Xerox Holdings Corp

Previous wording

Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. At December 31, 2023 Xerox Ventures, LLC held investments of $26 million. In January 2024, Myriad Ventures Fund I LP (Myriad) was established, and the investments held by Xerox Ventures, LLC were transferred to Myriad, which will continue to be fully consolidated by Xerox Holdings. At June 30, 2024 Myriad had investments of approximately $34 million. Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion.

Current wording

Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies. At December 31, 2023 Xerox Ventures, LLC held investments of $26 million. In January 2024, Myriad Ventures Fund I LP (Myriad) was established, and the investments held by Xerox Ventures, LLC were transferred to Myriad, which will continue to be fully consolidated by Xerox Holdings. At September 30, 2024 Myriad had investments of approximately $41 million. Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion.

Previous wording

Equipment sales of $356 million in the second quarter 2024 declined 15.2% in actual currency, or 14.9% in constant currency 1, as compared to the second quarter 2023. The prior year effect of backlog 2 reduction and geographic simplification drove an approximate 14-percentage point year-over-year decline. Total equipment revenue declines outpaced equipment installation activity, due to unfavorable product mix. Revenue declined across all product groups, primarily due to the effects of backlog 2 fluctuations in the current and prior year. Post-sale revenue of $1.2 billion declined 8.4% in actual currency, or 7.9% in constant currency 1, as compared to second quarter 2023. The decline was primarily due to lower outsourcing and service revenue, reductions in non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification. Excluding non-strategic effects, post sale revenue declined mid-single digits.

Current wording

Post-sale revenue of $1.2 billion declined 6.1% in actual currency, or 5.7% in constant currency 1, as compared to third quarter 2023. The decline was primarily due to lower outsourcing and service revenue, intentional reductions in non-strategic revenue, and the effects of geographic simplification. Excluding non-strategic effects, post sale revenue decreased low-single digits.

Previous wording

Xerox 2024 Form 10-Q 47

Current wording

Xerox 2024 Form 10-Q 47 quantitative assessment of Goodwill. Although operating results and related cash flows are expected to sequentially improve in the fourth quarter 2024, and in 2025, we see greater risk to our previous outlooks and estimates, at least in the near term. This impact and the resulting effect on discounted future cash flows, continued to negatively impact the Company’s valuation resulting in the goodwill impairment charge for the third quarter 2024. The decrease associated with this charge was partially offset by an increase in adjusted 1 operating income.

Previous wording

(2)Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT services offerings.

Current wording

(3)Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates. It includes printing devices as well as IT hardware associated with our IT services offerings.

Previous wording

Total revenue of $1.58 billion for second quarter 2024 decreased 10.0% from second quarter 2023, which included a 0.4-percentage point unfavorable impact from currency. Total revenue of $3.08 billion for the six months ended June 30, 2024 decreased 11.2% as compared to the prior year period, including a 0.2-percentage point benefit from currency.

Current wording

Total revenue of $1.53 billion for third quarter 2024 decreased 7.5% from third quarter 2023, which included a 0.2-percentage point unfavorable impact from currency. Total revenue of $4.61 billion for the nine months ended September 30, 2024 decreased 10.0% as compared to the prior year period, with no impact from currency.

Previous wording

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

Current wording

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

Previous wording

Second quarter 2024 Net income was $18 million as compared to the second quarter 2023 Net (loss) of $(61) million. The increase in Net income of $79 million primarily reflects the net after-tax PARC donation charge of $92 million ($132 million pre-tax) in the prior year period, as well as lower Selling, administrative and general expenses, Restructuring and related costs, net, and Research, development and engineering expenses (RD&E). These positive impacts were partially offset by lower revenue and gross profit, which includes the exit of certain production print manufacturing operations, as well as, higher Other expenses, net, which included the impacts of higher non-service retirement-related costs and insurance proceeds related to a legal settlement, and higher Income tax expense. Second quarter 2024 Adjusted 1 Net income of $41 million decreased $31 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net. These negative impacts were partially offset by lower Selling, administrative and general expenses, RD&E, and Income tax expense.

