percentage point adverse impact from the exit of certain production print manufacturing operations in the prior year period and the effects of geographic simplification, partially offset by a reduction in backlog 3 . First quarter 2025 Post sale revenue decreased at constant currency 1 and included an 8.2-percentage point benefit from the recent acquisition of ITsavvy. The decrease was due to a decline in managed print services 2 revenue, driven by lower outsourcing and print service revenue, and lower supplies. Post sale revenue declines also reflect intentional reduction in non-strategic revenue, such as paper and financing income, and the effects of geographic and offering simplification. These impacts were partially offset by higher IT Solutions revenue, driven by the ITsavvy acquisition, and modest growth in digital services revenue. ____________________________ (1) See "Currency Impact" section for a description of Constant Currency. (2) Includes revenues from service, maintenance and rentals. IT solutions and digital services are not included in managed print services. (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 print-related devices as well as IT hardware associated with our IT Solutions offerings. Xerox 2025 Form 10-Q 46 Total revenue for the three months ended March 31, 2025 reflected the following: Post sale revenue Post sale revenue reflects revenues from managed print services 2 , supplies, paper and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page. Post sale revenue also includes revenues from IT Solutions, comprised of IT products and services, Digital services, as well as gains, commissions, and servicing revenue associated with the sale of finance receivables. Post sale revenue decreased 3.2% as compared to the first quarter of 2024, which included a 2.0-percentage point adverse impact from currency. First quarter 2025 total Post sale revenue included an 8.2-percentage point benefit from the recent acquisition of ITsavvy. Post sale revenue reflected the following: • Services, maintenance, rentals and other revenue includes maintenance revenue (including bundled supplies), the services portion of our IT Solutions offering, digital services revenue, rentals, financing, and other revenues. For the three months ended March 31, 2025, these revenues decreased 8.1% as compared to first quarter of 2024, which included a 1.7-percentage point adverse impact from currency. First quarter 2025 revenues included a 3.3-percentage point benefit from the recent acquisition of ITsavvy. The decline in constant currency 1 was primarily due to managed print services 2 revenue which declined high-single digits as compared to first quarter 2024, reflecting lower outsourcing and print service revenue, which includes the effects of geographic and offering simplification, and lower financing revenue. Lower financing revenue reflects a continued reduction of the average finance receivable balance in the first quarter 2025 as a result of the sales of finance receivables in recent quarters to HPS Investment Partners (HPS), and De Lage Landen Financial Services Canada Inc., and De Lage Landen Financial Services France Inc. These impacts were partially offset by higher IT Solutions services revenue, driven by the ITsavvy acquisition, and modest growth in digital services revenue. • IT products revenue includes the sale of notebooks, network communications and other endpoint devices, desktop computers and other IT hardware. Software product sales include deployments of cloud and security solutions, endpoint security application suites, operating systems, other applications and network management solutions. First quarter 2025 revenues increased 123.4% as compared to first quarter 2024, and included a 1.2-percentage point benefit from currency. First quarter 2025 revenues included a 143.8-percentage point benefit from the recent acquisition of ITsavvy. Excluding the impact of ITsavvy, IT products revenues decreased 20.4% in actual currency as compared to first quarter 2024 due to growth in legacy IT Solutions’ backlog 3 , the timing of large product placements in the prior year, a larger mix of revenue subject to deferred revenue recognition, and lower in-period billings in certain legacy IT Solutions regions. • Supplies, paper and other sales revenue includes unbundled supplies, paper and other sales. For the three months ended March 31, 2025, these revenues decreased 9.7% as compared to the first quarter of 2024, which included a 3.8-percentage point adverse impact from currency. The decline in constant currency 1 primarily reflects lower paper sales as a result of the sale of our European paper business and lower supplies revenue. Equipment sales revenue Equipment sales revenue decreased 2.1% as compared to the first quarter of 2024, which included a 1.4-percentage point adverse impact from currency. The decrease in constant currency 1 was primarily attributable to the exit of certain production print manufacturing operations in the prior year and Reinvention-related actions, including geographic simplification, partially offset by a reduction in backlog 3 . Revenue declines for Entry and High-End products were partially offset by growth in Mid-Range. See Segment Review - Print and Other below for additional discussion on Equipment sales revenue. ____________________________ (1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure. (2) Includes revenues from service, maintenance and rentals. IT solutions and digital services are not included in managed print services. (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 print-related devices as well as IT hardware. Xerox 2025 Form 10-Q 47 Costs, Expenses and Other Income Summary of Key Financial Ratios The following is a summary of key financial ratios used to assess our performance: Three Months Ended March 31, (in millions) 2025 2024 B/(W) Gross Profit $ 426 $ 443 $ (17) RD&E 42 49 7 SAG 378 397 19 Equipment Gross Margin 27.9 % 31.0 % (3.1) pts. Post sale Gross Margin 29.6 % 29.1 % 0.5 pts. Total Gross Margin 29.2 % 29.5 % (0.3) pts. RD&E as a % of Revenue 2.9 % 3.3 % 0.4 pts. SAG as a % of Revenue 25.9 % 26.4 % 0.5 pts. Pre-tax Loss $ (67) $ (150) $ 83 Pre-tax Loss Margin (4.6) % (10.0) % 5.4 pts. Adjusted (1) Operating profit $ 22 $ 33 $ (11) Adjusted (1) Operating Margin 1.5 % 2.2 % (0.7) pts. ____________ (1) Refer to the “Non-GAAP Financial Measures” section for an explanation of the non-GAAP financial measure. Gross Margin First quarter 2025 gross margin of 29.2% decreased 0.3-percentage points as compared to first quarter of 2024, which included a 0.7-percentage point adverse impact related to our recent acquisition of ITsavvy. Excluding the impact of ITsavvy, the increase primarily reflects charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, which had a 0.5-percentage point unfavorable impact on gross margin in the first quarter 2025 as compared to a 2.4-percentage point unfavorable impact on gross margin in the first quarter 2024, and the benefits associated with recent Reinvention-related cost and productivity actions. These benefits were partially offset by lower revenue and gross profit, including lower page volumes, and finance receivable-related fees, product cost increases and tariff-related costs. First quarter 2025 Equipment gross margin of 27.9% decreased by 3.1-percentage