Improving revenue trajectory and cost actions expected to drive profitability growth in second half

Financial Summary

$1.75 billion of revenue, down 2.6 percent year-over-year or up 1.1 percent in constant currency.
GAAP (loss) earnings per share (EPS) of $(0.05), down $0.51 year-over-year, and adjusted EPS of $0.13, down $0.34 year-over-year.
Adjusted operating margin of 2.0 percent, down 500 basis points year-over-year.
Operating cash flow use of $85 million, lower by $299 million year-over-year.
Free cash flow use of $98 million, lower by $296 million year-over-year.

Xerox Holdings Corporation (NASDAQ:XRX) today announced its 2022 second-quarter results.

"While we mourn the passing of our leader and friend, John Visentin, we continue to be guided by – and benefit from – the four strategic initiatives he articulated for returning Xerox to long-term, sustainable growth," said Xerox interim CEO Steve Bandrowczak. "Our revenue grew in constant currency in the second quarter, driven by improving demand for our products and services and the realization of pricing growth. Inflation and supply chain challenges affected margins this quarter, but we expect sequential margin improvement throughout the remainder of the year as we realize further price increases, Project Own It savings, and benefits from a more favorable supply chain environment. Strong demand and line of sight to margin improvement give us confidence to reiterate full-year guidance."

Second-Quarter Key Financial Results

(in millions, except per share data)	Q2 2022			Q2 2021			B/(W) YOY			% Change B/(W) YOY
Revenue	$	1,747		$	1,793		$	(46	)	(2.6) % AC 1.1 % CC¹
Gross Margin		31.9	%		35.6	%	(370) bps
RD&E %		4.8	%		4.4	%	(40) bps
SAG %		26.3	%		24.2	%	(210) bps
Pre-Tax (Loss) Income	$	(5	)	$	99		$	(104	)	NM
Pre-Tax (Loss) Income Margin		(0.3	)%		5.5	%	(580) bps
Operating Income - Adjusted¹	$	35		$	126		$	(91	)	(72.2	)%
Operating Income Margin - Adjusted¹		2.0	%		7.0	%	(500) bps
GAAP Diluted (Loss) Earnings per Share	$	(0.05	)	$	0.46		$	(0.51	)	NM
Diluted Earnings Per Share - Adjusted¹	$	0.13		$	0.47		$	(0.34	)	(72.3	)%

⁽¹⁾^{Refer to the "Non-GAAP Financial Measures" section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.}

Beginning in the first quarter of 2022, the Company made a change to its reportable segments from one reportable segment to two reportable segments - Print and Other, and Financing (FITTLE).

Second-Quarter Segment Results

(in millions)	Q2 2022			Q2 2021			B/(W) YOY			% Change B/(W) YOY
Revenue
Print and Other	$	1,633		$	1,672		$	(39	)	(2.3	)%
Financing (FITTLE)		151			177			(26	)	(14.7	)%
Intersegment Elimination¹		(37	)		(56	)		19		(33.9	)%
Total Revenue	$	1,747		$	1,793		$	(46	)	(2.6	)%
Profit
Print and Other	$	18		$	111		$	(93	)	(83.8	)%
Financing (FITTLE)		17			15			2		13.3	%
Total Profit	$	35		$	126		$	(91	)	(72.2	)%

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

2022 Guidance

We are maintaining our revenue and free cash flow guidance for 2022. Our guidance assumes supply chain disruption will begin to subside and return-to-office trends will continue to improve throughout the second half of the year. Our free cash flow guidance excludes a one-time payment associated with a product supply contract termination charge.

Revenue of at least $7.1 billion in actual currency.
Free cash flow of at least $400 million.
Return at least 50% of free cash flow to shareholders.

Non-GAAP Measures

This release refers to the following non-GAAP financial measures:

Adjusted EPS, which excludes Restructuring and related costs, net, Amortization of intangible assets, non-service retirement-related costs, and other discrete adjustments from GAAP EPS, as applicable.
Adjusted operating income and margin, which exclude the EPS adjustments noted above as well as the remainder of Other expenses, net from pre-tax (loss) income and margin.
Constant currency (CC) revenue change, which excludes the effects of currency translation.
Free cash flow, which is operating cash flow less capital expenditures.

Refer to the "Non-GAAP Financial Measures" section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.