Current wording

Third quarter 2024 Net (loss) was $(1,205) million as compared to the third quarter 2023 Net income of $49 million. The decrease in Net income of $1,254 million primarily reflects the after-tax non-cash Goodwill impairment charge of $1,015 million ($1,058 million pre-tax) in the third quarter 2024, as well as lower revenue and gross profit, higher Other expenses, net, which included the impacts of higher non-service retirement-related costs, higher Restructuring and related costs, net, and higher Income tax expense. These negative impacts were partially offset by lower Selling, administrative and general expenses and Research, development and engineering expenses (RD&E). Third quarter 2024 Adjusted 1 Net income of $34 million decreased $43 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net, and Income tax expense. These negative impacts were partially offset by lower Selling, administrative and general expenses, and RD&E.

Previous wording

Net (loss) for the six months ended June 30, 2024 was $(95) million as compared to the prior year period Net income of $10 million, which reflects the net after-tax PARC donation charge of $92 million ($132 million pre-tax). The decrease in Net income reflects lower revenue and gross profit, as well as the loss from divestitures of certain direct business operations in Latin America, the exit of certain production print manufacturing operations, higher Restructuring and related costs, net, and higher Other expenses, net, which included the impacts of higher non-service retirement-related costs as well as insurance proceeds related to a legal settlement. These negative impacts were partially offset by lower Selling, administrative and general expenses and lower RD&E, as well as higher Income tax benefits. Adjusted 1 Net income for the six months ended June 30, 2024 of $52 million decreased $102 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net. These negative impacts were partially offset by lower Selling, administrative and general expenses, lower RD&E, and lower Income tax expense.

Current wording

Net (loss) for the nine months ended September 30, 2024 was $(1,300) million as compared to the prior year period Net income of $59 million. The decrease in Net income of $1,359 million primarily reflects the after-tax non-cash Goodwill impairment charge of $1,015 million ($1,058 million pre-tax) in the third quarter 2024, as well as lower revenue and gross profit, higher Other expenses, net, which included the impacts of higher non-service retirement-related costs, higher Income tax expense, higher Restructuring and related costs, net, the loss from divestitures of certain direct business operations in Latin America, and the exit of certain production print manufacturing operations. These negative impacts were partially offset by lower Selling, administrative and general expenses and lower RD&E. Adjusted 1 Net income for the nine months ended September 30, 2024 of $86 million decreased $145 million as compared to the prior year period, primarily reflecting lower revenue and gross profit, as well as higher Other expenses, net. These negative impacts were partially offset by lower Selling, administrative and general expenses, lower RD&E, and lower Income tax expense.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Cash used in financing activities during the six months ended June 30, 2024 was $75 million reflecting net payments of approximately $658 million on Senior Notes due in 2024 and 2025, $178 million on secured financing arrangements, $15 million for debt issuance costs, and $14 million on the Term Loan B facility. Partially offsetting payments on debt were proceeds from the issuance of Senior Notes during first quarter 2024 of approximately $900 million. Dividend payments were $71 million and purchases of capped calls were $23 million in connection with the issuance of Convertible Senior Notes.

Current wording

Cash used in financing activities during the nine months ended September 30, 2024 was $149 million reflecting net payments of approximately $658 million on Senior Notes due in 2024 and 2025, $211 million on secured financing arrangements, $18 million for debt issuance costs, and $21 million on the Term Loan B facility. Partially offsetting payments on debt were proceeds from the issuance of Senior Notes during first quarter 2024 of approximately $900 million. Dividend payments were $107 million and purchases of capped calls were $23 million in connection with the issuance of Convertible Senior Notes.

Previous wording

Due primarily to incremental reductions in revenue associated with geographic simplification and the decision to exit the manufacturing of certain Production equipment, we are lowering our full-year revenue guidance from a decline of 3% to 5% in constant currency 1 to a decline of 5% to 6% in constant currency 1. Core business revenue in 2024 is expected to be roughly flat year-over-year in constant currency 1 consistent with our prior outlook, reflecting growing demand for our products and services in the second half of the year. As a result of lower expected revenues, and to a lesser extent rising freight and product costs, we are lowering adjusted 1 operating income margin guidance from at least 7.5% to at least 6.5%. Operating cash flows is now expected to be at least $600 million in 2024 versus prior guidance of at least $650 million. The reduction in operating cash flows is in-line with the after-tax reduction in adjusted 1 operating income expectations. We continue to expect capital expenditures to be approximately $50 million.

