FLORHAM PARK, N.J.,
May 8, 2019 /PRNewswire/ --
Key Quarterly Financial and Operational Highlights
- Revenue of $1,158 million
- GAAP diluted EPS from continuing operations of $(1.49), down $(1.23) yr/yr; adjusted diluted EPS from
continuing operations of $0.14, down
(36.4)%
- Net Income from continuing operations of $(308) million; Adjusted net income of
$32 million
- Adjusted EBITDA of $122 million,
up 1.7%, excluding the impact from divestitures
- Total signings TCV $952M, new
business TCV signings $225M
- HSP acquisition immediately adding to pipeline and
differentiation for clients
- Meaningful progress on technology infrastructure modernization
and network consolidation
Conduent (NYSE: CNDT), a digital interactions company, today
announced its first quarter 2019 financial results.
"This quarter, we continued to make investments in our operating
and go-to-market model," said Ashok
Vemuri, CEO of Conduent. "We continued to show margin
expansion despite facing growth challenges and pressure on our top
line. The strong team we have built, the markets we operate
in and our loyal client base, establishes a strong foundation upon
which to build."
First Quarter 2019 Results
First quarter 2019 revenue was $1,158
million, down (18.5)% compared to Q1 2018. Excluding
divestitures completed in 2018 and 2019, revenue was down (4.3)%
compared with Q1 2018.
Pre-tax income was $(338) million
compared to $(54) million in Q1 2018
driven primarily by a $284 million
goodwill impairment as a result of the loss of customer contracts,
lower than expected new business and higher costs of delivery
within our Transportation business, which was found to be below its
carrying value. GAAP operating margin as reported was (29.2)%
compared to (3.8)% in Q1 2018. The company reported Q1 2019 GAAP
net income of $(308) million compared
to $(50) million in Q1 2018. Diluted
EPS from continuing operations was ($1.49) versus ($0.26) in the same period last year, driven
primarily by the goodwill impairment.
First quarter adjusted operating income was $69 million, with an adjusted operating margin of
6.0% as compared to adjusted operating income of $105 million, with an adjusted operating margin
of 7.4% in Q1 2018. Adjusted EBITDA was $123 million, with an adjusted EBITDA margin of
10.6%, as compared to $161 million,
with an adjusted EBITDA margin of 11.3% in Q1 2018. Further
adjusting for the impact of all divestitures, Adjusted EBITDA
improved 1.7% compared with Q1 2018 while adjusted EBITDA margin
increased 70 bps.
The company reported adjusted diluted EPS from continuing
operations of $0.14 compared to
$0.22 in Q1 2018.
Conduent had cash outflow from operations of $(49) million during the first quarter of 2019
compared to $(38) million in Q1
2018.
In the quarter, Conduent continued to drive operating
efficiencies, while investing in sales, API and technology
infrastructure. Efficiency initiatives included the continued
focus on Accu-shoring, with 52% of the global workforce now located
in low-cost countries. The company is approximately 45
percent through its ~$200 million
client-facing technology investment through the end of Q1 2019 and
began its second large data center migration, which is scheduled to
be completed by the end of May
2019.
Several go-to-market initiatives were recently launched,
including a consolidation of the Commercial business under a single
leader, the launch of a large deals group and the development of a
new business incubator, focused on finding, developing and
graduating the next set of growth engine business offerings.
Total contract value (TCV) signings of $952 million for the quarter were down (26.4)%
compared with Q1 2018, due to a (38.7)% and (21.5)% year-over-year
decrease in new business and renewal signings respectively.
Financial and Strategic Outlook
Conduent provided the following update to guidance ranges for FY
2019:
(in
millions)
|
|
FY 2018
Reported
|
Divestiture
Impact (3)
|
Adjusted FY
2018(4)
|
Updated
FY 2019 Guidance
|
|
|
|
|
|
|
Revenue (constant
currency)(1)
|
|
$5.39B
|
$752M
|
$4.64B
|
Down (3) -
(4)%
|
|
|
|
|
|
|
Adj. EBITDA
Margin(2)
|
|
11.9%
|
|
11.5%
|
12 - 13%
|
|
|
|
|
|
|
Adj. Free Cash
Flow(2)
|
|
$218M
|
|
|
~30%
|
% of Adj.