Forward Looking Statements

This release, and other written or oral statements made from time to time by management contain "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words "anticipate", "believe", "estimate", "expect", "intend", "will", "should", "targeting", "projecting", "driving" and similar expressions, as they relate to us, our performance and/or our technology, are intended to identify forward-looking statements. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially.

Such factors include but are not limited to: the effects of pandemics, such as the COVID-19 pandemic, on our and our customers' businesses and the duration and extent to which this will impact our future results of operations and overall financial performance; our ability to address our business challenges in order to reverse revenue declines, reduce costs and increase productivity so that we can invest in and grow our business; our ability to successfully develop new products, technologies and service offerings and to protect our intellectual property rights; reliance on third parties, including subcontractors, for manufacturing of products and provision of services and the shared service arrangements entered into by us as part of Project Own It; our ability to attract and retain key personnel; the risk that confidential and/or individually identifiable information of ours, our customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security systems due to cyberattacks or other intentional acts or that cyberattacks could result in a shutdown of our systems; the risk that partners, subcontractors and software vendors will not perform in a timely, quality manner; actions of competitors and our ability to promptly and effectively react to changing technologies and customer expectations; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring and transformation actions; our ability to manage changes in the printing environment like the decline in the volume of printed pages and extension of equipment placements; changes in economic and political conditions, trade protection measures, licensing requirements and tax laws in the United States and in the foreign countries in which we do business; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term and that civil or criminal penalties and administrative sanctions could be imposed on us if we fail to comply with the terms of such contracts and applicable law; interest rates, cost of borrowing and access to credit markets; the imposition of new or incremental trade protection measures such as tariffs and import or export restrictions; funding requirements associated with our employee pension and retiree health benefit plans; changes in foreign currency exchange rates; the risk that our operations and products may not comply with applicable worldwide regulatory requirements, particularly environmental regulations and directives and anti-corruption laws; the outcome of litigation and regulatory proceedings to which we may be a party; and any impacts resulting from the restructuring of our relationship with Fujifilm Holdings Corporation. Additional risks that may affect Xerox's operations and other factors are set forth in the "Risk Factors" section, the "Legal Proceedings" section, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and other sections of Xerox Holdings Corporation's and Xerox Corporations combined 2021 Annual Report on Form 10-K and combined Quarterly Reports on Form 10-Q, as well as in Xerox Holdings Corporation's and Xerox Corporation's Current Reports on Form 8-K filed with the Securities and Exchange Commission.

These forward-looking statements speak only as of the date of this release or as of the date to which they refer, and Xerox assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

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Xerox^® is a trademark of Xerox in the United States and/or other countries

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
(in millions, except per-share data)	2022			2021		2022			2021
Revenues
Sales	$	667		$	670	$	1,259		$	1,272
Services, maintenance and rentals		1,028			1,067		2,051			2,120
Financing		52			56		105			111
Total Revenues		1,747			1,793		3,415			3,503
Costs and Expenses
Cost of sales		487			468		922			888
Cost of services, maintenance and rentals		677			658		1,356			1,309
Cost of financing		26			28		50			56
Research, development and engineering expenses		84			79		162			153
Selling, administrative and general expenses		459			434		914			882
Restructuring and related costs, net		1			12		19			29
Amortization of intangible assets		10			14		21			29
Other expenses, net		8			1		65			5
Total Costs and Expenses		1,752			1,694		3,509			3,351
(Loss) Income before Income Taxes & Equity Income⁽¹⁾		(5	)		99		(94	)		152
Income tax expense (benefit)		1			9		(30	)		23
Equity in net income of unconsolidated affiliates		1			1		2			1
Net (Loss) Income		(5	)		91		(62	)		130
Less: Net loss attributable to noncontrolling interests		(1	)		—		(2	)		—
Net (Loss) Income Attributable to Xerox Holdings	$	(4	)	$	91	$	(60	)	$	130

Basic (Loss) Earnings per Share	$	(0.05	)	$	0.47	$	(0.43	)	$	0.64
Diluted (Loss) Earnings per Share	$	(0.05	)	$	0.46	$	(0.43	)	$	0.64

⁽¹⁾ Referred to as "Pre-Tax (Loss) Income" throughout the remainder of this document.