Current wording

Revenue guidance was reduced from a decline of 5% to 6% in constant currency 1 to a decline of about 10% in constant currency 1, reflecting the incremental effects of intentional reductions in non-strategic revenue and lower equipment revenue associated with the delayed global launch of two new products and lower-than-expected improvements in sales force productivity. Adjusted 1 operating income guidance was reduced from at least 6.5% to about 5.0%, reflecting the effects of gross profit declines associated with the decline in revenue guidance, and to a lesser extent, delays in the implementation of certain cost reduction initiatives to 2025. Operating cash flows are now expected to be to be within a range of $490 million to $540 million, versus prior guidance of at least $600 million, reflecting the after-tax effects of the reduction in adjusted 1 operating income guidance. We now expect capital expenditures to be approximately $40 million, as compared to previous guidance of approximately $50 million.

Previous wording

Second quarter 2024 total revenue decreased 10.0% as compared to second quarter 2023, and included a 0.4-percentage point adverse impact from currency, while total revenue for the six months ended June 30, 2024 decreased 11.2%, and included a 0.2-percentage point benefit from currency. The decrease in equipment sales revenue at constant currency 1 for both the three and six months ended June 30, 2024 was primarily attributable to the effects of backlog fluctuations in the current and prior year quarters, along with non-strategic reductions in revenue, including offering and geographic simplification. The six months ended June 30, 2024 was also impacted by the organizational changes implemented during the first quarter 2024. Post sale revenue decreased at constant currency 1 for both the three and six months ended June 30, 2024 primarily due to the decline in Contractual print services 2 driven by lower service and outsourcing revenue, as well as reductions in non-strategic, lower margin IT endpoint device placements and paper sales, lower Finance income, and the effects of geographic simplification. Post sale revenue for the six months ended June 30, 2024, was also negatively impacted by the termination of Fuji royalty income and PARC revenue.

Current wording

Third quarter 2024 total revenue decreased 7.5% as compared to third quarter 2023, and included a 0.2-percentage point adverse impact from currency, while total revenue for the nine months ended September 30, 2024 decreased 10.0%, with no impact from currency. The decrease in equipment sales revenue at constant currency 1 for the three months ended September 30, 2024 was primarily attributable to a delay in the global launch of two new products, lower-than-expected improvements in sales productivity, unfavorable mix, and a large production equipment sale in the third quarter 2023. Equipment sales revenue for the three months ended September 30, 2024 was also impacted by the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including geographic simplification. For the nine months ended September 30, 2024, equipment sales revenue was primarily impacted by lower-than-expected improvements in sales productivity and unfavorable mix, as well as the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including geographic simplification.

Previous wording

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

Current wording

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

Previous wording

Post sale revenue reflects revenues from Contractual print services 2, supplies and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page. Post sale revenue also includes transactional IT hardware sales and other Managed IT services, as well as gains, commissions, and servicing revenue on the sale of finance receivables.

Current wording

Post sale revenue reflects revenues from Contractual print services 2, supplies and financing. These revenues are associated not only with the population of devices in the field, which is affected by installs and removals, but also by the page volumes generated from the usage of such devices and the revenue per printed page. Post sale revenue also includes transactional IT hardware sales and other Managed IT services, as well as gains and commissions, and servicing revenue on the sale of finance receivables.

Previous wording

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

Current wording

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

Previous wording

•Services, maintenance and rentals revenue includes maintenance revenue (including bundled supplies), print, digital and managed IT services revenue from our Services offerings, rentals and other revenues. For the three months ended June 30, 2024, these revenues decreased 7.9% as compared to second quarter 2023, which included a 0.6-percentage point adverse impact from currency, while for the six months ended June 30, 2024 these revenues decreased 7.3% as compared to the prior year period, including a 0.1-percentage point benefit from currency. The decline at constant currency 1 for both the three and six months ended June 30, 2024, respectively, was primarily due to Contractual print services 2 declines and the absence of PARC revenue. Contractual print services 2 revenue declined mid-single digits for the three and six months ended June 30, 2024 as compared to the respective prior year periods, driven by lower outsourcing and service revenue and the effects of geographic simplification, which was partially offset by gains, commissions, and servicing revenue on sales of finance receivables. The decline for the six months ended June 30, 2024 was also negatively impacted by the termination of Fuji royalty income.

