Q4 2021 Xerox Holdings Corp Earnings Call
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Welcome to the Xerox Holdings Corporation fourth quarter 2021 earnings release conference call. After the presentation. There will be a question and answer session to ask a question at that time. Please press star one at any time during this call.
Withdraw your question by pressing the pound key at this time I would now like to turn the meeting over to Mr. David <unk>, Vice President and head of Investor Relations.
Good morning, everyone I'm, David <unk>, Vice President and head of Investor Relations at Xerox Holdings Corporation welcome to the Xerox Holdings Corporation fourth quarter 2021 earnings release Conference call hosted by John <unk>, Vice Chairman and Chief Executive Officer. He is joined by Zombie Hi Chi.
Financial Officer.
At the request of Xerox Holdings Corporation Today's conference call is being recorded other recording and or rebroadcast of this call are prohibited without the express permission of Xerox. During this call Xerox executives will refer to slides that are available on the web at www Dot Xerox Dot com slash.
Investor and we will make comments that contain forward looking statements, which by their nature address matters that are in the future and are uncertain actual future financial results may be materially different than those expressed herein.
At this time I'd like to turn the meeting over to Mr. <unk>. Mr. <unk> you may begin.
Good morning, and thank you for joining our Q4 2021 earnings call.
I hope everyone is safe and healthy.
Summarizing results for the year revenue of 7.04 billion grew slightly year over year in actual currency, but was down one 4% in constant currency adjusted EPS of $1 51 was 10 cents higher year over year.
Full year GAAP earnings of minus $2 50.
Reflects an after tax noncash goodwill impairment charge of $750 million or $4 <unk> per share, which is largely a reflection of the impact of COVID-19 pandemic has had on our print business, we generated free cash flow of $561 million $87 million.
Greater than the prior year.
Adjusted operating margin of five 3% was lower year over year by 130 basis points due primarily to supply chain related disruption and incremental investments in our new businesses, our assumptions entering the year was that in office work with normalized following 2020 winters wave of Coke.
With 19 infections and the global rollout of effective vaccines.
However, the Delta in Army crime variants of COVID-19 delayed companies' plans to return workers to the office, causing a reduction in expected post sale revenue and profits.
In the second half of the year, we experienced an unprecedented level of supply chain disruption with conditions deteriorating throughout the final two quarters of the year.
These disruptions resulted in revenue falling below expectations, we laid out at the beginning of the year with most of the shortfall comprised of high margin mid range devices and post sale revenue.
Supply chain disruptions also drove an increase to our backlog of equipment and it hardware to nearly $350 million, which is approximately two five times higher than at the end of 2020.
I am proud of the progress our team made this year advancing initiatives that will set xerox up for long term growth in revenue and profit.
We continue to streamline and optimize our operations and exceeded our target project own it savings of $375 million in 2021.
We invested in and grew areas of our print and services business that will lay the foundation for long term stabilization and growth.
Areas, such as <unk> services digital document services and hybrid workplace solutions.
We stood up three new businesses carry our ex Fas and innovation and developed a blueprint for monetizing investments in innovation as evidenced by the formation of our <unk> joint venture and the outside investment in carrier. We received from service now valuing carry are at $700 million.
On a post money basis.
And we generated more than $500 million of free cash flow, while investing significant amounts to expand their capabilities and grow our new business. Despite.
Continued uncertainty there are many reasons to be optimistic as we head into 2022.
Demand for our equipment remains strong as evidenced by our backlog, which stands at close to $350 million as of year end.
That is 31% higher than the prior quarter and is primarily comprised of high margin office equipment.
This suggests to us that companies are continuing to invest in printing equipment in anticipation of a return of the workers to the office.
We expect nearly all of this backlog to be installed given previous quarters timely clearing rates and limited risk of cancellation.
But we do expect to carry an elevated backlog at least through the first half of the year.
As the backlog clears our equipment revenue mix will improve driving gross margin higher.
We continue to believe that a broader return of worker City office in 2022, as a matter of when not if and.
For Xerox the correlation between returned to work trends page volumes and wholesale revenues remained 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 securities capabilities position us well to address evolving workplace needs going forward.