EBITDA
|
|
34.1%
|
|
|
|
Note: Please refer to
the "Non-GAAP Outlook" below for certain information concerning
outlook.
|
|
(1)
|
Year-over-year
revenue growth comparison at constant currency
|
(2)
|
Refer to Appendix for
Non-GAAP reconciliations of adjusted EBITDA / margin and adjusted
FCF and for impact from divestitures. FY 2019 FCF adjusted for
Texas-related litigation impact
|
(3)
|
Includes all
divestitures
|
(4)
|
Adjusted for 2018 and
2019 divestitures, and select Stand Alone Customer Care
contracts
|
Brian Webb-Walsh, CFO of Conduent
stated, "We successfully closed on HSP, our first acquisition, and
are already seeing strong demand for this technology offering from
both new and existing clients. Our balance sheet remains
strong and we are continuing to make investments in order to drive
growth and profit improvement. We are focused on improving
sales conversion, are shifting to the next phase of transformation
and will address stranded costs associated with the divestitures
that we completed over the past year."
Conference Call
Management will present the results during a conference call and
webcast on May 8, 2019 at 5 p.m.
ET.
The call will be available by live audio webcast with the news
release and online presentation slides at
https://investor.conduent.com/.
The conference call will also be available by calling
1-877-883-0383 (international dial-in 1-412-902-6506) at
approximately 4:45 p.m. ET. The entry
number for this call is 6541992.
A recording of the conference call will be available by calling
1-877-344-7529, or 1-412-317-0088 one hour after the conference
call concludes on May 8, 2019. The
replay ID is 10130906.
For international calls, please select a dial-in number from:
https://services.choruscall.com/ccforms/replay.html
About Conduent
Conduent creates digital platforms and services for businesses
and governments to manage millions of interactions every day for
those they serve. We are leveraging the power of cloud, mobile and
IoT, combined with technologies such as automation, cognitive and
blockchain to elevate every constituent interaction, driving modern
digital experiences that are more efficient, helpful and
satisfying.
Conduent's differentiated offerings touch millions of lives
every day, including two-thirds of all insured
patients in the U.S. and nearly nine million people who travel
through toll systems daily. Whether it's digital
payments, claims processing, benefit administration, automated
tolling, customer care or distributed learning - Conduent serves a
majority of the Fortune 100 companies and more than 500 government
entities. Learn more at www.conduent.com.
Non-GAAP Measures
We have reported our financial results in accordance with U.S.
generally accepted accounting principles (GAAP). In addition, we
have discussed our financial results using non-GAAP measures. We
believe these non-GAAP measures allow investors to better
understand the trends in our business and to better understand and
compare our results. Accordingly, we believe it is necessary to
adjust several reported amounts, determined in accordance with
GAAP, to exclude the effects of certain items as well as their
related tax effects. Management believes that these non-GAAP
financial measures provide an additional means of analyzing the
current periods' results against the corresponding prior periods'
results. These non-GAAP financial measures should be viewed in
addition to, and not as a substitute for, the Company's reported
results prepared in accordance with U.S. GAAP. Our non-GAAP
financial measures are not meant to be considered in isolation or
as a substitute for comparable U.S. GAAP measures and should be
read only in conjunction with our Condensed Consolidated Financial
Statements prepared in accordance with U.S. GAAP. Our management
regularly uses supplemental non-GAAP financial measures internally
to understand, manage and evaluate our business and make operating
decisions, and providing such non-GAAP financial measures to
investors allows for a further level of transparency as to how
management reviews and evaluates our business results and trends.
These non-GAAP measures are among the primary factors management
uses in planning for and forecasting future periods. Compensation
of our executives is based in part on the performance of our
business based on certain non-GAAP measures. Refer to the "Non-GAAP
Financial Measures" section attached to this release for a
discussion of these non-GAAP measures and their reconciliation to
the reported GAAP measures.