points as compared to first quarter of 2024. The decrease reflects lower revenue and gro ss profit, and higher product and incremental tariff-related costs. These impac ts were partially offset by lower freight costs, Reinvention-related cost and productivity actio ns, and favorable mix. First quarter 2025 Post sale gross margin of 29.6% increased by 0.5-percentage points as compared to first quarter of 2024, primarily reflecting charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, which had a 0.6-percentage point unfavorable impact on gross margin in the first quarter 2025 as compared to 3.0-percentage point unfavorable impact on gross margin in the first quarter 2024, as well as benefits associated with recent Reinvention-related cost and productivity actions. These benefits were partially offset by lower revenue, including lower page volumes and finance receivable-related fees, and lower gross profit, including higher product and incremental tariff-related costs. First quarter 2025 post sale gross margin also included a 0.9-percentage point adverse impact related to our recent acquisition of ITsavvy. Research, Development and Engineering Expenses (RD&E) Three Months Ended March 31, (in millions) 2025 2024 Change R&D $ 29 $ 37 $ (8) Sustaining engineering 13 12 1 Total RD&E Expenses $ 42 $ 49 $ (7) First quarter 2025 RD&E as a percentage of revenue of 2.9% decreased 0.4-percentage points as compared to first quarter 2024, as reductions in RD&E spending outpaced revenue declines. First quarter 2025 RD&E of $42 million decreased $7 million as compared to first quarter 2024, primarily due to productivity and cost savings related to the Company's Reinvention. Xerox 2025 Form 10-Q 48 Selling, Administrative and General Expenses (SAG) First quarter 2025 SAG as a percentage of revenue of 25.9% decreased by 0.5-percentage points as compared to first quarter 2024, including a 1.0-percentage point benefit from the acquisition of ITsavvy, as reductions in SAG spending outpaced revenue decline. First quarter 2025 SAG of $378 million decreased by $19 million as compared to first quarter 2024, primarily reflecting productivity and cost savings related to the Company's Reinvention, lower bad debt expense, and favorable currency. These benefits were partially offset by expenses related to the recent acquisition of ITsavvy, and the expected acquisition of Lexmark, other Reinvention-related investments, as well as advertising and incentive compensation expense. The bad debt provision for the first quarter 2025 of $9 million decreased by $6 million as compared to the first quarter 2024 due primarily to a lower finance receivable balance, reflecting sales of finance receivables in recent quarters to HPS Investment Partners and DLL. We continue to monitor developments in future economic conditions, and as a result, our reserves may need to be updated in future periods. As of March 31, 2025, on a trailing twelve-month basis, bad debt expense was 1.7% of total receivables, as compared to approximately 1.5% for the prior year comparable period. Refer to Note 6 - Accounts Receivable, Net and Note 7 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our bad debt provision. Restructuring and Related Costs, Net Restructuring and related costs, net for the first quarter 2025 resulted in a net credit of $(1) million, as compared to $39 million for the first quarter 2024. First quarter 2025 and 2024 restructuring actions were related to Reinvention initiatives under our Reinvention and other transformation programs to reduce and realign our cost structure to the changing nature of our business, and included the following: Three Months Ended March 31, (in millions) 2025 2024 Restructuring and severance costs $ 10 $ 9 Asset impairments - leased ROU assets (1) 4 — Net asset impairments - owned assets (1) (10) 26 Other contractual termination costs (2) 5 — Reversals (3) (10) (4) Restructuring and asset impairment costs (1) 31 Retention-related severance/bonuses (4) — (2) Consulting and other costs (5) — 10 Restructuring and related costs, net $ (1) $ 39 _____________ (1) Primarily related to the sale, exit and abandonment of leased and owned facilities, net of any potential sublease income and recoveries. Asset impairments of owned assets include cash proceeds resulting from asset sales of $19 million for the first quarter 2025. (2) Primarily includes additional costs incurred upon the exit from our facilities, including decommissioning costs and associated contractual termination costs. (3) Reversals of prior charges primarily include net changes in estimated reserves from initiatives accrued for in prior periods, including Reinvention. (4) Includes retention-related severance and bonuses for employees expected to continue working beyond their minimum retention period before termination. (5) Represents professional support services associated with our business transformation initiatives. First quarter 2025 actions impacted several functional areas, with approximately 30% focused on gross margins improvements, approximately 60% focused on SAG reductions, and the remainder focused on RD&E optimization. First quarter 2024 actions mainly impacted gross margin improvements. The Restructuring and related costs, net reserve balance for all programs as of March 31, 2025 was $102 million, of which $74 million is expected to be paid over the next twelve months. Refer to Note 10 - Restructuring Programs in the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs. Xerox 2025 Form 10-Q 49 Worldwide Employment Worldwide employment was approximately 17,600 as of March 31, 2025, an increase of approximately 800 since December 31, 2024. The increase was primarily due to the impact from gross hires, partially offset by impact of the Company's Reinvention, which includes the effects of workforce reduction decisions. Other Expenses, Net Three Months Ended March 31, (in millions) 2025 2024 Non-financing interest expense $ 33 $ 26 Interest income (2) (3) Non-service retirement-related costs 18 23 Currency losses, net — 11 Commitment fee expense 18 — Gain on early extinguishment of debt — (3) Gain on release of contingent consideration — (5) All other expenses, net 1 (5) Other expenses, net $ 68 $ 44 Non-Financing Interest Expense First quarter 2025 non-financing interest expense of $33 million was $7 million higher than first quarter 2024. The increase is primarily due to a higher average interest rate and a lower portion of debt allocated to XFS, which reflects a reduction in the average finance receivables balance associated with the sales of finance receivables in recent quarters to HPS Investment Partners and DLL Canada and France, as well as lower originations. When non-financing interest is combined with equipment financing interest expense, total interest expense increased by $2 million as compared to the first quarter 2024. This reflects the impact of higher interest rates on new debt, partially offset by a lower average debt balance. Refer to Note 12 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt activity and interest expense. Non-Service Retirement-Related Costs First quarter 2025 non-service retirement-related costs of $18 million were $5 million lower than the first quarter 2024, primarily due to an increase in actuarial losses subject to amortization, partially offset by a decrease