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2022			2021		2022			2021
Net (Loss) Income	$	(5	)	$	91	$	(62	)	$	130
Less: Net loss attributable to noncontrolling interests		(1	)		—		(2	)		—
Net (Loss) Income Attributable to Xerox Holdings		(4	)		91		(60	)		130

Other Comprehensive (Loss) Income, Net
Translation adjustments, net		(287	)		54		(359	)		3
Unrealized losses, net		(14	)		—		(25	)		(7	)
Changes in defined benefit plans, net		3			16		42			71
Other Comprehensive (Loss) Income, Net Attributable to Xerox Holdings		(298	)		70		(342	)		67

Comprehensive (Loss) Income, Net		(303	)		161		(404	)		197
Less: Comprehensive loss, net attributable to noncontrolling interests		(1	)		—		(2	)		—
Comprehensive (Loss) Income, Net Attributable to Xerox Holdings	$	(302	)	$	161	$	(402	)	$	197

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands)	June 30, 2022			December 31, 2021
Assets
Cash and cash equivalents	$	1,151		$	1,840
Accounts receivable (net of allowance of $63 and $58, respectively)		852			818
Billed portion of finance receivables (net of allowance of $3 and $4, respectively)		83			94
Finance receivables, net		1,019			1,042
Inventories		765			696
Other current assets		232			211
Total current assets		4,102			4,701
Finance receivables due after one year (net of allowance of $113 and $114, respectively)		1,845			1,934
Equipment on operating leases, net		226			253
Land, buildings and equipment, net		334			358
Intangible assets, net		223			211
Goodwill		3,217			3,287
Deferred tax assets		539			519
Other long-term assets		1,784			1,960
Total Assets	$	12,270		$	13,223
Liabilities and Equity
Short-term debt and current portion of long-term debt	$	1,108		$	650
Accounts payable		1,207			1,069
Accrued compensation and benefits costs		233			239
Accrued expenses and other current liabilities		867			871
Total current liabilities		3,415			2,829
Long-term debt		2,764			3,596
Pension and other benefit liabilities		1,310			1,373
Post-retirement medical benefits		242			277
Other long-term liabilities		433			481
Total Liabilities		8,164			8,556

Noncontrolling Interests		10			10

Convertible Preferred Stock		214			214

Common stock		155			168
Additional paid-in capital		1,564			1,802
Treasury stock, at cost		—			(177	)
Retained earnings		5,484			5,631
Accumulated other comprehensive loss		(3,330	)		(2,988	)
Xerox Holdings shareholders' equity		3,873			4,436
Noncontrolling interests		9			7
Total Equity		3,882			4,443
Total Liabilities and Equity	$	12,270		$	13,223

Shares of common stock issued		154,966			168,069
Treasury stock		—			(8,675	)
Shares of Common Stock Outstanding		154,966			159,394

XEROX HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2022			2021			2022			2021
Cash Flows from Operating Activities
Net (Loss) Income	$	(5	)	$	91		$	(62	)	$	130

Adjustments required to reconcile Net (loss) income to Cash flows (used in) from operating activities
Depreciation and amortization		68			84			140			170
Provisions		16			14			35			34
Net gain on sales of businesses and assets		(1	)		(1	)		(1	)		(1	)
Stock-based compensation		35			14			50			30
Restructuring and asset impairment charges		2			4			22			25
Payments for restructurings		(14	)		(22	)		(21	)		(49	)
Non-service retirement-related costs		(4	)		(22	)		(11	)		(42	)
Contributions to retirement plans		(34	)		(39	)		(72	)		(80	)
(Increase) decrease in accounts receivable and billed portion of finance receivables		(62	)		(55	)		(49	)		37
(Increase) decrease in inventories		(64	)		22			(95	)		4
Increase in equipment on operating leases		(11	)		(35	)		(47	)		(63	)
(Increase) decrease in finance receivables		(24	)		(25	)		17			12
Decrease in other current and long-term assets		36			48			35			66
Increase (decrease) in accounts payable		61			(2	)		172			(33	)
(Decrease) increase in accrued compensation		(15	)		26			7			16
(Decrease) increase in other current and long-term liabilities		(5	)		127			(48	)		92
Net change in income tax assets and liabilities		(37	)		(4	)		(76	)		2
Net change in derivative assets and liabilities		(13	)		(5	)		(6	)		(2	)
Other operating, net		(14	)		(6	)		(9	)		(17	)
Net cash (used in) provided by operating activities		(85	)		214			(19	)		331
Cash Flows from Investing Activities
Cost of additions to land, buildings, equipment and software		(13	)		(16	)		(29	)		(33	)
Proceeds from sales of businesses and assets		26			1			26			1
Acquisitions, net of cash acquired		2			(37	)		(52	)		(37	)
Other investing, net		(2	)		(3	)		(7	)		(3	)
Net cash provided by (used in) investing activities		13			(55	)		(62	)		(72	)
Cash Flows from Financing Activities
Net payments on debt		(401	)		(114	)		(379	)		(209	)
Dividends		(42	)		(54	)		(88	)		(108	)
Payments to acquire treasury stock, including fees		—			(251	)		(113	)		(413	)
Other financing, net		5			(10	)		(7	)		(17	)
Net cash used in financing activities		(438	)		(429	)		(587	)		(747	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(24	)		12			(14	)		—
Decrease in cash, cash equivalents and restricted cash		(534	)		(258	)		(682	)		(488	)
Cash, cash equivalents and restricted cash at beginning of period		1,761			2,461			1,909			2,691
Cash, Cash Equivalents and Restricted Cash at End of Period	$	1,227		$	2,203		$	1,227		$	2,203