We stood up three businesses in 2021 ex Fas.
Software now carry and innovation in.
And each is executing its own strategy for growth.
At our Investor Day on February 23, we will share more detail about each business is strategy and their respective pathways to monetization.
We will also provide sufficient detail about these businesses to allow analysts and investors to value each components separately.
We are expecting revenue to grow in 2022 to at least $7 $1 billion in actual currency.
Underlying that expectation is an improvement and return to office trends in the second half of the year, which will drive improvements in high margin wholesale revenue.
We expect supply chain constraints to ease in the back half of the year, resulting in a gradual reduction of our backlog thereafter.
We do not expect to fully deplete the backlog by the end of the year.
The rate of revenue growth and margin improvement, we achieve in 2022 will depend on duration of supply chain disruptions and the rate at which workers returned to the office.
We also expect to generate at least $400 million of free cash flow.
Our free cash flow guidance reflects the absence of nonrecurring Fuji royalty payments, we received in 2021 and cash investments in our recently stood up businesses of approximately $200 million, which is close to a 50% increase relative to 2021 levels.
Our ability to deliver growth in light of secular challenges. We face is a testament to the strategic initiatives that drive our business optimize operations and drive revenue invest in and monetize innovation and focus on cash flow.
We first introduced project own it in 2018 with emission of simplifying operations and instilling a culture of continuous improvement across the organization.
We exceeded our gross savings target to $375 million for project on it in 2021, bringing total savings since inception to around $1 8 billion.
We expect to generate another $300 million of gross savings in 2022.
These savings have allowed Xerox to invest in innovation and strategic growth priorities. Despite a difficult operating conditions, we faced over the past two years.
The program is also driven greater operating efficiencies throughout the organization improving revenue flow through and return on assets. We see evidence of project on its ability to drive continuous process improvement throughout the organization. For example, we exited the year with 500 bots in production executing over $5 million in <unk>.
Transactions per quarter, which represents 200% growth year over year. These bots answer sales requests manage parts and services and expedite case management and billing for a newly integrated partner Lexmark.
The same bots are now operationalized commercially providing a differentiated offering for our it services clients.
We continue to see favorable results from our efforts to harness growth opportunities in our print and services business.
One of the primary reasons, we grew revenue in actual currency in 2021 is our ability to consistently grow market share.
As per the most recent report from IDC, we gained two points of revenue market share in Q3.
This marks the fifth consecutive quarter of market share gains with particularly strong gains in office centric products.
Market share gains are an important part of our strategy for stabilizing and growing our print and services business.
We believe these gains are sustainable because they are the product of Xerox is comprehensive and differentiated offerings and direct sales presence.
We go to market with a comprehensive suite of hardware software and services All with award winning security features and with a focus on adding value to our clients printing and document management processes.
Our clients recognize this value in October Xerox became the only provider of managed print services and distributed workplaces to receive gardeners customer first badge, which is earned through the accolades are positive customer feedback and ratings.
We are also seeing a collection of App based workflow solutions gained traction with clients, particularly those that are accommodating hybrid workforces.
This year, we extended the document workflow solutions available through our connect key multifunction printer interface to all devices.
Including Pcs and smartphones through our workforce central offering.
In 2021, new hardware business attributable to our application side, 35% increase.
Regarding global document services, we had another strong quarter of signings for our capturing content services, which helps clients digitally extract categorized and automate workflows.
Signings increased 36% in Q4 and 48% for the year.
Growth was strong across renewals and new business in Q4, including a multimillion dollar deal to support a leading financial institutions Digitization strategy as it consolidates its physical footprint.
In it services, we saw strong double digit growth in managed it services for both the quarter and the year.
Managed services do not include equipment sales, but rather are comprised of among other things technology product support professional engineering and commercial robotic process automation.
We have signed 16 RPI deals since our launch last year, including our first $1 million plus deal with very tax legal solutions.
We will expand our it services offerings in 2022 to include managed security and cyber security and a range of digital solutions, including product and information management Master data management and E Commerce and customer web development in the past year, we stood up three new businesses ex <unk> our financial services.