Forward-Looking Statements
This Report and any exhibits to this Report may contain
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. The words "anticipate," "believe,"
"estimate," "expect," "intend," "will," "should" and similar
expressions, as they relate to us, are intended to identify
forward-looking statements. These statements reflect management's
current beliefs, assumptions and expectations and are subject to a
number of factors that may cause actual results to differ
materially. Such factors include, but are not limited to:
government appropriations and termination rights contained in our
government contracts; our ability to renew commercial and
government contracts awarded through competitive bidding processes;
our ability to recover capital and other investments in connection
with our contracts; our ability to attract and retain necessary
technical personnel and qualified subcontractors; our ability to
deliver on our contractual obligations properly and on time;
competitive pressures; our significant indebtedness; changes in
interest in outsourced business process services; our ability to
obtain adequate pricing for our services and to improve our cost
structure; claims of infringement of third-party intellectual
property rights; the failure to comply with laws relating to
individually identifiable information, and personal health
information and laws relating to processing certain financial
transactions, including payment card transactions and debit or
credit card transactions; breaches of our information systems or
security systems or any service interruptions; our ability to
estimate the scope of work or the costs of performance in our
contracts; our continuing emphasis on and shift toward
technology-led digital transactions; customer decision-making
cycles and lead time for customer commitments; our ability to
collect our receivables for unbilled services; a decline in
revenues from or a loss or failure of significant clients;
fluctuations in our non-recurring revenue; our failure to maintain
a satisfactory credit rating; our ability to attract and retain key
employees; increases in the cost of telephone and data services or
significant interruptions in such services; our failure to develop
new service offerings; our ability to modernize our information
technology infrastructure and consolidate data centers; our ability
to comply with data security standards; our ability to receive
dividends or other payments from our subsidiaries; changes in tax
and other laws and regulations; changes in government regulation
and economic, strategic, political and social conditions; changes
in U.S. GAAP or other applicable accounting policies; and other
factors that are set forth in the "Risk Factors" section, the
"Legal Proceedings" section, the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section
and other sections in our 2018 Annual Report on Form 10-K, as well
as in our Current Reports on Form 8-K filed with the Securities and
Exchange Commission. Any forward-looking statements made by us in
this report speak only as of the date on which they are made. We
are under no obligation to, and expressly disclaim any obligation
to, update or alter our forward-looking statements, whether as a
result of new information, subsequent events or otherwise.
CONDUENT
INCORPORATED
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
|
|
|
|
Three Months Ended
March 31,
|
(in millions, except
per share data)
|
|
2019
|
|
2018
|
Revenue
|
|
$
|
1,158
|
|
|
$
|
1,420
|
|
|
|
|
|
|
Operating Costs
and Expenses
|
|
|
|
|
Cost of Services
(excluding depreciation and amortization)
|
|
906
|
|
|