in settlement costs due to the absence of settlement expense in the current year. Refer to Note 15 - Employee Benefit Plans in the Condensed Consolidated Financial Statements for additional information regarding service and non-service retirement-related costs. Currency losses, net For the three months ended March 31, 2025, currency losses, net were $11 million lower as compared to the first quarter 2024. The reduction of losses was driven by lower currency volatility, particularly against the Egyptian pound, in addition to prior period sales of our direct business operations in Argentina, Chile & Peru. Commitment fee expense First quarter 2025 commitment fee expense primarily reflects fees associated with the recently completed private offering of $400 million in aggregate principal amount of 10.250% Senior Secured First Lien Notes and $400 million aggregate principal amount of 13.500% Senior Secured Second Lien Notes Due in 2031. Gain on early extinguishment of debt First quarter 2024 gain on early extinguishment of debt of $3 million reflects a $4 million gain on the repayment of Senior Notes (via tender offer) in the first quarter of 2024, partially offset by a loss of approximately $1 million on the write-off of deferred debt issuance costs. Gain on release of contingent consideration The gain on the release of contingent consideration of $5 million for the three months ended March 31, 2024 reflects a reserve release related to earn-out provisions which were not met, in connection with a prior acquisition. Xerox 2025 Form 10-Q 50 Pre-tax Loss Margin First quarter 2025 pre-tax loss margin of 4.6% increased 5.4-percentage points, as compared to first quarter of 2024 pre-tax loss margin of 10.0% and included a 0.6-percentage point benefit from the recent acquisition of ITsavvy. The improvement in the first quarter 2025 is a result of the sales of certain direct business operations in Latin America, resulting in a net disposal loss of $54 million in the first quarter 2024, as well as lower Restructuring and related costs, net, and lower Selling, administrative and general expenses associated with productivity and cost savings related to the Company's Reinvention. These benefits were partially offset by higher Other expenses, net, primarily reflecting fees associated with the recently completed private offering of Senior Secured Notes, and lower revenue and associated gross profit. Adjusted 1 Operating Margin First quarter 2025 adjusted 1 operating income margin of 1.5% decreased by 0.7-percentage points as compared to the first quarter of 2024, which included a 0.5-percentage point benefit from the recent acquisition of ITsavvy. The decrease also reflected lower revenue and gross profit, which included higher product costs, as well as higher advertising and incentive compensation expense. These impacts were partially offset by productivity and cost savings related to the Company's Reinvention, lower bad debt expense and favorable currency. ______________ (1) Refer to the Adjusted Operating Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section. Income Taxes First quarter 2025 effective tax rate was (34.3)%. This rate was higher than the U.S. federal statutory tax rate of 21.0% but resulted in a tax expense, primarily due to the establishment of a valuation allowance against certain deferred tax assets and lower tax benefits of some current year losses and expenses, partially offset by the geographical mix of earnings. On an adjusted 1 basis, first quarter 2025 effective tax rate was 60.0%, which was higher than the U.S. federal statutory tax rate of 21.0% primarily due to lower benefits of certain current year losses and expenses. First quarter 2024 effective tax rate was a 24.7%, which resulted in a tax benefit. This tax benefit is higher than the benefit under the U.S. federal statutory tax rate of 21% due primarily to the redetermination of certain unrecognized tax positions, primarily offset by geographical mix of earnings, including the mix associated with charges related to the Company's Reinvention. On an adjusted 1 basis, first quarter 2024 effective tax rate was (22.2)%, which resulted in a tax benefit. The difference between this rate and the U.S. federal statutory tax rate of 21% primarily reflects tax benefits from the redetermination of certain unrecognized tax positions offset by the geographical mix of earnings. The effective tax rate is based on nonrecurring events as well as recurring factors, including the taxation of foreign income. In addition, the effective tax rate will change based on discrete or other nonrecurring events that may not be predictable. _____________ (1) Refer to the Adjusted Effective Tax Rate reconciliation table in the "Non-GAAP Financial Measures" section. Xerox 2025 Form 10-Q 51 Net (Loss) Income First quarter 2025 Net (Loss) was $(90) million, or $(0.75) per diluted share. On an adjusted 1 basis, Net (Loss) was $(4) million, or $(0.06) per diluted share. First quarter 2024 Net (Loss) was $(113) million, or $(0.94) per diluted share. On an adjusted 1 basis, Net Income was $11 million, or $0.06 per diluted share. Refer to Note 19 - Loss per Share in the Condensed Consolidated Financial Statements for additional information regarding the calculation of basic and diluted loss per share. _____________ (1) Refer to the Adjusted Net (Loss) Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section. For the calculations of basis and diluted loss per share, refer to Note 19 - Loss per Share in the Notes to the Condensed Consolidated Financial Statements. Other Comprehensive Income First quarter 2025 Other Comprehensive Income, Net was $82 million and included the following: i) net translation adjustment gains of $105 million reflecting the strengthening of all of our major foreign currencies against the U.S. Dollar during the quarter; ii) $21 million of net losses from the changes in defined benefit plans primarily reflecting the negative impact of currency, partially offset by the amortization of net actuarial losses; and iii) $2 million of net unrealized losses. This compares to Other Comprehensive Income, Net of $3 million for the first quarter 2024, which included the following: i) $36 million of net gains from the changes in defined benefit plans reflecting the amortization of actuarial losses, the positive impact of currency, and actuarial gains; ii) net translation adjustment losses of $32 million reflecting the weakening of most of our major foreign currencies against the U.S. Dollar during the quarter; and iii) $1 million of net unrealized losses. Refer to Note 18 - Other Comprehensive Income in the Condensed Consolidated Financial Statements for the components of Other Comprehensive Income, Note 13 - Financial Instruments in the Condensed Consolidated Financial Statements for additional information regarding unrealized gains (losses), net, and Note 15 - Employee Benefit Plans in the Condensed Consolidated Financial Statements for additional information regarding net changes in our defined benefit plans. Reportable Segments Our business is organized to ensure we focus on efficiently managing operations while serving our customers and the markets in which we operate. We have two operating and reportable segments – Print and Other and IT Solutions . Refer to Note 4 - Segment Reporting in the Condensed Consolidated