<unk> software now called carrier and Park innovation.
I am pleased with the progress we have made to date. These businesses are expected to contribute strongly to future growth and to shareholder value creation.
In 2021, we transitioned our separate software business into an end to end augmented reality service experience management platform called carrier.
<unk> was officially formed in Q3 in conjunction with an investment by service now valuing our software business at $700 million.
And Carey Ara is quickly progressing along its product roadmap.
This past quarter, we launched carrier instruct which provides AI and AI driven self solve equipment service solutions.
This complements carriers flagship remote solve offering carry are assessed.
Investments in <unk> capabilities and go to market partnership drove 45, new logo signings in 2021, giving us confidence carry or will generate revenue of at least $70 million in 2022.
At Park, we continue to progress on our path to commercializing novel and disruptive technologies in each of our primary innovation pillars Internet of things Cleantech and three D printing.
At <unk> in the first half of 2022, we will triple the number of bridges in Australia that have installed our sensors and we are in talks with select European countries to deploy our bridge monitoring solutions in the U S. We are in discussions with multiple states to start deploying pilots in.
<unk> 2022, and clean Tech, we successfully completed testing the alpha prototype of our energy efficient air conditioning technology, and we are developing a beta prototype based on requirements from a leading air conditioning manufacturer.
We also partnered with a global auto manufacturer to test new methods of developing higher energy density batteries.
In <unk>, we grew our pipeline of potential <unk> customers in the heavy manufacturing aerospace and defense and automotive industries.
In 2021, <unk> expanded its offerings beyond Xerox equipment and embarked on a strategy that emphasizes portfolio growth through new dealers, new types of equipment at existing dealers and new product vendor relationships.
The pandemic and supply chain disruptions drove volumes of Xerox equipment financings lower in 2021.
But ex Fas grew originations, 14% year over year, due primarily to greater penetration at Sps and added 136, new independent dealers.
We look forward to sharing more details about specific customers and use cases for each of our new businesses at Investor day.
Since 2018 on average we have returned more than 100% of annual free cash flow to shareholders.
During the fourth quarter, we generated $182 million of free cash flow, bringing the total for the year to $561 million.
Ahead of our 2021 guidance of $500 million.
For the full year of 2021, we returned close to $1 1 billion of cash to shareholders through stock buyback and dividends.
Nearly double our free cash flow generation, all while continuing to invest in innovation and other strategic growth opportunities and without increasing total debt.
Our guidance calls for a continuation of strong free cash flow generation and capital returns in 2022.
We expect to generate at least $400 million of free cash flow in 2022 and remain committed to returning at least 50% of free cash flow back to the shareholders.
We will balance cash flow returns with investments in growth and value accretive M&A opportunities.
Before I hand, it over to <unk> I would like to emphasize a few points.
2021 was a challenging year for Xerox and I commend our team for its ability to navigate the evolving uncertainty associated with the pandemic and the operational volatility caused by the supply chain disruptions.
Uncertainty persists as we move into 2022.
But we have learned how to successfully manage our business through it and evolve our capabilities to meet the needs of our clients no matter what type of workplace model they choose.
We have the right team and the right strategy in place to stabilize and grow our print services business and drive growth across each of our newly stood up businesses.
I will now hand, it over to Xavier to cover our financial results.
John Good morning, everyone as John mentioned continued disruption to global supply chain, a new COVID-19 volumes negatively affected our financial results in Q4.
You increased sequentially from Q3, but extensive high margin product shortages shipping delays on the <unk> volume caused Q4 revenue to come in slightly below our expectation.
Despite the setback in Q4 demand for our product and services remained strong.
Evidenced by our increased backlog of roughly $350 million, which is close to two five times the size of last year fourth quarter backlog.
Further our hybrid workplace on digital solutions are driving new business wins on page volume were higher in Q4 of this year.
Any quarter since the beginning of the pandemic.
These favorable trends underpin our confidence to invest nearly $400 million in our stock this quarter, while maintaining investment in strategic growth priorities on this trend drive our expectation for revenue growth in 2022.