Second Quarter 2022 Overview

During the second quarter 2022, we continued to see strong demand for our products and services despite a challenging operating environment. Supply constraints continued to inhibit our ability to fulfill demand, resulting in the growth of our backlog¹ to $440 million, a 4.3% sequential increase and more than double prior year period's levels. Although backlog remains elevated, it is considered manageable and its growth rate did decline quarter over quarter reflecting a slowing increase as product supply improves. Post sale revenue grew in actual and constant currency, due to growth in IT Services, which included the benefits from recent acquisitions, and print activity-driven revenue, such as consumables and services. Consistent with prior quarters, we see a very strong correlation between return-to-office trends and page volumes. Although return-to-office trends have been gradual, in Q2 2022, service revenue growth outpaced page volumes growth as contractual price increases began to materialize. We expect that trend to continue through the remainder of the year. The Company expects profitability to improve sequentially for the remaining two quarters of the year as supply chain costs normalize, particularly freight costs, and through an easing of product supply constraints, which will not only improve equipment sales but equipment gross margins, as product mix normalizes. Inflationary pressures are expected to continue in the near-term, but we expect to offset a large portion of inflation-related cost growth with price increases for our products and services. The effects of our price increases will compound over time, particularly for our contractual business, where price increases are enacted at specific times throughout the year, or upon contract renewal. Further offsetting these cost pressures will be savings generated through Project Own It. The Company is targeting gross cost savings of $450 million in 2022, the vast majority of which will be realized in the second half of the year. With respect to the war in Ukraine, we halted shipments to Russia when sanctions were imposed. The resulting financial impact has thus far been minimal. The Eurasian region in total comprised a low single digit percentage of our revenue and operating profits in 2021. Despite this challenging operating environment, we are maintaining our revenue and cash flow outlook, as we continue to expect supply chain constraints and return-to-office trends to improve in the second half of the year, and we are implementing counteractive measures in response to geopolitical uncertainty and inflationary pressures. Our outlook is also based on current exchange rates.

Reportable Segment Change

During the first quarter of 2022, the Company made a change to its reportable segments from one reportable segment to two reportable segments - Print and Other, and Financing (FITTLE) to align with a change in how the Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), allocates resources and assesses performance against the Company's key growth strategies. As such, prior period reportable segment results and related disclosures have been conformed to reflect the Company's current reportable segments.

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. Second quarter 2022 backlog of $440 million excludes sales orders from Russia and Powerland Computers, Ltd., which was acquired in the first quarter of 2022.

Financial Review

Revenues

	Three Months Ended June 30,										% of Total Revenue
(in millions)	2022			2021			% Change		CC % Change		2022		2021
Equipment sales	$	366		$	429		(14.7	)%	(11.4	)%	21	%	24	%
Post sale revenue		1,381			1,364		1.2	%	5.0	%	79	%	76	%
Total Revenue	$	1,747		$	1,793		(2.6	)%	1.1	%	100	%	100	%

Reconciliation to Condensed Consolidated Statements of (Loss) Income:
Sales	$	667		$	670		(0.4	)%	2.8	%
Less: Supplies, paper and other sales		(301	)		(241	)	24.9	%	28.0	%
Equipment Sales	$	366		$	429		(14.7	)%	(11.4	)%