Financial Statements for additional information regarding our reportable segments. Segment Review Three Months Ended March 31, (in millions) Print and Other IT Solutions Total Segment Intersegment Elimination (1) Corporate Other (2) Total 2025 Revenues $ 1,294 $ 164 $ 1,458 $ (1) $ — $ 1,457 % of Total Revenue 89 % 11 % 100 % Expenses $ 1,253 $ 159 $ 1,412 $ (1) $ 24 $ 1,435 Segment Profit $ 41 $ 5 $ 46 $ — $ (24) $ 22 Segment Margin (3) 3.2 % 3.1 % 1.5 % 2024 Revenues $ 1,428 $ 74 $ 1,502 $ — $ — $ 1,502 % of Total Revenue 95 % 5 % 100 % Expenses $ 1,370 $ 75 $ 1,445 $ — $ 24 $ 1,469 Segment Profit $ 58 $ (1) $ 57 $ — $ (24) $ 33 Segment Margin (3) 4.1 % (1.4) % 2.2 % ___________ (1) Reflects primarily IT hardware, software solutions and services sold by the IT Solutions segment to the Print and Other segment. (2) Corporate Other reflects certain administrative and general expenses, which primarily relate to corporate functions, and are not allocated to either of our reportable segments. (3) Segment margin is based on total revenue. Xerox 2025 Form 10-Q 52 Print and Other The Print and Other segment includes the design, development and sale of document management systems, supplies and services as well as financing and technology-related offerings, digital and print-related software products and services. Revenue Three Months Ended March 31, (in millions) 2025 2024 % Change Equipment sales $ 284 $ 290 (2.1)% Post sale revenue (1) 1,010 1,138 (11.2)% Total Print and Other Revenue $ 1,294 $ 1,428 (9.4)% _____________ (1) Post sale revenue includes financing revenue generated from direct and indirectly financed Xerox equipment sale transactions of $33 million and $42 million for the three months ended March 31, 2025 and 2024, respectively. First quarter 2025 Print and Other segment revenue decreased 9.4% as compared to first quarter of 2024 and included the following: Equipment sales revenue decreased 2.1% as compared to the first quarter of 2024, which included a 1.4-percentage point adverse impact from currency. The decrease in constant currency 1 was primarily attributable to the exit of certain production print manufacturing operations in the prior year and Reinvention-related actions, including geographic simplification, partially offset by a decline in backlog 3 . Revenue declines for Entry and High-End products were partially offset by growth in Mid-Range. Post sale revenue decreased 11.2% as compared to the first quarter of 2024, which included a 2.0-percentage point adverse impact from currency. The decrease in constant currency 1 was primarily due to a decline in managed print services 2 revenue. Managed print services 2 revenue declines reflect lower outsourcing and print service revenue, including the effects of geographic and offering simplification. Post sale declines also reflect lower supplies and intentional reductions in non-strategic revenue, including paper and financing income. These impacts were partially offset by modest growth in digital services revenue. ____________ (1) Refer to the “Currency Impact” section for a description of constant currency. (2) Includes revenues from service, maintenance and rentals. IT solutions and digital services are not included in managed print services. (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 print-related devices. Detail by product group is shown below. Three Months Ended March 31, % of Equipment Sales (in millions) 2025 2024 % Change CC % Change 2025 2024 Entry $ 43 $ 45 (4.4)% (4.2)% 15% 15% Mid-range 198 193 2.6% 3.9% 70% 67% High-end 40 47 (14.9)% (14.9)% 14% 16% Other 3 5 (40.0)% (40.0)% 1% 2% Equipment sales (1) $ 284 $ 290 (2.1)% (0.7)% 100% 100% _____________ CC - See "Currency Impact" section for a description of constant currency. (1) Refer to the Products and Offerings Definitions section. The change at constant currency 1 reflects the decision to the exit certain production print manufacturing operations made in the prior year period and the effects of geographic simplification, as well as the following: • Entry - The decrease for the three months ended March 31, 2025 reflects a higher mix of black-and-white installs and a higher mix of sales to indirect channel partners. • Mid-range - The increase for the three months ended March 31, 2025 reflects growth in color installations. Black-and-white Mid-range revenue grew compared to the first quarter 2024 despite lower installs driven by favorable product family mix. • High-end - The decrease for the three months ended March 31, 2025 was primarily due to lower High-end color installations, and the exit certain production print manufacturing operations in the prior year period. _____________ (1) Refer to the “Currency Impact” section for a description of constant currency. Xerox 2025 Form 10-Q 53 Total Installs Installs reflect new placements of devices only (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations). Revenue associated with equipment installations may be reflected up-front in Equipment sales or over time either through rental income or as part of our services revenues (which are both reported within our post sale revenues), depending on the terms and conditions of our agreements with customers. Installs include activity for Xerox and non-Xerox branded products installed by XBS. Detail by product group (see Products and Offerings Definitions ) is shown below. Installs for the three months ended March 31, 2025, as compared to the prior year period, reflect the following: Entry • 18% increase in entry color installs, driven by growth in A4 Color MFPs and Entry Color Printers. • 39% increase in entry black-and-white installs, driven by growth in A4 Mono MFPs and Entry Mono Printers. Mid-Range • 11% increase in mid-range color installs driven by growth in A3 Color MFPs and Entry Production Color Low. • 11% decrease in mid-range black-and-white installs driven by A3 Mono MFPs and Light Production Digital Business. High-End • 19% decrease in high-end color installs primarily reflecting declines in Entry Production Color Mid and High. • 67% decrease in high-end black-and-white driven by declines in High End Cut Sheet products. Products and Offerings Definitions Our product groupings range from: • “Entry” , which include A4 devices and desktop printers and multifunction devices that primarily serve small and medium workgroups/work teams. • “Mid-Range” , which include A3 devices that generally serve large workgroup/work teams environments as well as products in the Light Production product groups serving centralized print centers, print for pay and low volume production print establishments. • “High-End” , which include production printing and publishing systems that generally serve the graphic communications marketplace and print centers in large enterprises. Segment Expenses Research, Development and Engineering Expenses (RD&E) First quarter 2025 RD&E of $42 million decreased $7 million as compared to first quarter 2024, primarily due to productivity and cost savings related to the Company's Reinvention. Selling, Administrative and General Expenses (SAG) First quarter 2025 SAG of $322 million decreased by $39 million as compared to first quarter 2024, primarily reflecting productivity and cost savings related to the Company's Reinvention, lower bad debt expense, and favorable currency. These benefits were partially