Turning to profitability as with Q3 higher supply chain cost less profitable mix of equipment on lower margins on postpaid revenue growth our profitability lower year over year.
Gross margin declined 330 basis points in the fourth quarter 240 basis points of this decline is attributable to supply chain cost on capacity restrictions, including higher freight and shipping costs on constrained availability of higher margin <unk> devices.
90 basis points of the decline related to investment to support future growth on lower royalty revenue from <unk> in business innovation.
We continue to expect supply chain disruption to pressure gross margin through at least the first half of 2022.
Adjusted operating margin of four 8% decreased 470 basis points year over year, reflecting lower gross profit has explained before lower government subsidies net of project own it savings.
Cost associated with standing up new businesses.
Headwinds were partially offset by lower selling costs bad debt expenses and compensation.
<unk> expense of $423 million decreased 17 million year on year.
The decrease was primarily driven by savings from project own it lower bad debt expense, which include a $12 million finance receivable reserve reduction lower incentive on variable compensation accruals on lower sales on marketing expenses.
Savings were partially offset by investments in new business of $14 million higher legal expenses on lower government subsidies.
<unk> was $75 million in the quarter or for.
Four 2% of revenue, which was an increase of 30 basis points as a percent of revenue year over year.
Despite the difficult operating environment, we continued to invest in new businesses this quarter, particularly three D cleantech on Iot.
Other expenses net was $26 million lower year over year.
Primarily driven by Lockheed on the early extinguishment of debt in the prior year on higher non service retirement related gains.
First quarter adjusted tax rate was negative eight 8% compared to 29, 8% last year driven by benefit from the Remeasurement of uncertain tax position in 2021 as well as the geographical mix of earnings.
Adjusted EPS of <unk>, 34% in the fourth quarter was 24 cents lower than in the prior year.
On a year over year reduction in adjusted pre tax income was offset by lower taxes on a reduced share count.
GAAP EPS of minus three to around 97 cents was further on shortly Sweden lower year over year due to a goodwill impairment charge, partially offset by a decrease in adjusted items on a lower tax rate.
Our GAAP earnings for Q4 include an after tax noncash goodwill impairment charge of $750 million or $4 38 per share.
This charge largely reflects the impact economic disruption caused by the COVID-19 pandemic has had on Xerox print business.
Some of this impact is expected to be mitigated by growth of our digital services on offerings targeted for hybrid work business models.
Additionally, the company is currently pursuing a strategy to develop an expand certain growth businesses such as financing software on innovation to offset on eventually exceed lower cash flow from the print business.
Turning to revenue supply chain disruption on the spread of the microbiome in December original equipment on post sales revenue coming in slightly below expectations.
However, the underlying fundamentals of our business remains strong equipped.
Equipment order once again outpaced supplies, resulting in a cumulative backlog this quarter of equipment on.
Outerwear of nearly $350 million, a 31% increase over our Q suite on nearly two five times per year on year levels for context, our backlog is now approaching a full quarter worth of equipment on outerwear sales.
So quality of our backlog remain high and we expect nearly all excess backlog to be realized as revenue.
Supply chain condition normalized.
Post sales trend also continued to correlate well with return to work trend.
Equipment sales of $384 million in Q4 decreased 24, 7% year over year or 23, 9% in constant currency.
The fourth quarter is usually the strongest quarter of the year for equipment sales, but supply chain disruptions limited our ability to satisfy seasonal increase in demand, resulting in a mild sequential decline in equipment sales related to Q3 levels.
Product level supply chain constrained most negatively affected installation of our mid range product for both color and black and white on our entry color devices, causing a negative mix effect on equipment revenue on margin.
Sales revenue of $1 4 billion decreased one 9% year over year or one 4% in constant currency.
The Ontario, 80 of the decrease reflect year over year from <unk> royalties lower xps financing commissions on a large <unk> deal in the prior year quarter.
Despite the micro <unk> slowing pages volume in December in the fourth quarter, we recorded the highest level of page volume on revenue associated with the post sale component that are most closely tied with the printing volumes, including services outsourcing paper on supplies seem to be.
Beginning of the pandemic.