Services, maintenance and rentals	$	1,028		$	1,067		(3.7	)%	0.2	%
Add: Supplies, paper and other sales		301			241		24.9	%	28.0	%
Add: Financing		52			56		(7.1	)%	(4.5	)%
Post Sale Revenue	$	1,381		$	1,364		1.2	%	5.0	%

Segments
Print and Other	$	1,633		$	1,672		(2.3	)%			93	%	93	%
Financing (FITTLE)		151			177		(14.7	)%			9	%	10	%
Intersegment elimination ⁽¹⁾		(37	)		(56	)	(33.9	)%			(2	)%	(3	)%
Total Revenue⁽²⁾	$	1,747		$	1,793		(2.6	)%			100	%	100	%


Go-to-Market Operations
Americas	$	1,150		$	1,133		1.5	%	2.0	%	66	%	63	%
EMEA		551			617		(10.7	)%	(1.1	)%	31	%	35	%
Other		46			43		7.0	%	7.0	%	3	%	2	%
Total Revenue⁽²⁾	$	1,747		$	1,793		(2.6	)%	1.1	%	100	%	100	%

CC - See "Constant Currency" in the Non-GAAP Financial Measures section for a description of constant currency.

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

2. Refer to Appendix II, Reportable Segments and Geographic Sales Channels, for definitions.

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 June 30,
(in millions)	2022			2021			B/(W)
Gross Profit	$	557		$	639		$	(82	)
RD&E		84			79			(5	)
SAG		459			434			(25	)

Equipment Gross Margin		23.5	%		28.1	%		(4.6	)	pts.
Post sale Gross Margin		34.1	%		38.1	%		(4.0	)	pts.
Total Gross Margin		31.9	%		35.6	%		(3.7	)	pts.
RD&E as a % of Revenue		4.8	%		4.4	%		(0.4	)	pts.
SAG as a % of Revenue		26.3	%		24.2	%		(2.1	)	pts.

Pre-tax (Loss) Income	$	(5	)	$	99		$	(104	)
Pre-tax (Loss) Income Margin		(0.3	) %		5.5	%		(5.8	)	pts.

Adjusted⁽¹⁾ Operating Profit	$	35		$	126		$	(91	)
Adjusted⁽¹⁾ Operating Income Margin		2.0	%		7.0	%		(5.0	)	pts.

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

Other Expenses, Net

	Three Months Ended June 30,
(in millions)	2022			2021
Non-financing interest expense	$	23		$	24
Interest income		(3	)		(1	)
Non-service retirement-related costs		(4	)		(22	)
Loss on early extinguishment of debt		4			—
Excess contribution refund		(16	)		—
All other expenses, net		4			—
Other expenses, net	$	8		$	1

Segment Review

	Three Months Ended June 30, 2022
(in millions)	External Net Revenue		Intersegment Net Revenue⁽¹⁾		Total Segment Revenue		% of Total Revenue		Segment Profit		Segment Margin⁽²⁾
2022
Print and Other	$	1,599	$	34	$	1,633	92	%	$	18	1.1	%
Financing (FITTLE)		148		3		151	8	%		17	11.5	%
Total	$	1,747	$	37	$	1,784	100	%	$	35	2.0	%

2021
Print and Other	$	1,619	$	53	$	1,672	90	%	$	111	6.9	%
Financing (FITTLE)		174		3		177	10	%		15	8.6	%
Total	$	1,793	$	56	$	1,849	100	%	$	126	7.0	%

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

2. Segment margin based on external net revenue only.

Print and Other

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

Revenue

	Three Months Ended June 30,
(in millions)	2022		2021		% Change
Equipment sales	$	361	$	422	(14.5	)%
Post-sale revenue		1,238		1,197	3.4	%
Intersegment net revenue ⁽¹⁾		34		53	(35.8	)%
Total Print and Other Revenue	$	1,633	$	1,672	(2.3	)%

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

Detail by product group is shown below.

	Three Months Ended June 30,								% of Equipment Sales
(in millions)	2022		2021		% Change		CC % Change		2022		2021
Entry	$	66	$	69	(4.3	)%	(0.5	)%	18	%	16	%
Mid-range		221		276	(19.9	)%	(17.0	)%	60	%	64	%
High-end		76		80	(5.0	)%	(0.8	)%	21	%	19	%
Other		3		4	(25.0	)%	(25.0	)%	1	%	1	%
Equipment Sales ^(1),(2)	$	366	$	429	(14.7	)%	(11.4	)%	100	%	100	%

CC - See "Constant Currency" in the Non-GAAP Financial Measures section for a description of constant currency.

