Coinciding with the release of Xerox’s fourth quarter and full year financial results for 2021 this morning (January 25, 2022), Xerox published a list of four FAQs related to the supply chain, its financial outlook for 2022, the Omicron variant’s impact on its return-to-office outlook for 2022, and its expectations for Xerox Financial Services (XFS), software, and innovation in 2022.
Do you expect supply chain conditions to improve in 2022?
Supply chain conditions did not materially improve in Q421, and we believe conditions will remain challenging for the first half of 2022. We are seeing improvement in certain freight and logistics-related costs, but product shortages continue to inhibit our ability to install ordered equipment, as evidenced by the growth of our backlog in Q4, to nearly $350 million. Supply chain visibility remains limited beyond one quarter due to the unpredictable nature of the pandemic. We expect supply chain disruptions to delay installations of higher margin mid and high-end equipment through the first half of 2022, with improvements beginning in the second half as more product becomes available.
What assumptions underpin your 2022 guidance?
We expect supply chain and pandemic-related disruptions to continue affecting results through the first half of 2022. However, underlying demand for our print and services offerings remains healthy, page volumes are demonstrating positive momentum, and investments in new businesses are delivering results. Therefore, we expect revenue to grow to at least $7.1 billion in actual currency and free cash flow1 of at least $400 million in 2022. Our free cash flow1 guidance reflects the absence of non-recurring FUJIFULM Business royalty payments we received in 2021 and cash investments in our new businesses of approximately $200 million, an increase of about 50% over 2021 levels.
Has the Omicron variant affected your outlook for return-to-office in 2022?
The Omicron variant has again delayed the return of workers to offices, and delays appear likely to extend into the first half of 2022. We continue to believe that a broader return of workers to the office in 2022 is a matter of when, not if. And for Xerox, the correlation between return-to-work trends, page volumes and post-sale revenues remains strong, which suggests employees print when they return to the office and clients continue to value printing services. Our breadth of product offerings, suite of digital document workflow solutions and externally recognized security capabilities position us well to address evolving workplace requirements. For 2022, we expect workplace attendance and post-sale revenue to begin improving in the second half of 2022.
How much progress have you made standing up XFS, Software and Innovation?
In 2021, we stood up Xerox Financial Services (XFS), CareAR and Innovation (PARC). Based on our efforts this year, we are positioned to begin reporting separate financial and non-financial information for each business in 2022, and the outlook for each is positive. At our investor day on February 23, we will share more detail about each business’s strategy and their respective pathways to monetization. We will also provide sufficient detail about these businesses to allow analysts and investors to value each component separately.
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