Recent page volume momentum on the continued correlation between page volume on post sales revenue are encouraging indicator about the future trajectory of post sales revenue as worker return to offices, even in a hybrid model.
In services pandemic related closure across several large new business signings to fall into 2022, but when you have rates remain high on full year. When your rates were two points higher than your prior year.
We generated free cash flow of $182 million in Q4 down from $221 million in the prior year.
Lower cash earnings, which included significant investment in our new businesses.
Offset by working capital benefit on lower finance receivable originations due to lower equipment sales.
We generated $198 million of operating cash flow in the quarter compared to $235 million in the prior year as lower profit were partially offset by working capital improvements working capital was a source of cash this quarter of 193 million, which was 17 million better.
The prior year this reflect year over year improvement in accounts payable and accounts receivable.
Investing activity, where our use of cash of 31 million comprised primarily of 15 million used to acquire businesses on asset on capex of $16 million.
Capex, primarily support our strategic growth program on investment in it infrastructure.
Financing activity consumed $517 million of cash receivable financing activity was limited to securitization one off of around $75 million during the fourth quarter.
We also utilized $388 million of our 500 million buyback authorization, so balance of which will be used opportunistically going forward.
When combined with a $49 million, we paid in dividends. We returned a total of $437 million of cash to shareholders this quarter or close to 250% of Q4 free cash flow.
For the year, we returned a total of $1 $1 billion of cash to shareholder almost double what we generated in free cash flow.
Our 2022 capital allocation plan when I discuss guidance for the year.
Next looking at profitability.
The start of the year, we announced a targeted $375 million of gross savings from project own it in 2021.
I am pleased to say that we exceeded that target.
As planned we utilize a significant portion of these savings to invest in our people technology on infrastructure required to stand up three new businesses.
Well as ongoing investment in innovation across each of our new businesses on our portfolio of print on services offerings.
Despite these net savings operating profit was negatively affected during the second half of the year by supply chain disruption on delays in the return of walk us through the office.
We estimate the effects of supply chain related disruption alone, including higher shipping on logistic cost an unfavourable equipment revenue and mix accounted for nearly all the year over year decline in operating margin in the second half of the year.
As communicated earlier, we expect supply chain disruption to weight on growth on the operating margins through at least the first half of the year.
Targeted project O&M savings for 2000 $20 million to $300 million.
Savings will offset supply chain headwinds, but as with prior year. Our targeted savings will also be used to reinvest in our business.
Turning to Xerox financial services total finance asset declined by less than a percent quarter over quarter due primarily to portfolio run off on equipment availability constraint.
Which reduced equipment sales on associated new lease origination.
Total excess originations declined roughly 8% year over year, but indirect origination which include <unk> on <unk> directed at multi brand retailer grew 9% year over year due primarily to increased penetration that ABS on a world, 9% above Q3 levels.
Moon more etfs portfolio growth will be driven by financial offering targeting a broad array of office equipment, new dealer growth on non Xerox vendor partnerships.
Regarding capital structure, we ended the year with a net cash position of around $600 million, which is below Q3 levels due to the nearly $400 million of stock repurchase during the quarter.
$2 9 billion of the $4 $2 billion of our outstanding debt is allocated to <unk> port Etfs lease portfolio.
The remaining debt of around one 3 billion is attributable to the core business.
Primarily consist of senior unsecured bonds on finance asset, particularly at these ratios.
We have a balanced bond maturity ladder with $300 million maturing in 2022.
Year to date.
We have returned close to $1 1 billion of cash back to shareholders, which contributed to the 700 million year over year decrease in net core cash since the end of 2020.
Finally, I will address guidance for 2022.
Starting with revenue, we expect revenue to grow to $7 1 billion in actual currency.
Supply chain condition on the ongoing pandemic continue to embed a level of uncertainty in our outlook. However, we felt comfortable providing an outlook for revenue growth in 2022 due to the strength in demand for our product.
It will print volume on post sales trend on momentum we are seeing in our growth businesses.
<unk> innovation on digital on it services.
In terms of timing, we expect revenue growth in 2022 to be back up weighted our supply chain conditions are likely to remain challenged through the first half of the year.