1. Refer to Appendix II, Reportable Segments and Geographic Sales Channels, for definitions.

2. Includes $5 million and $7 million of equipment sales related to the Financing (FITTLE) segment for the three months ended June 30, 2022 and 2021, respectively.

Financing (FITTLE)

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

Revenue

	Three Months Ended June 30,
(in millions)	2022		2021		% Change
Equipment sales	$	5	$	7	(28.6	)%
Financing		52		56	(7.1	)%
Other Post-sale revenue ⁽¹⁾		91		111	(18.0	)%
Intersegment net revenue		3		3	—	%
Total Financing (FITTLE) Revenue	$	151	$	177	(14.7	)%

Other Post-sale revenue includes operating lease/rental revenues as well as lease renewal and fee income.

2021 Segment Review

The following are our 2021 results that correspond, for comparison purposes, to the new segment reporting in 2022.

(in millions)	External Net Revenue		Intersegment Net Revenue⁽¹⁾		Total Segment Revenue		% of Total Revenue		Segment Profit		Segment Margin⁽²⁾
Q1 2021
Print and Other	$	1,533	$	48	$	1,581	90	%	$	71	4.6	%
Financing (FITTLE)		177		3		180	10	%		18	10.2	%
Total	$	1,710	$	51	$	1,761	100	%	$	89	5.2	%

Q2 2021
Print and Other	$	1,619	$	53	$	1,672	90	%	$	111	6.9	%
Financing (FITTLE)		174		3		177	10	%		15	8.6	%
Total	$	1,793	$	56	$	1,849	100	%	$	126	7.0	%

Q3 2021
Print and Other	$	1,590	$	46	$	1,636	91	%	$	50	3.1	%
Financing (FITTLE)		168		3		171	9	%		24	14.3	%
Total	$	1,758	$	49	$	1,807	100	%	$	74	4.2	%

Q4 2021
Print and Other	$	1,613	$	46	$	1,659	91	%	$	61	3.8	%
Financing (FITTLE)		164		3		167	9	%		25	15.2	%
Total	$	1,777	$	49	$	1,826	100	%	$	86	4.8	%

2021
Print and Other	$	6,355	$	193	$	6,548	90	%	$	293	4.6	%
Financing (FITTLE)		683		12		695	10	%		82	12.0	%
Total	$	7,038	$	205	$	7,243	100	%	$	375	5.3	%

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

2. Segment margin based on external net revenue only.

Forward-Looking Statements

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. 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.

A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below as well as in the second quarter 2022 presentation slides available at www.xerox.com/investor.

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.

Adjusted Earnings Measures

Net (Loss) Income and Earnings per share (EPS)
Effective Tax Rate

The above measures were adjusted for the following items:

Restructuring and related costs, net: Restructuring and related costs, net include restructuring and asset impairment charges as well as costs associated with our transformation programs beyond those normally included in restructuring and asset impairment charges. Restructuring consists of costs primarily related to severance and benefits paid to employees pursuant to formal restructuring and workforce reduction plans. Asset impairment includes costs incurred for those assets sold, abandoned or made obsolete as a result of our restructuring actions, exiting from a business or other strategic business changes. Additional costs for our transformation programs are primarily related to the implementation of strategic actions and initiatives and include third-party professional service costs as well as one-time incremental costs. All of these costs can vary significantly in terms of amount and frequency based on the nature of the actions as well as the changing needs of the business. Accordingly, due to that significant variability, we will exclude these charges since we do not believe they provide meaningful insight into our current or past operating performance nor do we believe they are reflective of our expected future operating expenses as such charges are expected to yield future benefits and savings with respect to our operational performance.
Amortization of intangible assets: The amortization of intangible assets is driven by our acquisition activity which can vary in size, nature and timing as compared to other companies within our industry and from period to period. The use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.
Non-service retirement-related costs: Our defined benefit pension and retiree health costs include several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets as well as those that are predominantly legacy in nature and related to employees who are no longer providing current service to the Company (e.g. retirees and ex-employees). These elements include (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains/losses and (v) the impacts of any plan settlements/curtailments. Accordingly, we consider these elements of our periodic retirement plan costs to be outside the operational performance of the business or legacy costs and not necessarily indicative of current or future cash flow requirements. This approach is consistent with the classification of these costs as non-operating in Other expenses, net. Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans.
Other discrete, unusual or infrequent items: We exclude these items, when applicable, given their discrete, unusual or infrequent nature and their impact on our results for the period.
- Accelerated share vesting - stock compensation expense associated with the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO.
- Loss on extinguishment of debt

We believe the exclusion of these items allows investors to better understand and analyze the results for the period as compared to prior periods and expected future trends in our business.