Current wording

•Services, maintenance and rentals revenue includes maintenance revenue (including bundled supplies), print, digital and managed IT services revenue from our Services offerings, rentals and other revenues. For the three months ended September 30, 2024, these revenues decreased 6.2% as compared to third quarter 2023, which included a 0.1-percentage point adverse impact from currency, while for the nine months ended September 30, 2024 these revenues decreased 7.0% as compared to the prior year period, with no impact from currency. The decline at constant currency 1 for both the three and nine months ended September 30, 2024, respectively, was primarily due to Contractual print services 2 declines. Contractual print services 2 revenue declined mid-single digits for the three and nine months ended September 30, 2024 as compared to the respective prior year periods, driven by lower outsourcing and service revenue, which includes the effects of geographic simplification, which were partially offset by higher digital and IT managed services, as well as gains, commissions, and servicing revenue on sales of finance receivables. The decline for the nine months ended September 30, 2024 was also driven by the termination of Fuji royalty income and PARC revenue.

Previous wording

•Supplies, paper and other sales revenue includes unbundled supplies, IT hardware and other sales. For the three months ended June 30, 2024, these revenues decreased 7.6% as compared to second quarter 2023, including a 0.1-percentage point benefit from currency, while for the six months ended June 30, 2024 the revenues decreased 10.3% as compared to the prior year period, including a 0.5-percentage point benefit from currency. The decline at constant currency 1 for both the three and six months ended June 30, 2024, respectively, primarily reflected lower sales of non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification. The decline in both periods was partially offset by higher supplies revenue.

Current wording

•Supplies, paper and other sales revenue includes unbundled supplies, IT hardware and other sales. For the three months ended September 30, 2024, these revenues decreased 3.5% as compared to third quarter 2023, including a 1.2-percentage point adverse impact from currency, while for the nine months ended September 30, 2024 the revenues decreased 8.1% as compared to the prior year period with no impact from currency. The decline at constant currency 1 for both the three and nine months ended September 30, 2024, respectively, primarily reflected lower sales of non-strategic, lower margin IT endpoint device placements and paper sales, as well as the effects of geographic simplification. The decline in both periods was partially offset by higher supplies revenue.

Previous wording

•Financing revenue is generated from direct and indirect financing of Xerox equipment. These revenues decreased 22.4% as compared to second quarter 2023, including a 1.2-percentage point adverse impact from currency. Financing revenue for the six months ended June 30, 2024 decreased 20.8% as compared to the prior year period, including a 0.2-percentage point benefit from currency. The decline at constant currency 1 for both the three and six months ended June 30, 2024, respectively, reflects a reduction of the average finance receivables balance in the first half of 2024 as a result of the sales of finance receivables to HPS Investment Partners (HPS), as well as lower originations. Finance receivables are approximately $650 million lower in June of 2024 as compared to June of 2023.

Current wording

•Financing revenue is generated from direct and indirect financing of Xerox equipment. These revenues decreased 17.4% as compared to third quarter 2023, including a 0.2-percentage point benefit from currency. Financing revenue for the nine months ended September 30, 2024 decreased 19.7% as compared to the prior year period, including a 0.2-percentage point benefit from currency. The decline at constant currency 1 for both the three and nine months ended September 30, 2024, respectively, reflects a continued reduction of the average finance receivables balance in 2024 as a result of the sales of finance receivables in recent quarters to HPS Investment Partners (HPS), as well as lower originations. Finance receivables are approximately $630 million lower as of September 30, 2024 when compared with September 30, 2023.