<unk> revenue growth is expected to truck retail <unk>, which we assume will take place in the second half of the year.
We will not be providing profitability guidance at this time, but I would like to offer some consideration.
To revenue, we expect profitability to be back up weighted in 2022.
We expect gross margin to be negatively affected by supply chain disruption through at least the first half of the year.
We began implementing price increases for equipment supplies and services in 2021, which will partially offset elevated chipping on logistic cost.
There are supply chain condition is on page volume improve we expect gross margin to benefit from equipment on revenue mix. Finally, Fuji royalties on financing commission will be less of a headwind in the back half of 2022.
I will also give some context for our 2022 Sag expenses, we expect some of those $300 million of additional savings from project own it will benefit <unk> in 2022.
He saw some offset to be aware of.
2021, <unk> expense benefited from government subsidies on but that will be absorbed.
Totaling $65 million, which we do not expect to recur in 2022.
We also expect to invest more in our people.
We do expect operating margin to improve in 2022.
Finally free cash flow.
At this point in the year, we feel confident in providing an outlook for free cash flow of at least $400 million in 2022, which as a reminder reflects the absence of nonrecurring food your royalty payment we received in 2021.
Cash flow generation is and will remain our primary focus at Xerox.
It is important to point out that despite the challenging environment, we are not slowing investment in business with high growth potential.
In fact included in our guidance of at least $400 million of free cash flow, either roughly 50% increase in cash investment across each of our new businesses.
Investment that will total around $200 million in 2020.
We believe it is important for investors to understand the magnitude of our commitment.
<unk> business is at.
We look forward to sharing more details about these businesses, including the specific growth opportunity made available. So these investment at our Investor day.
I will now it over to John .
Thank you.
Operator will you open the lines for questions.
Certainly ladies and gentlemen, once again, if you have a question at this time. Please press Star then one our first question comes from the line of Ananda Baruah from loop capital. Your question. Please.
Hey, yes, good morning, guys happy new year.
Thanks for all the details, but taken taking the question.
Yes, just a couple if I could.
First on the on the revenue growth.
How are you guys thinking about.
Based on what you're seeing right now is kind of the normalized revenue growth of the business given the back given when you net out the current backlog.
Not yet back to office.
And what you've seen since 2020.
Given that you are actually looking for for revenue growth this year.
Off of sort of big dropdown in 2020, but then pretty stable 2020 in 2021, but love to get your thoughts there and then I have a quick follow up.
Yes, no doubt.
Good morning, So revenue you should look at that with two angles one is equipment.
As you have seen it with a fairly in quarter four from.
I would say supply chain disruption, mainly driven by years of lack of chips. There, but you saw that our backlog equipment backlog, which is a strong backlog as increase increased 31% over quarter three but also year over year very significant increase there. So we expect this backlog.
Okay.
Result, auto clear during the second half of the year with the visibility we have on supply chain.
I used to have around $250 million backlog of equipment, we expect I'll call that off of this backlog to be reserved the remaining backlog to be resolved.
In the quarter in the second half so H two.
Then post sales processes everything related to back to the office.
Using our solution on that using our Cleveland here. So good news on that.
I mentioned this on we commented here is that in Q4 since the pandemic. The beginning of the pandemic. We have had the highest print volume on our equipment I think it was very strong in October November and then as we have already quoted.
<unk> related to the volume from the pandemic, Jeremy Let me just one correlation with the presence in Europe is on the ability of user to use our solution. So December was a little bit softer but within on coverage.
The chrome now being more behind us on the recovery, we'd start seeing in quarter, one coming from different countries not only in the U S. But also in Europe .
Do you think.
The new business Notwithstanding you guys think once you get through the backlog.
The revenue decline profile of the core business.
That being similar to the prior.
The pandemic or do you think it could look different.
Good morning.
I would say when you think of the revenue backlog in our <unk> business. What we've done also is invested in the it services business with reps a lot of solutions in digital services.
Round, the product and we've seen a lot of good growth come from both those businesses.
<unk> moving forward as one win market share, which we have in the last few quarters and continue to win market share in this space is where we're strong and then to continue to wrap our services around security services. It services Mpls services around our product base. So that we can have sustainable growth going forward.