Adjusted Operating (Loss) Income and Margin

We calculate and utilize adjusted operating (loss) income and margin measures by adjusting our reported pre-tax income and margin amounts. In addition to the costs and expenses noted 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

To better understand trends in our business, we believe that it is helpful to adjust revenue to exclude the impact of changes in the translation of foreign currencies into U.S. dollars. We refer to this adjusted revenue as "constant 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 not the U.S. dollar. 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.

Free Cash Flow

To better understand trends in our business, we believe that it is helpful to adjust operating cash flows by subtracting amounts related to capital expenditures. Management believes this measure gives investors an additional perspective on cash flow from operating activities in excess of amounts required for reinvestment. It provides a measure of our ability to fund acquisitions, dividends and share repurchase.

Summary

Management believes that all of these non-GAAP financial measures provide an additional means of analyzing the current period's results against the corresponding prior period's results. 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. Our 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.

A reconciliation of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth on the following tables:

Net (Loss) Income and EPS reconciliation:

	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
(in millions, except per share amounts)	Net (Loss) Income			EPS			Net Income			EPS
Reported⁽¹⁾	$	(4	)	$	(0.05	)	$	91		$	0.46
Adjustments:
Restructuring and related costs, net		1						12
Amortization of intangible assets		10						14
Non-service retirement-related costs		(4	)					(22	)
Accelerated share vesting		21						—
Loss on extinguishment of debt		4						—
Income tax on adjustments⁽²⁾		(4	)					(1	)
Adjusted	$	24		$	0.13		$	94		$	0.47

Dividends on preferred stock used in adjusted EPS calculation⁽³⁾				$	3					$	3
Weighted average shares for adjusted EPS⁽³⁾					156						189
Fully diluted shares at end of period⁽⁴⁾					157

1. Net (loss) income and EPS attributable to Xerox Holdings.

2. Refer to Effective Tax Rate reconciliation.

3. For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with Xerox Holdings Corporation's Series A Convertible preferred stock.

4. Common shares outstanding at June 30, 2022 and potential dilutive common shares used for the calculation of adjusted diluted EPS for the second quarter 2022. Excludes shares associated with our Series A convertible preferred stock, all of which were anti-dilutive for the second quarter 2022.

Effective Tax Rate reconciliation:

	Three Months Ended June 30, 2022							Three Months Ended June 30, 2021
(in millions)	Pre-Tax (Loss) Income			Income Tax Expense		Effective Tax Rate		Pre-Tax Income		Income Tax Expense		Effective Tax Rate
Reported⁽¹⁾	$	(5	)	$	1	(20.0	) %	$	99	$	9	9.1	%
Non-GAAP Adjustments⁽²⁾		32			4				4		1
Adjusted⁽³⁾	$	27		$	5	18.5	%	$	103	$	10	9.7	%

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

2. Refer to Net (Loss) Income and EPS reconciliation for details.

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

Operating (Loss) Income and Margin reconciliation:

	Three Months Ended June 30, 2022							Three Months Ended June 30, 2021
(in millions)	(Loss) Profit			Revenue		Margin		Profit		Revenue		Margin
Reported⁽¹⁾	$	(5	)	$	1,747	(0.3	) %	$	99	$	1,793	5.5	%
Adjustments:
Restructuring and related costs, net		1							12
Amortization of intangible assets		10							14
Accelerated share vesting		21							—
Other expenses, net		8							1
Adjusted	$	35		$	1,747	2.0	%	$	126	$	1,793	7.0	%

⁽¹⁾Pre-tax (loss) income.

Free Cash Flow reconciliation:

	Three Months Ended June 30,
(in millions)	2022			2021
Reported⁽¹⁾	$	(85	)	$	214
Less: capital expenditures		(13	)		(16	)
Free Cash Flow	$	(98	)	$	198

Net cash (used in) provided by operating activities.

Guidance:

Cash Flow

(in millions)	FY 2022
Operating Cash Flow ⁽¹⁾	At least $475
Less: capital expenditures	(75	)
Free Cash Flow	At least $400

Net cash provided by operating activities.