1,115
|
|
Selling, general and
administrative (excluding depreciation and amortization)
|
|
127
|
|
|
143
|
|
Research and
development (excluding depreciation and amortization)
|
|
3
|
|
|
2
|
|
Depreciation and
amortization
|
|
115
|
|
|
116
|
|
Restructuring and
related costs
|
|
16
|
|
|
20
|
|
Interest
expense
|
|
20
|
|
|
33
|
|
Goodwill
impairment
|
|
284
|
|
|
—
|
|
(Gain) loss on
divestitures and transaction costs
|
|
14
|
|
|
15
|
|
Litigation costs
(recoveries), net
|
|
12
|
|
|
31
|
|
Other (income)
expenses, net
|
|
(1)
|
|
|
(1)
|
|
Total Operating
Costs and Expenses
|
|
1,496
|
|
|
1,474
|
|
|
|
|
|
|
Income (Loss)
Before Income Taxes
|
|
(338)
|
|
|
(54)
|
|
Income tax expense
(benefit)
|
|
(30)
|
|
|
(4)
|
|
Net Income
(Loss)
|
|
$
|
(308)
|
|
|
$
|
(50)
|
|
|
|
|
|
|
Net Income (Loss)
per Share:
|
|
|
|
|
Basic
|
|
$
|
(1.49)
|
|
|
$
|
(0.26)
|
|
Diluted
|
|
$
|
(1.49)
|
|
|
$
|
(0.26)
|
|
CONDUENT
INCORPORATED
|
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
|
|
Three Months Ended
March 31,
|
(in
millions)
|
|
2019
|
|
2018
|
Net Income
(Loss)
|
|
$
|
(308)
|
|
|
$
|
(50)
|
|
Other
Comprehensive Income (Loss), Net
|
|
|
|
|
Currency translation
adjustments, net
|
|
7
|
|
|
9
|
|
Reclassification of
currency translation adjustments on divestitures
|
|
15
|
|
|
5
|
|
Reclassification of
divested benefit plans and other
|
|
(1)
|
|
|
—
|
|
Unrecognized gains
(loss), net
|
|
1
|
|
|
(1)
|
|
Other
Comprehensive Income (Loss), Net
|
|
22
|
|
|
13
|
|
|
|
|
|
|
Comprehensive
Income (Loss), Net
|
|
$
|
(286)
|
|
|
$
|
(37)
|
|
CONDUENT
INCORPORATED
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
(in millions, except
share data in thousands)
|
|
March
31, 2019
|
|
December
31,
2018
|
Assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
520
|
|
|
$
|
756
|
|
Accounts receivable,
net
|
|
820
|
|
|
782
|
|
Assets held for
sale
|
|
—
|
|
|
15
|
|
Contract
assets
|
|
197
|
|
|
177
|
|
Other current
assets
|
|
294
|
|
|
234
|
|
Total current
assets
|
|
1,831
|
|
|
1,964
|
|
Land, buildings and
equipment, net
|
|
336
|
|
|
328
|
|
Operating lease
right-of-use assets
|
|
338
|
|
|
—
|
|
Intangible assets,
net
|
|
627
|
|
|
651
|
|
Goodwill
|
|
3,171
|
|
|
3,408
|
|
Other long-term
assets
|
|
360
|
|
|
329
|
|
Total
Assets
|
|
$
|
6,663
|
|
|
$
|
6,680
|
|
Liabilities and
Equity
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
53
|
|
|
$
|
55
|
|
Accounts
payable
|
|
313
|
|
|
230
|
|
Accrued compensation
and benefits costs
|
|
148
|
|
|
193
|
|
Unearned
income
|
|
103
|
|
|
112
|
|
Liabilities held for
sale
|
|
—
|
|
|
40
|
|
Other current
liabilities
|
|
817
|
|
|
567
|
|
Total current
liabilities
|
|
1,434
|
|
|
1,197
|
|
Long-term
debt
|
|
1,496
|
|
|
1,512
|
|
Deferred
taxes
|
|
283
|
|
|
327
|
|
Operating lease
liabilities
|
|
282
|
|
|
—
|
|
Other long-term
liabilities
|
|
99
|
|
|
280
|
|
Total
Liabilities
|
|
3,594
|
|
|
3,316
|
|
|
|
|
|
|
Contingencies
|
|
|
|
|
Series A convertible
preferred stock
|
|
142
|
|
|
142
|
|
|
|
|
|
|
Common
stock
|
|
2
|
|
|
2
|
|
Additional paid-in
capital
|
|
3,879
|
|
|
3,878
|
|
Retained earnings
(deficit)
|
|
(551)
|
|
|
(233)
|
|
Accumulated other
comprehensive loss
|
|
(403)
|
|
|
(425)
|
|
Total
Equity
|
|
2,927
|
|
|
3,222
|
|
Total Liabilities
and Equity
|
|
$
|
6,663
|
|
|
$
|
6,680
|
|
|
|
|
|
|
Shares of common
stock issued and outstanding
|
|
211,623
|
|
|
211,306
|
|
Shares of series A
convertible preferred stock issued and outstanding
|
|
120
|
|
|
120
|
|
CONDUENT
INCORPORATED
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Three Months Ended
March 31,
|
(in
millions)
|
2019
|
|
2018
|
Cash Flows from