Previous wording

For the six months ended June 30, 2024 Equipment sales revenue decreased 20.3%, including a 0.1-percentage point benefit from currency. The decrease in both actual and constant currency 1 reflects the significant reduction in backlog in the first quarter 2023 as compared to the first quarter 2024, as well as organizational changes implemented during the first quarter 2024, and the effects of non-strategic reductions in revenue, including offering and geographic simplification. Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

Current wording

For the nine months ended September 30, 2024 Equipment sales revenue decreased 17.7%, with no impact from currency. The decrease in constant currency 1 was primarily impacted by lower-than-expected improvements in sales productivity, unfavorable mix, as well as the effects of backlog fluctuations in the current and prior year quarters, and non-strategic reductions in revenue, including offering and geographic simplification. Revenue declined across all product groups, and was most pronounced in Mid-range, driven by declines in A3 color multi-function printers.

Previous wording

Second quarter 2024 gross margin of 33.0% decreased by 1.0-percentage points as compared to second quarter 2023, primarily reflecting lower revenue and gross profit, higher transportation and product costs, and the exit of certain production print manufacturing operations. These impacts were partially offset by favorable currency and the benefits associated with recent cost and productivity actions.

Current wording

Third quarter 2024 gross margin of 32.4% was flat as compared to third quarter 2023, primarily reflecting lower revenue and gross profit, higher transportation costs, as well as unfavorable equipment mix and lower print volumes. These impacts were offset by the benefits associated with recent cost and productivity actions, and favorable currency.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Third quarter 2024 Post sale gross margin of 33.5% increased by 0.6-percentage points as compared to third quarter 2023, reflecting the benefits associated with recent Reinvention-related cost and productivity actions and favorable currency. These benefits were partially offset by lower revenue and gross profit, including lower page volumes.

Previous wording

Post sale gross margin for the six months ended June 30, 2024 of 30.8% decreased by 2.9-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, including lower page volumes, and charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, which had a 1.9-percentage point unfavorable impact on gross margin. Higher transportation and product costs, and the termination of Fuji royalty income also adversely impacted gross margin. These impacts were partially offset by the benefits associated with recent cost and productivity actions and favorable currency.

Current wording

Post sale gross margin for the nine months ended September 30, 2024 of 31.7% decreased by 1.7-percentage points as compared to the prior year period, reflecting lower revenue and gross profit, including lower page volumes, and charges associated with the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations, which had a 1.2-percentage point unfavorable impact on gross margin. Higher transportation costs also adversely impacted gross margin. These impacts were partially offset by the benefits associated with recent cost and productivity actions and favorable currency.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Second quarter 2024 RD&E of $50 million decreased $7 million as compared to second quarter 2023. For the six months ended June 30, 2024 RD&E of $99 million decreased $22 million as compared to the prior year period. The decrease, as compared to the respective prior year periods was primarily due to the strategic decision to donate PARC in second quarter 2023, and the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, as well as a corresponding reduction in real estate. The decrease also reflects productivity and cost savings related to the Company's Reinvention. The lower spending in innovation reflects decisions which provide greater focus and financial flexibility to pursue growth opportunities adjacent to our core operations within Print, Digital and IT Services.

Current wording

The decrease, as compared to the respective prior year periods, was primarily due to productivity and cost savings related to the Company's Reinvention, the spin-off, exit, or shutdown of certain other RD&E related activities or businesses, and the corresponding reduction in real estate. The lower spending in innovation reflects decisions which provide greater focus and financial flexibility to pursue growth opportunities adjacent to our core operations within Print, Digital and IT Services. The decrease for the nine months ended September 30, 2024 also reflected the strategic decision to donate PARC in second quarter 2023.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The bad debt provision for six months ended June 30, 2024 of $25 million, increased by $18 million as compared to the prior year period. The increase reflects a reserve release in the prior year period of approximately $12 million due to a favorable reassessment of the credit exposure on a large customer receivable balance.

Current wording

The bad debt provision for nine months ended September 30, 2024 of $35 million, increased by $18 million as compared to the prior year period. The increase reflects a reserve release in the prior year period of approximately $12 million due to a favorable reassessment of the credit exposure on a large customer receivable balance, as well as an increased provision for aged accounts receivables in the current year, both of which were offset by a reserve release of approximately $8 million, in the current year, due in part to a lower finance receivables balance, as a result of sales of finance receivables in recent quarters to HPS Investment Partners.