Yes.
That's very helpful. I'll leave it there I know, there's a lot of questions. Thanks Scott.
Thank you.
Thanks, John .
Thank you. Our next question comes from the line of Shannon Cross from Cross Research. Your question. Please.
Yes. Thank you very much for taking my question I'm curious I realize you're not giving EPS guidance.
We look to.
Early in 2022, how should we think about operating margin trajectory I know.
<unk> you talked about it being up to the full year I believe on a year over year basis, but that clearly there can be pressure early on so maybe if you can just give us some more color on how youre thinking about linearity during the year that would be helpful.
Yes, so Shannon and good morning.
We expect from an operating margin is an improvement as you know a GOP margin is highly driven by the revenue mix, what we face.
2021, 2020 is where there is less of a mix of both sense from you on that as we just commented here. We expect this proposal from new to increase improve next year with.
Brendan we are not on back to the office on government. We just described.
<unk> timed the backlogs that we have currently from an equipment point of view impact mainly a sweep equipment on it.
These represent attractive higher margin, so if im assuming that back.
Back to office will improve during the second half of the year plus some of the backlog could be result also during the second half of the year I am expecting a second sure improvement in quarter three quarter four of margin here.
We provided during the script are doing.
My explanation some guidance around all towards the investment that we're making we're still sustaining this investment on also increasingly an instrument in order to support our growth revenue businesses that we're building at currently.
Okay. Thank you and then maybe John could you talk a bit about I think $200 million that you're investing in your businesses can you maybe give us some more clarity into where those dollars are going and then what sort of milestones we should be watching.
Gary <unk>.
The sensor business.
In fact, I'm not sure exactly where your focus most of your investment dollars on analyst day, we'll detail that out for you in February as Shannon, but suffice to say that were doing investments both in R&D and go to market and partnerships and standing up these businesses so that they can.
Fly on their own who fly on their own. They don't have just a reliability on us ex FX as an example, where in the past they relied on Xerox and Xerox products alone now.
We've asked and they started to becoming a global payment solution business.
Looking for OEM and third party partners and that takes investment. So we'll detail all of that per unit. So that you can have the right metrics to.
And do the evaluation at analyst day.
Okay and then my final question I think there is an 8-K recently talking about the retention program for change of control can you just give us some idea as to what drove that and maybe more specifics on the program. Thank you.
Yes. This is we're just trying to align with some of our key employees that have been instrumental in standing up these businesses and we're just trying to align.
Compensation for them, which basically says.
At an exit.
Of exit they would be also compensated.
There has to be some type of monetization.
Okay. Thank you very much.
Thank you next question.
Cups from the line of Erik Woodring from Morgan Stanley Your question. Please.
Hi, This is Brandon on for Eric Thanks for taking the question I guess first we were wondering how should we think about the pace of buybacks in 2022, given that dividends should account for nearly 50% of free cash flow in the year and so why not buy back more.
So good morning, so buyback profile generates we have a $500 million authorization of buyback.
As we mentioned it we spend in 2000.
21, 388 million. So we are left with $212 million as we already communicated we using this buyback opportunistically to position a share price of 22 million.
Okay, Perfect and then just a follow up for this $300 million of gross savings in 2022 from project own. It how should we think about that as being concentrated.
So.
So back to project on a project and it is much broader.
Okay.
Cost cutting type of program there.
<unk>, which is more systematic which lois on <unk> during the pandemic and even in 2021.
So being able to adjust our cost base on the <unk>.
<unk> whatever quarter, we have faced we were able to be EPS and free cash flow positive. So this is a spirit on the mindset. We have we don't take the euro has granted air.
We are expecting some recovery to happen during the second half of the year, but.
You'll never know.
We have to keep these flexibility so prediction I need just round that million dollars will be distributed across the main cost line of the P&L.
It's mainly geared toward cost of goods sold on some impact on us.
That's why we will detail during the Investor day specific area, but just to illustrate example of what we have we have currently from the internal use much more robot automation that we never had been web currently more than 500 robots running millions of transaction on replacing I would say menu.