Operating Activities:
|
|
|
|
Net income
(loss)
|
$
|
(308)
|
|
|
$
|
(50)
|
|
Adjustments required
to reconcile net income (loss) to cash flows from operating
activities:
|
|
|
|
Depreciation and
amortization
|
115
|
|
|
116
|
|
Contract inducement
amortization
|
1
|
|
|
1
|
|
Deferred income
taxes
|
(45)
|
|
|
(8)
|
|
Goodwill
impairment
|
284
|
|
|
—
|
|
(Gain) loss from
investments
|
(1)
|
|
|
(1)
|
|
Amortization of debt
financing costs
|
2
|
|
|
2
|
|
(Gain) loss on
divestitures and transaction costs
|
14
|
|
|
15
|
|
Stock-based
compensation
|
7
|
|
|
7
|
|
Changes in operating
assets and liabilities
|
(117)
|
|
|
(119)
|
|
Other operating,
net
|
(1)
|
|
|
(1)
|
|
Net cash provided by
(used in) operating activities
|
(49)
|
|
|
(38)
|
|
Cash Flows from
Investing Activities:
|
|
|
|
Cost of additions to
land, buildings and equipment
|
(53)
|
|
|
(33)
|
|
Proceeds from sale of
land, buildings and equipment
|
1
|
|
|
—
|
|
Cost of additions to
internal use software
|
(17)
|
|
|
(6)
|
|
Payments for
acquisitions, net of cash acquired
|
(90)
|
|
|
—
|
|
Payments from
divestitures, including cash sold
|
(9)
|
|
|
—
|
|
Net cash provided by
(used in) investing activities
|
(168)
|
|
|
(39)
|
|
Cash Flows from
Financing Activities:
|
|
|
|
Payments on
debt
|
(14)
|
|
|
(21)
|
|
Taxes paid for
settlement of stock based compensation
|
(6)
|
|
|
(4)
|
|
Dividends paid on
preferred stock
|
(2)
|
|
|
(2)
|
|
Net cash provided by
(used in) financing activities
|
(22)
|
|
|
(27)
|
|
Effect of exchange
rate changes on cash, cash equivalents and restricted
cash
|
2
|
|
|
—
|
|
Increase (decrease)
in cash, cash equivalents and restricted cash
|
(237)
|
|
|
(104)
|
|
Cash, Cash
Equivalents and Restricted Cash at Beginning of Period
|
765
|
|
|
667
|
|
Cash, Cash
Equivalents and Restricted Cash at End of
period(1)
|
$
|
528
|
|
|
$
|
563
|
|
___________
|
(1)
|
Includes $8
million and $10 million of restricted cash as of March 31, 2019 and
2018, respectively, that were included in Other current assets on
the Condensed Consolidated Balance Sheets.
|
Non-GAAP Financial Measures
We have reported our financial results in accordance with U.S.
GAAP. In addition, we have discussed our results using non-GAAP
measures.
We believe these non-GAAP measures allow investors to better
understand the trends in our business and to better understand and
compare our results. Accordingly, we believe it is necessary to
adjust several reported amounts, determined in accordance with
GAAP, to exclude the effects of certain items as well as their
related tax effects. Management believes that these non-GAAP
financial measures provide an additional means of analyzing the
current periods' results against the corresponding prior periods'
results. However, these non-GAAP financial measures should be
viewed in addition to, and not as a substitute for, the Company's
reported results prepared in accordance with U.S. GAAP. Our
non-GAAP financial measures are not meant to be considered in
isolation or as a substitute for comparable U.S. GAAP measures and
should be read only in conjunction with our Condensed Consolidated
Financial Statements prepared in accordance with U.S. GAAP. Our
management regularly uses our supplemental non-GAAP financial
measures internally to understand, manage and evaluate our business
and make operating decisions, and providing such non-GAAP financial
measures to investors allows for a further level of transparency as
to how management reviews and evaluates our business results and
trends. These non-GAAP measures are among the primary factors
management uses in planning for and forecasting future periods.