Previous wording

We continue to monitor developments in future economic conditions, and as a result, our reserves may need to be updated in future periods. As of June 30, 2024, on a trailing twelve-month basis, bad debt expense was approximately 1.5% of total receivables, as compared to approximately 1.0% for the prior year comparable period (excluding the reserve release in the first quarter 2023).

Current wording

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

Previous wording

We incurred Restructuring and related costs, net of $12 million for the second quarter 2024, as compared to $23 million for the second quarter 2023, and $51 million for the six months ended June 30, 2024, as compared to $25 million in the prior year period. Charges incurred during 2024 are associated with strategic actions taken as a result of the Company's Reinvention, primarily related to the exit of certain production print manufacturing operations and geographic simplification.

Current wording

We incurred Restructuring and related costs, net of $56 million for the third quarter 2024, as compared to $10 million for the third quarter 2023, and $107 million for the nine months ended September 30, 2024, as compared to $35 million in the prior year period. Charges incurred during 2024 are associated with strategic actions taken as a result of the Company's Reinvention, primarily related to optimizing operations, the exit of certain production print manufacturing operations, and geographic simplification.

Previous wording

Second quarter 2024 actions entirely impacted gross margins improvements. Second quarter 2023 actions impacted several functional areas, with approximately 50% focused on SAG reductions and approximately 50% focused on RD&E Optimization.

Current wording

Third quarter 2024 actions impacted several functional areas, with approximately 65% focused ongross margins improvements, approximately 30% focused on SAG reductions, and the remainder focused on RD&E optimization. Third quarter 2023 actions impacted several functional areas, with approximately 80% focused on SAG reductions and approximately 20% focused on RD&E optimization.

Previous wording

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

Current wording

The Restructuring and related costs, net reserve balance for all programs as of September 30, 2024 was $132 million, of which $112 million is expected to be paid over the next twelve months.

Previous wording

Worldwide employment was approximately 18,100 as of June 30, 2024, a decrease of approximately 2,000 from December 31, 2023. The decrease primarily relates to the Company's Reinvention, which includes the effects of workforce reduction decisions announced in January 2024, as well as net attrition (attrition net of gross hires).

Current wording

Worldwide employment was approximately 17,300 as of September 30, 2024, a decrease of approximately 2,800 from December 31, 2023. The decrease primarily relates to the Company's Reinvention, which includes the effects of workforce reduction decisions announced in January 2024, as well as net attrition (attrition net of gross hires).

Previous wording

Second quarter 2024 non-financing interest expense of $31 million was $19 million higher than second quarter 2023. Non-financing interest expense for the six months ended June 30, 2024 of $57 million was $31 million higher than the prior year period. The respective increase in both periods is primarily due to higher interest rates on new debt issued in the first quarter of 2024, partially offset by lower non-financing debt in the prior year period as a result of the repayment of Senior Notes in 2022 and in the first quarter 2023.

Current wording

Third quarter 2024 non-financing interest expense of $31 million was $17 million higher than third quarter 2023. Non-financing interest expense for the nine months ended September 30, 2024 of $88 million was $48 million higher than the prior year period. The respective increase in both periods is primarily due to higher interest rates on new debt issued in the first quarter of 2024, partially offset by a lower average debt balance as a result of the repayment of Senior Notes in 2022 and in the first quarter 2023.

Previous wording

When non-financing interest is combined with financing interest expense (Cost of financing) for the three months ended June 30, 2024, total interest expense increased by $14 million as compared to second quarter 2023, while for the six months ended June 30, 2024, total interest expense of $113 million increased by $17 million from the prior year period. The respective increase in both periods reflects the impact of higher interest rates on new debt partially offset by a lower average debt balance, due in part to the reduction of the average finance receivables balance, due to the sales of finance receivables to HPS Investment Partners, as well as lower originations.

Current wording

When non-financing interest is combined with financing interest expense (Cost of financing) for the three months ended September 30, 2024, total interest expense increased by $13 million as compared to third quarter 2023, while for the nine months ended September 30, 2024, total interest expense of $170 million increased by $30 million from the prior year period. The respective increase in both periods reflects the impact of higher interest rates on new debt partially offset by a lower average debt balance, due in part to the reduction of the average finance receivables balance, due to the sales of finance receivables to HPS Investment Partners, as well as lower originations.