Xerox Holdings Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is a full-year annual report; the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow summary. Xerox Corporation represents nearly all of Xerox Holdings’ operating results.
Business context and financial performance
Xerox is a global workplace-technology company focused on print equipment and related services, software, and customer financing. It reported one operating and reportable segment. About 40% of revenue came from outside the U.S.; 78% of 2021 revenue was post-sale, including services, maintenance, supplies, and financing.
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Revenue | $7.038 billion | $7.022 billion | Up 0.2% reported; down 1.4% at constant currency |
| Equipment sales | $1.581 billion | $1.564 billion | Up 1.1% reported; constrained by product supply and freight disruptions |
| Post-sale revenue | $5.457 billion | $5.458 billion | Flat reported; down 1.7% at constant currency |
| Gross profit / margin | $2.403 billion / 34.1% | $2.626 billion / 37.4% | Margin down 3.3 percentage points |
| Pre-tax income (loss) | $(475) million | $252 million | Includes $781 million noncash goodwill impairment |
| Net income (loss) attributable to Holdings | $(455) million | $192 million | 2021 diluted EPS $(2.56), versus $0.84 |
| Adjusted net income (non-GAAP) | $293 million | $313 million | Adjusted diluted EPS $1.51, versus $1.41 |
| Operating cash flow, continuing operations | $629 million | $548 million | Increase included $100 million prepaid brand royalty |
| Capital expenditures | $68 million | $74 million | Company-defined free cash flow was approximately $561 million |
| Total debt | $4.246 billion | $4.444 billion | About $2.908 billion allocated to customer financing |
| Cash and cash equivalents | $1.840 billion | $2.625 billion | $1.909 billion including restricted cash |
Material changes versus 2020
- Revenue was nearly unchanged as reported, but underlying constant-currency revenue declined. The prior year’s revenue had fallen 22.5% from 2019, reflecting pandemic-related office closures and weaker demand.
- Supply constraints and logistics disruption in the second half of 2021 restricted equipment and IT hardware deliveries, particularly higher-margin mid-range and high-end devices. Year-end equipment and IT hardware backlog reached nearly $350 million, about 2.5 times the year-end 2020 level.
- Gross margin declined as supply-chain, freight, and shipping costs increased; equipment mix was less favorable; and temporary government assistance was lower. Project Own It savings partly offset these pressures.
- GAAP results moved from profit to loss, principally because of the goodwill impairment. Adjusted operating margin also fell, to 5.3% from 6.6%, reflecting supply-chain costs and other operating headwinds.
- Operating cash flow rose by $81 million, while cash and restricted cash decreased by $782 million after financing cash outflows that included $888 million of share repurchases and $206 million of dividends.
Liquidity, debt, and capital allocation
At year-end, current assets were $4.701 billion and current liabilities were $2.829 billion. The company reported no borrowings or letters of credit under its $1.8 billion revolving credit facility and stated it was compliant with its debt covenants. The facility was scheduled to mature in August 2022; Xerox said it might renegotiate, replace, reduce, or not replace it. Debt maturities included $651 million in 2022 and $1.185 billion in 2023. A February 2022 credit-rating downgrade increased the coupon on $1.0 billion of 2023 notes by 0.25 percentage point, to 4.625%, effective March 15, 2022.
Xerox’s financing operations held approximately $3.070 billion in net finance receivables and $253 million of equipment on operating leases. Management targets at least a 7:1 financing-debt-to-equity leverage ratio against finance assets. Xerox Holdings repurchased 19.4 million shares for approximately $388 million during 2021 under its current program; about $113 million of authorization remained at year-end. The company states a policy of returning at least 50% of annual free cash flow to shareholders through dividends and repurchases.
Outlook, management commentary, and risks
- 2022 outlook: Revenue expected to reach $7.1 billion in actual currency and remain flat at $7.0 billion at constant currency. Management expected revenue and profitability to be weighted to the second half, with supply constraints and margin pressure continuing at least through the first half.
- Management forecast approximately $475 million of 2022 operating cash flow from continuing operations and $75 million of capital expenditures. It expected to use remaining repurchase authorization opportunistically. These expectations depend on supply recovery and a broader return of workers to offices, which management associated with stronger page volumes and post-sale revenue.
- Project Own It had generated approximately $1.8 billion of gross savings through year-end 2021. Xerox exceeded its $375 million 2021 gross-savings target and expected about $300 million in gross savings in 2022.
- The company recognized an after-tax, noncash goodwill impairment of $750 million ($781 million pre-tax), reducing goodwill to $3.287 billion. The impairment reflected pandemic-related disruption, changed expectations for print demand, and market capitalization below book value. Management cautioned that changed forecasts or assumptions could result in further impairment.
- Key risks include continued COVID-19 effects and hybrid-work-related print declines; supply shortages, shipping costs, and reliance on manufacturers and service partners; execution and customer adoption for new businesses; competition and pricing pressure; cybersecurity and data-protection incidents; foreign exchange, interest rates, and access to credit; pension funding; and litigation, tax, trade, and environmental matters.
- Notable contingencies include a $292 million unreserved Brazilian tax contingency, most of which management assessed as remote as to loss; a shareholder derivative action in which claims against Carl Icahn and affiliated entities were reinstated on appeal while claims against directors remained dismissed; and insurance litigation seeking coverage for pandemic-related business-interruption losses. The filing does not provide a clear estimate of ultimate exposure for the litigation matters.
- New businesses stood up in 2021 include CareAR, FITTLE (formerly Xerox Financial Services), and PARC Innovation. Xerox also formed the Eloque bridge-sensor joint venture and established a $250 million venture fund, of which about $8 million had been invested by year-end. The company expected to reassess segment reporting in 2022.
Most important facts for investors to verify
- Whether the approximately $350 million backlog converts to shipments and revenue, and whether supply-chain cost and product-mix pressures ease as forecast.
- Whether workplace returns support page volumes and post-sale revenue, and how print-market structural decline compares with growth in digital services, IT services, and financing.
- The assumptions underlying the goodwill valuation and whether subsequent forecasts or market conditions indicate additional impairment.
- How Xerox refinanced or replaced the revolving credit facility due in August 2022, and the effect of rating changes and debt maturities on borrowing costs and liquidity.
- Whether forecast 2022 cash flow supports planned dividends, buybacks, pension contributions, and investment in new businesses.
- Developments and potential financial exposure from the Brazilian tax matters, shareholder litigation, and pandemic-related insurance claims.
- Adjusted results are non-GAAP measures; review the filing’s reconciliations and compare them with GAAP results.