Compensation of our executives is based in part on the performance
of our business based on certain non-GAAP measures.
A reconciliation of the non-GAAP financial measures to the most
directly comparable financial measures calculated and presented in
accordance with GAAP are provided below.
These reconciliations also include the income tax effects for
our non-GAAP performance measures in total, to the extent
applicable. The income tax effects are calculated under the same
accounting principles as applied to our reported pre-tax
performance measures under ASC 740, which employs an annual
effective tax rate method. The noted income tax effect for our
non-GAAP performance measures is effectively the difference in
income taxes for reported and adjusted pre-tax income calculated
under the annual effective tax rate method. The tax effect of the
non-GAAP adjustments was calculated based upon evaluation of the
statutory tax treatment and the applicable statutory tax rate in
the jurisdictions in which such charges were incurred.
Adjusted Net Income (Loss), Adjusted Earnings per Share and
Adjusted Effective Tax Rate
We make adjustments to Income (Loss) before Income Taxes for the
following items for the purpose of calculating Adjusted Net Income
(Loss), Adjusted Earnings per Share and Adjusted Effective Tax
Rate:
- Amortization of acquired intangible assets. The amortization of
acquired intangible assets is driven by acquisition activity, which
can vary in size, nature and timing as compared to other companies
within our industry and from period to period.
- Restructuring and related costs. Restructuring and related
costs include restructuring and asset impairment charges as well as
costs associated with our strategic transformation program.
- Goodwill impairment. This represents Goodwill impairment charge
related to the loss of certain Transportation segment customer
contracts, lower expected new Transportation segment customer
contracts and higher costs of delivery.
- (Gain) loss on divestitures and transaction costs. Represents
(gain) loss on divested businesses and transaction costs.
- Litigation costs (recoveries), net. Litigation costs
(recoveries), net represents reserves for the State of Texas litigation, Student Loan
Service exposures and certain terminated contracts that are subject
to litigation.
- Other (income) expenses, net. Other (income) expenses, net
includes currency (gains) losses, net and all other (income)
expenses, net.
- NY MMIS charge (credit). Costs associated with the Company not
fully completing the State of New York Health Enterprise Platform
project.
- HE charge (credit). Costs associated with not fully completing
the Health Enterprise Medical platform projects in California and Montana.
- 2018 Divestitures. Revenue/(Income) loss from
divestitures.
The Company provides adjusted net income and adjusted EPS
financial measures to assist our investors in evaluating our
ongoing operating performance for the current reporting period and,
where provided, over different reporting periods, by adjusting for
certain items which may be recurring or non-recurring and which in
our view do not necessarily reflect ongoing performance. We
also internally use these measures to assess our operating
performance, both absolutely and in comparison to other companies,
and in evaluating or making selected compensation decisions.
Management believes that the adjusted effective tax rate,
provided as supplemental information, facilitates a comparison by
investors of our actual effective tax rate with an adjusted
effective tax rate which reflects the impact of the items which are
excluded in providing adjusted net income and certain other
identified items, and may provide added insight into our underlying
business results and how effective tax rates impact our ongoing
business.
Adjusted Revenue and Operating Income and Adjusted Operating
Margin
We make adjustments to Revenue, Costs and Expenses and Operating
Margin for the following items, for the purpose of calculating
Adjusted Revenue, Adjusted Operating Income and Adjusted Operating
Margin:
- Amortization of acquired intangible assets.
- Restructuring and related costs.
- Interest expense. Interest expense includes interest on
long-term debt and amortization of debt issuance costs.
- Goodwill impairment.
- (Gain) loss on divestitures and transaction costs.
- Litigation costs (recoveries), net.
- Other (income) expenses, net.