offset by expenses related to the expected acquisition of Lexmark, other Reinvention-related investments, as well as higher advertising and incentive compensation expense. Segment Margin First quarter 2025 Print and Other segment margin of 3.2% decreased by 0.9-percentage points as compared to first quarter of 2024, primarily due to lower revenue and gross profit, impacted by higher product and incremental tariff-related costs. These impacts were partially offset by lower Selling, administrative and general expenses (SAG) and Research, development and engineering expenses (RD&E), lower freight costs, as well as Reinvention-related cost and productivity actions. Xerox 2025 Form 10-Q 54 IT Solutions The IT Solutions segment provides clients with global infrastructure technology solutions, with a focus on delivering business outcomes through a frictionless sales and service delivery experience. IT Solutions’ offerings include the provision of hardware, software and associated services as well as product lifecycle, deployment and network monitoring services, and managed services. It is comprised of our recent acquisition of ITsavvy, as well as our Canadian IT Services provider Powerland, and our legacy XBS IT solutions. Revenue Three Months Ended March 31, (in millions) 2025 2024 % Change IT Products (1) $ 105 $ 47 123.4% IT Services (2) 58 27 114.8% Intersegment revenue (3) 1 — NM Total IT Solutions $ 164 $ 74 121.6% _____________ (1) IT Products reflect the sale of IT hardware and software solutions, Hardware product sales include the sale of notebooks, network communications and other endpoint devices, desktop computers and other IT hardware. Software product sales include deployments of cloud and security solutions, endpoint security application suites, operating systems, other applications and network management solutions. (2) IT Services reflect revenue associated with the implementation of IT solutions, including product lifecycle, deployment and network monitoring services, and other managed IT services. (3) Reflects primarily IT hardware, software solutions and services sold by the IT Solutions segment to the Print and Other segment. First quarter 2025 XFS segment revenue increased 121.6% as compared to first quarter of 2024, and reflected the following: IT Products revenue increased 123.4% during the three months ended March 31, 2025 as compared to first quarter of 2024, primarily due to the ITsavvy acquisition, partially offset by growth in legacy IT Solutions’ backlog 1 , the timing of large product placements in the prior year, a larger mix of revenue subject to deferred revenue recognition, and lower in-period billings in certain legacy IT Solutions regions. IT Services revenue increased 114.8% during the three months ended March 31, 2025 as compared to the first quarter of 2024, primarily due to the ITsavvy acquisition. ____________________________ (1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes IT hardware associated with our IT Solutions offerings. Segment Expenses Selling, Administrative and General Expenses (SAG) First quarter 2025 SAG of $23 million increased by $11 million as compared to first quarter 2024, primarily due to the recent acquisition of ITsavvy, as well as higher incentive compensation expense. Segment Margin First quarter 2025 IT Solutions segment margin of 3.1% increased 4.5-percentage points as compared to first quarter of 2024, primarily due to the ITsavvy acquisition. Xerox 2025 Form 10-Q 55 2024 Segment Review The following are our 2024 segment results, recast for comparison purposes, to reflect the changes made to segment reporting in 2025: (in millions) Print and Other IT Solutions Total Segment Intersegment Elimination (1) Corporate Other (2) Total Q1 2024 Revenues $ 1,428 $ 74 $ 1,502 $ — $ — $ 1,502 Expenses 1,370 75 1,445 — 24 1,469 Segment Profit 58 (1) 57 — (24) 33 Segment Margin (3) 4.1 % (1.4) % 2.2 % Q2 2024 Revenues $ 1,494 $ 84 $ 1,578 $ — $ — $ 1,578 Expenses 1,387 83 1,470 — 23 1,493 Segment Profit 107 1 108 — (23) 85 Segment Margin (3) 7.2 % 1.2 % 5.4 % Q3 2024 Revenues $ 1,442 $ 86 $ 1,528 $ — $ — $ 1,528 Expenses 1,339 86 1,425 — 23 1,448 Segment Profit 103 — 103 — (23) 80 Segment Margin (3) 7.1 % — % 5.2 % Q4 2024 Revenues $ 1,500 $ 114 $ 1,614 $ (1) $ — $ 1,613 Expenses 1,372 114 1,486 (1) 24 1,509 Segment Profit 128 — 128 — (24) 104 Segment Margin (3) 8.5 % — % 6.4 % 2024 Revenues $ 5,864 $ 358 $ 6,222 $ (1) $ — $ 6,221 Expenses 5,468 358 5,826 (1) 94 5,919 Segment Profit 396 — 396 — (94) 302 Segment Margin (3) 6.8 % — % 4.9 % _____________ (1) Reflects primarily IT hardware, software solutions and services sold by the IT Solutions segment to the Print and Other segment. (2) Corporate Other reflects certain administrative and general expenses, which primarily relate to corporate functions, and are not allocated to either of our reportable segments. (3) Segment margin is based on total revenue. The following are reconciliations of our segment profit to our pre-tax (loss) income for 2024: (in millions) Q1 2024 Q2 2024 Q3 2024 Q4 2024 Full Year 2024 Pre-tax (Loss) Income Total reported segments $ 33 $ 85 $ 80 $ 104 $ 302 Inventory-related impact - exit of certain production print manufacturing operations (1) (36) (8) — (7) (51) Reinvention costs — — — (12) (12) Goodwill impairment — — (1,058) — (1,058) Restructuring and related costs, net (39) (12) (56) (5) (112) Amortization of intangible assets (10) (10) (10) (43) (73) Divestitures (54) 3 — 4 (47) Transaction and related costs, net — — — (7) (7) Other expenses, net (44) (33) (43) (38) (158) Total Pre-tax (loss) income $ (150) $ 25 $ (1,087) $ (4) $ (1,216) _____________ (1) As a result of the exit of certain production print manufacturing operations, reflects the inventory-related charges of approximately $32 million in Q1-24, $6 million in Q2-24, and $7 million in Q4-24, as well as the cancellation of related purchase contracts of approximately $4 million in Q1-24, and $2 million in Q2-24. Xerox 2025 Form 10-Q 56 Capital Resources and Liquidity The following is a summary of our liquidity position: • As of March 31, 2025 and December 31, 2024, total cash, cash equivalents and restricted cash of Xerox Holdings Corporation were $390 million and $631 million, respectively, and apart from restricted cash of $54 million and $55 million at March 31, 2025 and December 31, 2024, respectively, was readily accessible for use. The decrease in total cash, cash equivalents and restricted cash of $241 million reflects net cash used in financing activities of $159 million, as well as net cash used in operating cash activities of $89 million, both of which were partially offset by cash provided by investing activities of $6 million. • Total debt at March 31, 2025 was $3,298 million, of which $1,651 million is allocated to and supports the Company's finance assets. The remaining debt of $1,647 million is attributable to the non-financing business and decreased from $1,658 million at December 31, 2024. Debt consists of senior unsecured notes, secured promissory notes, and borrowings under a Term Loan B facility. • On April 11, 2025, we prepaid approximately $90 million of the Senior Notes due August 2025 using proceeds from the $400 million aggregate principal amount of 10.250% Senior Secured First Lien Notes due 2030 (the First Lien Notes) issued by Xerox