NOTE: Free cash flow guidance excludes the second quarter 2022 payment of a one-time product supply contract termination charge.

APPENDIX I

Xerox Holdings Corporation

(Loss) Earnings per Common Share

(in millions, except per-share data, shares in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Basic (Loss) Earnings per Share:
Net (loss) income attributable to Xerox Holdings	$	(4	)	$	91		$	(60	)	$	130
Accrued dividends on preferred stock		(3	)		(3	)		(7	)		(7	)
Adjusted net (loss) income available to common shareholders	$	(7	)	$	88		$	(67	)	$	123
Weighted average common shares outstanding⁽¹⁾		155,170			187,009			155,897			191,433

Basic (Loss) Earnings per Share	$	(0.05	)	$	0.47		$	(0.43	)	$	0.64

Diluted (Loss) Earnings per Share:
Net (Loss) Income attributable to Xerox Holdings	$	(4	)	$	91		$	(60	)	$	130
Accrued dividends on preferred stock		(3	)		(3	)		(7	)		(7	)
Adjusted net (loss) income available to common shareholders	$	(7	)	$	88		$	(67	)	$	123
Weighted average common shares outstanding⁽¹⁾		155,170			187,009			155,897			191,433
Common shares issuable with respect to:
Stock Options		—			—			—			—
Restricted stock and performance shares		—			2,012			—			2,096
Convertible preferred stock		—			—			—			—
Adjusted weighted average common shares outstanding		155,170			189,021			155,897			193,529

Diluted (Loss) Earnings per Share	$	(0.05	)	$	0.46		$	(0.43	)	$	0.64

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive:
Stock options		693			694			693			694
Restricted stock and performance shares		6,178			4,647			6,178			4,562
Convertible preferred stock		6,742			6,742			6,742			6,742
Total Anti-Dilutive Securities		13,613			12,083			13,613			11,998

Dividends per Common Share	$	0.25		$	0.25		$	0.50		$	0.50

⁽¹⁾ Includes unissued shares associated with the accelerated share vesting since all contingencies regarding issuance have lapsed.

APPENDIX II

Xerox Holdings Corporation

Reportable Segments and Geographic Sales Channels

Our business is organized to ensure we focus on efficiently managing operations while serving our customers and the markets in which we operate.

During 2021 we progressed with the standing up of three new businesses: Software (CareAR), Financing (FITTLE) and Innovation (PARC). As a result of this effort, in first quarter 2022, we reassessed our operating and reportable segments and determined that based on the financial information reviewed by our chief operating decision maker (CODM), who is the Chief Executive Officer (CEO), as well as the CEO's management and assessment of the Company's operations, we had two operating and reportable segments - Print and Other and Financing.

Reportable Segments - Our reportable segments are aligned to our primary business operations and consist of the following:

Print and Other - the design, development and sale of document management systems, solutions and services as well as associated technology offerings including IT and software products and services.
Financing (FITTLE) - a financing solutions business primarily providing financing for the sales of Xerox equipment.

We also determined that the other businesses, Software and Innovation, did not meet the requirements to be considered separate operating segments largely due to their continued management through the Print and Other segment as well as their immateriality to our results at this stage. Accordingly, those groups will continue to be reported as part of the Print and Other segment.

Product Groups - Our Equipment Sale groupings are as follows:

"Entry", which includes A4 devices and desktop printers. Prices in this product group can range from approximately $150 to $3,000.
"Mid-Range", which includes A3 Office and Light Production devices that generally serve workgroup environments in mid to large enterprises. Prices in this product group can range from approximately $2,000 to $75,000+.
"High-End", which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises. Prices for these systems can range from approximately $30,000 to $1,000,000+.

Sales Channels - We also operate a matrix organization that includes a geographic focus that is primarily organized from a sales perspective on the basis of "go-to-market" (GTM) sales channels. These sales channels consist of the following:

Americas, which includes our sales channels in the U.S. and Canada, as well as Mexico, and Central and South America.
EMEA, which includes our sales channels in Europe, the Middle East, Africa and India.
Other, primarily includes sales to Fuji Xerox as well as royalties and licensing revenue.

These GTM sales channels are structured to serve a range of customers for our products and services, including financing. Accordingly, we will continue to provide information, primarily revenue related, with respect to our principal GTM sales channels.

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