Activity on our providing better outcome for customer here will provide more detailed more inside during investor day on the projects on it on how we drive it and manage it.
Great. Thank you.
Thank you. Our next question comes from the line of semi <unk> from Jpmorgan. Your question. Please.
Great. Thank you John you mentioned.
Spending for Duane Duane to the return to work is more a matter of when and not if but I guess to consensus.
Pleasing number of professionals will work in a hybrid setup, even even as people come back to work. So just wanted to understand how you are thinking mode.
Both the <unk> equipment business as well as managed print business to increase the number of people walking into a hybrid setup.
So growing the business.
With the consumers in the hybrid set up as well and then I have a follow up.
Yes, so if you think of our digital solutions, where we.
We are positioned well in a hybrid environment, where.
<unk> will be done both at the office and at home, but as importantly, workflow solutions, showing where the information is going from one place to the other keeping it secure and assuring that it's being printed properly at the right places becomes important so our solutions like our cloud based <unk> solution, our security solution help.
A lot of in a hybrid environment. What we also found to make is that as clients returned back to the office even in the even in a hybrid environment or three days, a week or four days a week or two days a week a lot of the printing is done still in there.
And we see it with a few things not just a market share that we've gained but we've also seen it with a backlog that's been increasing while we are in an army crumbs crisis, where a lot of the offices are still closed.
We're seeing clients getting set up for the future and that gives us confidence and we've modeled that we said they'll come back to the office and more than likely in the second half but.
We're following we're following the guidelines like everybody else CDC guidelines and all and just.
Watch it but thats, how we look at it.
Okay.
Just a quick follow up I think looking at season that it would be <unk>.
On average tends to be about down low teens versus <unk> in terms of revenue if I look at the past few years just wanted to see.
See if you can help us think about how it.
We wanted to set up a clean given that you have a backlog, but you're also talking about constraints in sort of the delayed return to work in the first half.
So just maybe help us think about how maybe you can just typical.
Yes.
And I think you've heard that you've heard us say this that in the first quarter, we're not seeing much of a supply chain improvement, albeit a little bit in the first quarter and we're modeling that supply chain should start stabilizing in the second half of the year.
And again back to work in with Omnicom and all of that we're modeling second half of the year and a return to the office gradually over the next few quarters.
Okay. Thank you.
Thank you. Our next question comes from the line of Jim Suva from Citigroup. Your question. Please.
Thank you in your prepared comments, you mentioned incremental investment of 200 million.
You mentioned that on the Investor day. It gives more details, but I wasn't sure is that $200 million forward, Xerox core or park or kind of a combination.
Was it kind of always planned or was it just kind of newer communicated to us.
I'm trying to figure out is it closer to go to market with more initiatives in Xerox Parc or is it expandable addressable market or I'm, just kind of curious for additional commentary if possible.
Good morning.
Just to clarify so $200 million are not incremental to what we've commented here is that we will have $200 million of investment to support the investments that we're making in these new business new business is what we call innovation.
<unk> had some software businesses so without those three businesses that we're currently supporting since the beginning of the year. What we mentioned is that there is a real just 200 million is roughly $17 million.
Sure.
What do we were doing last year. So in 2021, which is roughly 50% of the increase so as you can sense it which is more insight that were providing on this business is so you can have a view of the investments that we're making on also see how we use some of the cash generated by our print business to invest in the future of the company.
From a revenue point of view. So this is continuous improvement with an increase in acceleration on Jeff Shaw as well as the maturity of some investment on the hour.
Our intent to drive that revenue growth on monetize this investment there.
Okay. Thank you it's greatly appreciated and look forward to hearing more from you on next month.
Thank you Jim Thank you Jim.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to John <unk> for any further remarks.
Operator.
Today, we are confident in our ability to deliver at least $7 $1 billion of revenue in actual currency and $400 million of free cash flow in 2022, Despite the continued uncertainty that.
That confidence stems from the strength of our team and our strategy, we believe and we look forward to sharing our three year outlook and plans for driving long term growth and results and shareholder value at our Investor day.
We hope to see you all there be safe and be well.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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