Corporation, with the remaining balance of approximately $298 million due on or to prior to maturity in August 2025. Also on April 11, 2025, we repaid $95 million of aggregate principal amount of borrowings under Xerox Corporation’s first lien senior secured term loan credit facility (the TLB Facility). The application of the remaining proceeds from the First Lien Notes will be used for general corporate purposes. Refer to Note 21 - Subsequent Events for additional information related to our Debt activity in second quarter 2025. • In December 2024, in connection with the Company's pending acquisition of Lexmark International II LLC, Xerox Corporation and Xerox Holdings Corporation obtained commitments for new debt financing pursuant to (i) a commitment letter with certain Incremental Commitment Parties for approximately $357 million in senior secured incremental term loan facility (the Incremental Facility), (ii) a commitment letter with senior unsecured commitment parties to provide debt financing in the form of $250 million principal amount of senior unsecured notes, and (iii) a debt commitment letter with Jefferies Finance LLC and Jefferies LLC (collectively, Jefferies), pursuant to which Jefferies agreed to provide debt financing in the form of $250 million senior unsecured notes (the SUNs), and a committed $550 million senior unsecured term loan facility (the Jefferies Term Loan Facility). On March 25, 2025, Xerox announced its intention to replace Jefferies' aggregate commitments for the SUNs and the Jefferies Term Loan Facility with the $400 million aggregate principal amount of 10.25% Senior Secured First Lien Notes Due in 2030 and $400 million aggregate principal amount of 13.50% Senior Secured Second Lien Notes Due in 2031 (collectively, the Notes) and such commitments were terminated following the completion of the offering of the Notes on April 11, 2025. Xerox Corporation and Xerox Holdings Corporation intend to use the remaining proceeds from these commitments (and/or an equivalent amount of debt securities in lieu thereof), together with cash on hand and drawings under Xerox Corporation's asset-backed revolving credit facility (as needed) to fund the $1.5 billion, inclusive of net debt and other assumed liabilities, purchase price of Lexmark. • As of March 31, 2025, there were no borrowings under the ABL Facility, and approximately $41 million of letters of credits were issued under the facility. During the three months ended March 31, 2025, the maximum borrowings under the ABL Facility were $25 million. • We continue to expect operating cash flows to be between $420 million to $470 million, and capital expenditures to be approximately $70 million in 2025. Cash Flow Analysis The following summarizes our cash, cash equivalents and restricted cash: Three Months Ended March 31, Change (in millions) 2025 2024 Net cash used in operating activities $ (89) $ (79) $ (10) Net cash provided by (used in) investing activities 6 (17) 23 Net cash (used in) provided by financing activities (159) 261 (420) Effect of exchange rate changes on cash, cash equivalents and restricted cash 1 (10) 11 (Decrease) increase in cash, cash equivalents and restricted cash (241) 155 (396) Cash, cash equivalents and restricted cash at beginning of period 631 617 14 Cash, Cash Equivalents and Restricted Cash at End of Period $ 390 $ 772 $ (382) Xerox 2025 Form 10-Q 57 Cash Flows from Operating Activities Net cash used in operating activities was $89 million for the three months ended March 31, 2025. The $10 million decrease in operating cash from the prior year period was primarily due to the following: • $59 million decrease in pre-tax income before provisions, divestitures, restructuring and related costs and non-service retirement-related costs. • $82 million decrease from finance receivables primarily due to lower sales of finance receivables partially offset by a higher level of run-off due to lower originations. • $72 million increase from accounts payable primarily due to the timing of supplier and vendor payments. • $56 million increase from accrued compensation due to the timing of payments of lower year-end accruals. Cash Flows from Investing Activities Net cash provided by investing activities was $6 million for the three months ended March 31, 2025. The $23 million change from the prior year period was primarily due to higher proceeds from the sale of surplus property and assets in the U.S. Cash Flows from Financing Activities Net cash used in financing activities was $159 million for the three months ended March 31, 2025. The $420 million decrease cash from the prior year period was primarily due to the following: • $439 million decrease from net debt activity. 2025 reflects payments of $72 million on secured financing arrangements, $28 million on secured promissory notes and $7 million on the Term Loan B facility. 2024 reflects proceeds of $500 million on Senior Notes and $400 million on Convertible Senior Notes offset by net payments of $441 million on Senior Notes, deferred debt issuance costs of $15 million from Senior Notes issuances, $103 million on secured financing arrangements and $7 million on the Term Loan B facility. The $441 million of net payments on Senior Notes includes $83 million on Senior Notes maturing in May 2024 and $362 million for the early redemption of 2025 Senior Notes offset by early redemption premium of $4 million. • $23 million increase due to no purchases of capped calls in the current year. Refer to Note 12 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt activity. Cash, Cash Equivalents and Restricted Cash Refer to Note 11 - Supplementary Financial Information in the Condensed Consolidated Financial Statements for additional information regarding Cash, cash equivalents and restricted cash. Operating Leases We have operating leases for real estate and vehicles in our domestic and international operations, and for certain equipment in our domestic operations. Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations. Our operating leases have remaining terms of up to ten years and a variety of renewal and/or termination options. As of March 31, 2025 and December 31, 2024, total operating lease liabilities were $196 million and $188 million, respectively. Finance Leases Xerox has finance leases for equipment in the U.S. and Europe, as well as for vehicles and related infrastructure, within outsourced warehouse supply arrangements, in the U.S. These leases have remaining maturities up to seven years. As of March 31, 2025 and December 31, 2024, total finance lease liabilities were $14 million and $53 million, respectively. The decrease in finance leases since December 31, 2024 is primarily related to the modification of a lease agreement entered into during the first quarter of 2025, which resulted in a change in the lease classification from financing to operating. Accordingly, we remeasured the right of use asset and the corresponding lease liability. Refer to Note 9 - Lessee in the Condensed Consolidated Financial Statements for additional information regarding our leases accounted for under lessee accounting. Xerox 2025 Form 10-Q 58 Debt and Customer Financing Activities The following summarizes our debt: (in millions) March 31, 2025 December 31, 2024 Xerox Holdings Corporation $ 2,038 $ 2,038 Xerox Corporation 1,308 1,343 Xerox - Other