Bankruptcy happens not because you are making losses; it happens because you run out of cash. No cash means you cannot pay providers, banks and, eventually, you cannot pay shareholders nor employees.
Long story short: if things keep going the way they go, Xerox will run out of cash before the year end. And we all know what comes next.
Let’s look at Xerox balance sheet.
Dec 31st ’21 Xerox had cash $1.84B; March 31st ‘22 cash was $1.68B; June 30th ‘22 cash is $1.15B.
In 6 months, Xerox has burned $700M in operating activities.
Cash burn rate is $230M / month; at this pace, Xerox has a cash runaway of just 5 months.
Let’s look at working capital (WC) to not only consider cash but also other current assets and current liabilities (as part of standard business operations with one year).
Dec 31st ’21 Xerox WC was $1.87B; March 31st ‘22 WC was $0.8B; June 30th ‘22 WC is less than $0.7B.
Working capital burn rate is $0.2B / month; at this pace Xerox has a WC runaway of less than 4 months.
In the near term - what can be done to fix cash and working capital issues that has not been done yet? Here we go (textbook advices):
- Eliminate all non-essential expenses;
- Renegotiate repayment plans (loans);
- Sell non-essential business assets.
How these advices can turn into actions:
- “Project Own It On Steroids”;
- New director Philip Giordano (Livello Capital Management) might have been appointed to find lenders / investors since his company “pursues opportunistic credit investments across stressed, distressed and deep value credit”;
- Either Fittle or CareAR (or both) for sale.
If actions above (or any similar ones) are not flawlessly, timely executed, in my humble maybe wrong opinion, Xerox might file for bankruptcy.
I will leave you to judge for yourselves.