Subsidiaries (1) — 70 Subtotal - Principal debt balance 3,346 3,451 Debt issuance costs Xerox Holdings Corporation (17) (19) Xerox Corporation (11) (11) Subtotal - Debt issuance costs (28) (30) Net unamortized premium (20) (22) Total Debt $ 3,298 $ 3,399 _____________ (1) Represents secured debt issued by subsidiaries of Xerox Corporation as part of the securitization of Finance Receivables in prior year. These securitizations were repaid during the first quarter 2025. Refer to Note 12 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt. Finance Assets and Related Debt The following represents our total finance assets, net associated with our lease and finance operations: (in millions) March 31, 2025 December 31, 2024 Total finance receivables, net (1) $ 1,639 $ 1,745 Equipment on operating leases, net 248 245 Total Finance Assets, net (2) $ 1,887 $ 1,990 _____________ (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, 2024 includes a decrease of $36 million due to currency. Our lease contracts permit customers to pay for equipment over time rather than at the date of installation; therefore, we maintain a certain level of debt (that we refer to as financing debt) to support our investment in these lease contracts, which are reflected in Total finance assets, net. For this financing aspect of our business, we maintain an assumed 7:1 leverage ratio of debt to equity as compared to our finance assets. Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt: (in millions) March 31, 2025 December 31, 2024 Finance receivables debt (1) $ 1,434 $ 1,527 Equipment on operating leases debt 217 214 Financing debt 1,651 1,741 Core debt 1,647 1,658 Total Debt $ 3,298 $ 3,399 __________________ (1) Finance receivables debt is the basis for our calculation of Equipment financing interest expense, which is included in Cost of services, maintenance, rentals and other in the Condensed Consolidated Statements of Loss. Sales of Finance Receivables and Third Party Leasing Programs Refer to Note 7 - Finance Receivables, Net in the Condensed Consolidated Financial Statements for additional information regarding our sales of finance receivables and our third party leasing programs. Capital Market/Debt Activity Refer to Note 12 - Debt and Note 21 - Subsequent Events in the Condensed Consolidated Financial Statements for additional information regarding our debt activity. Xerox 2025 Form 10-Q 59 Liquidity and Financial Flexibility We manage our worldwide liquidity using internal cash management practices, which are subject to i) the statutes, regulations and practices of each of the local jurisdictions in which we operate, ii) the legal requirements of the agreements to which we are a party, and iii) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services. Our principal debt maturities are spread over the next five years as follows: (in millions) Xerox Holdings Corporation Xerox Corporation Total 2025 Q2 $ — $ 34 $ 34 2025 Q3 (1) 388 34 422 2025 Q4 — 35 35 2026 — 151 151 2027 — 55 55 2028 750 55 805 2029 500 344 844 2030 and thereafter 400 600 1,000 Total $ 2,038 $ 1,308 $ 3,346 _____________ (1) On April 11, 2025, Xerox repaid approximately $90 million of Xerox Holdings Corporation's 5.00% Senior Notes due August 2025. Refer to Note 21 - Subsequent Events in the Condensed Consolidated Financial Statements for additional information regarding our debt activity. Refer to Note 12 - Debt in the Condensed Consolidated Financial Statements for additional information regarding debt. Treasury Stock Xerox Holdings Corporation made no open-market repurchases of its Common Stock during 2025. Financial Risk Management We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. We utilize derivative financial instruments to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates. We enter into limited types of derivative contracts, including interest rate swap agreements, interest rate caps, foreign currency spot, forward and swap contracts and net purchased foreign currency options to manage interest rate and foreign currency exposures. Our primary foreign currency market exposures include the Euro, U.K. Pound Sterling and Japanese Yen. The fair market values of all our derivative contracts change with fluctuations in interest rates and/or currency exchange rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities. We are required to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. As permitted, certain of these derivative contracts have been designated for hedge accounting treatment. Certain of our derivatives that do not qualify for hedge accounting are effective as economic hedges. These derivative contracts are likewise required to be recognized each period at fair value and therefore do result in some level of volatility. The level of volatility will vary with the type and amount of derivative hedges outstanding, as well as fluctuations in the currency and interest rate markets during the period. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities. By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk. The market risk associated with these instruments resulting from currency exchange and interest rate movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a diversified group of major financial institutions. Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties. Xerox 2025 Form 10-Q 60 The current market events have not required us to materially modify or change our financial risk management strategies with respect to our exposures to interest rate and foreign currency risk. Refer to Note 13 – Financial Instruments in the Condensed Consolidated Financial Statements for further discussion and information on our financial risk management strategies. Non-GAAP Financial Measures We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below. We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below. Adjusted Earnings Measures • Adjusted Net Income and Earnings per Share (EPS) • Adjusted Effective Tax Rate The above measures were adjusted for the following items: Restructuring and related costs, net: Restructuring and related costs, net include restructuring and asset impairment charges as well as costs associated with our transformation programs beyond those normally included in restructuring and asset impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other strategic business changes. Additional costs for our transformation programs are primarily related to the implementation of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges since we do not believe they provide meaningful insight into our current or past operating performance, nor do we believe they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and savings with respect to our operational performance. Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods. Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets as well as those that are predominantly legacy in nature and related to employees who are no longer providing current service to the Company (e.g. retirees and ex-employees). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be outside the operational performance of the business or legacy costs and not necessarily indicative of current or future cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which are related to current employee service as well as the cost of our defined contribution plans. Xerox 2025 Form 10-Q 61 Transaction and related costs, net : Transaction and related costs, net are costs and expenses primarily associated with certain major or significant strategic M&A projects. These costs are primarily for third-party legal, accounting, consulting and other similar types of professional services as well as potential legal settlements that may arise in connection with those M&A transactions. These costs are considered incremental to our normal operating charges and were incurred or are expected to be incurred solely as a result of the planned transactions. Accordingly, we exclude these expenses from our Adjusted Earnings Measures in order to evaluate our performance on a comparable basis. Discrete, unusual or infrequent items: We exclude these item(s), when applicable, given their discrete, unusual or infrequent nature and their impact on the comparability of our results for the period to prior periods and future expected trends. • Inventory-related impact - exit of certain production print manufacturing operations • Divestitures • Reinvention-related costs • Commitment fee expenses • Gain on early extinguishment of debt • Deferred tax asset valuation allowance • Income tax on PARC Donation Adjusted Operating Income and Margin We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax income (loss) and margin amounts. In addition to the costs and expenses noted above as adjustments for our adjusted earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses. We exclude these amounts in order to evaluate our current and past operating performance and to better understand the expected future trends in our business. Constant Currency (CC) Refer to "Currency Impact" for a discussion of this measure and its use in our analysis of revenue growth. Xerox 2025 Form 10-Q 62 Adjusted Net (Loss) Income and EPS reconciliation: Three Months Ended March 31, 2025 2024 (in millions, except per share amounts) Net Loss Diluted EPS Net Income Diluted EPS Reported (1) $ (90) $ (0.75) $ (113) $ (0.94) Adjustments: Inventory-related impact - exit of certain production print manufacturing operations (2) 7 36 Restructuring and related costs, net (1) 39 Amortization of intangible assets 10 10 Divestitures (4) 54 Non-service retirement-related costs 18 23 Reinvention-related costs 6 — Transaction and related costs, net 3 — Commitment fee expense (3) 18 — Gain on early extinguishment of debt — (3) Deferred tax asset valuation allowance (4) 50 — Income tax on PARC donation (5) 9 Income tax on adjustments (6) (30) (35) Adjusted $ (4) $ (0.06) $ 11 $ 0.06 Dividends on preferred stock used in adjusted EPS calculation (7) $ 4 $ 4 Weighted average shares for adjusted EPS (7) 125 125 Fully diluted shares at March 31, 2025 (8) 126 ____________________________ (1) Net Loss and EPS. For the three months ended March 31, 2025 Net Loss and Diluted Loss per Share include a charge to tax expense related to the establishment of $59 million of valuation allowances, or $0.47 per share, and $14 million of after-tax financing-related charges, or $0.11 per share, related to our recently completed debt offering. For the three months ended March 31, 2024 Net Loss and Diluted Loss per Share includes a $100 million after-tax Reinvention-related charge, or $0.81 per share, primarily related to the exit of certain production print manufacturing operations and geographic simplification. (2) As a result of the exit of certain production print manufacturing operations, for the three months ended March 31, 2025 and 2024, reflects the inventory-related charges of approximately $7 million and $32 million, respectively, and the cancellation of related purchase contracts of approximately $0 million and $4 million, respectively. (3) Primarily reflects fees associated with unused commitments resulting from the recently completed private offering of $400 million in aggregate principal amount of 10.25% Senior Secured First Lien Notes and $400 million aggregate principal amount of 13.5% Senior Secured Second Lien Notes Due in 2031. (4) Reflects the establishment of a valuation allowance against certain deferred tax assets to reflect their realizability. (5) Reflects the change in the realizability of the PARC donation tax benefit recognized in the second quarter of 2023. (6) Refer to Adjusted Effective Tax Rate reconciliation. (7) For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with Xerox Holdings Corporation's Series A Convertible preferred stock. (8) Reflects common shares outstanding at March 31, 2025, plus potential dilutive common shares used for the calculation of adjusted diluted EPS for the first quarter 2025. Excludes potentially dilutive common shares associated with our series A convertible preferred stock, as well as shares granted under stock-based compensation programs, all of which were anti-dilutive for the first quarter 2025. Xerox 2025 Form 10-Q 63 Adjusted Effective Tax Rate reconciliation: Three Months Ended March 31, 2025 2024 (in millions) Pre-Tax (Loss) Income Tax Expense (Benefit) Effective Tax Rate Pre-Tax (Loss) Income Income Tax (Benefit) Expense Effective Tax Rate Reported (1) $ (67) $ 23 (34.3) % $ (150) $ (37) 24.7 % Deferred tax asset valuation allowance (2) — (50) — — Income tax on PARC donation (2) — (9) — — Non-GAAP Adjustments (2) 57 30 159 35 Adjusted (3) $ (10) $ (6) 60.0 % $ 9 $ (2) (22.2) % ____________________________ (1) Pre-tax loss and Income tax expense (benefit). (2) Refer to Adjusted Net (Loss) Income and EPS reconciliation for details. (3) The tax impact on the Adjusted Pre‐Tax (Loss) Income is calculated under the same accounting principles applied to the As Reported Pre-Tax Loss under ASC 740, which employs an annual effective tax rate method to the results. Adjusted Operating Income and Margin reconciliation: Three Months Ended March 31, 2025 2024 (in millions) (Loss) Profit Revenue Margin (Loss) Profit Revenue Margin Reported (1) $ (90) $ 1,457 $ (113) $ 1,502 Income tax expense (benefit) 23 — (37) — Pre-tax loss $ (67) $ 1,457 (4.6) % $ (150) $ 1,502 (10.0) % Adjustments: Inventory-related impact - exit of certain production print manufacturing operations (2) 7 36 Reinvention-related costs 6 — Restructuring and related costs, net (1) 39 Amortization of intangible assets 10 10 Divestitures (4) 54 Transaction and related costs, net 3 — Other expenses, net (3)(4) 68 44 Adjusted $ 22 $ 1,457 1.5 % $ 33 $ 1,502 2.2 % ____________________________ (1) Net Loss. (2) As a result of the exit of certain production print manufacturing operations, for the three months ended March 31, 2025 and 2024, reflects the inventory-related charges of approximately $7 million and $32 million, respectively, and the cancellation of related purchase contracts of approximately $0 million and $4 million, respectively. (3) Includes non-service retirement-related costs. (4) Includes fees associated with the recently completed private offering of $400 million in aggregate principal amount of 10.25% Senior Secured First Lien Notes and $400 million aggregate principal amount of 13.5% Senior Secured Second Lien Notes Due in 2031. Xerox 2025 Form 10-Q 64 ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information set forth under the “Financial Risk Management” section of this Quarterly Report on Form 10-Q is hereby incorporated by reference in answer to this Item.