- NY MMIS charge (credit).
- HE charge (credit).
- 2018 Divestitures.
We provide our investors with adjusted revenue, adjusted
operating income and adjusted operating margin information, as
supplemental information, because we believe it offers added
insight, by itself and for comparability between periods, by
adjusting for certain non-cash items as well as certain other
identified items which we do not believe are indicative of our
ongoing business, and may also provide added insight on trends in
our ongoing business.
Adjusted EBITDA and EBITDA Margin
We use Adjusted EBITDA and Adjusted EBITDA Margin as an
additional way of assessing certain aspects of our operations that,
when viewed with the GAAP results and the accompanying
reconciliations to corresponding GAAP financial measures, provide a
more complete understanding of our on-going business. Adjusted
EBITDA represents income (loss) before interest, income taxes,
depreciation and amortization and contract inducement amortization
adjusted for the following items. Adjusted EBITDA margin is
Adjusted EBITDA divided by adjusted revenue.
- Restructuring and related costs.
- Goodwill impairment.
- (Gain) loss on divestitures and transaction costs.
- Litigation costs (recoveries), net.
- Other (income) expenses, net.
- NY MMIS charge (credit).
- HE charge (credit).
- 2018 Divestitures.
Adjusted EBITDA is not intended to represent cash flows from
operations, operating income (loss) or net income (loss) as defined
by U.S. GAAP as indicators of operating performances. Management
cautions that amounts presented in accordance with Conduent's
definition of Adjusted EBITDA and Adjusted EBITDA margin may not be
comparable to similar measures disclosed by other companies because
not all companies calculate Adjusted EBITDA and Adjusted EBITDA
margin in the same manner.
Free Cash Flow
Free Cash Flow is defined as cash flows from operating
activities as reported on the consolidated statement of cash flows,
less cost of additions to land, buildings and equipment, cost of
additions to internal use software, tax payments related to
divestitures, vendor financed capital lease additions and proceeds
from sales of land, buildings and equipment. We use the non-GAAP
measure of Free Cash Flow as a criterion of liquidity and
performance-based components of employee compensation. We use Free
Cash Flow as a measure of liquidity to determine, after required
principal payments on debt, amounts we can reinvest in our core
businesses, such as amounts available to make acquisitions, invest
in land, buildings and equipment and internal use software. In
order to provide a meaningful basis for comparison, we are
providing information with respect to our Free Cash Flow reconciled
to cash flow provided by operating activities, which we believe to
be the most directly comparable measure under U.S. GAAP.
Adjusted Free Cash Flow
Adjusted free cash flow is defined as free cash flow from above
plus deferred compensation payments, transaction costs, costs
related to the Texas litigation
and other identified items.
Adjusted Cash
Adjusted cash is defined as the cash and cash equivalents less
cash from terminated deferred compensation to be paid to plan
participants. We believe this provides added insight into cash and
cash equivalents taking into account this particular cash
obligation.
Constant Currency
To better understand trends in our business, we believe that it
is helpful to adjust revenue to exclude the impact of changes in
the translation of foreign currencies into U.S. Dollars. We refer
to this adjusted revenue as "constant currency." Currency impact is
the difference between actual growth rates and constant currency
growth rates and is calculated by translating current period
activity in local currency using the comparable prior period's
currency translation rate.
Non-GAAP Outlook
In providing outlook for adjusted EBITDA we exclude certain
items which are otherwise included in determining the comparable
GAAP financial measure. A description of the adjustments which
historically have been applicable in determining adjusted EBITDA
are reflected in the table below. We are providing such
outlook only on a non-GAAP basis because the Company is unable to
predict with reasonable certainty the totality or ultimate outcome
or occurrence of these adjustments for the forward-looking period,
such as amortization, restructuring, separation costs, NY MMIS, HE
charge, and certain other adjusted items, which can be dependent on
future events that may not be reliably predicted. Based on past
reported results, where one or more of these items have been
applicable, such excluded items could be material, individually or
in the aggregate, to reported results. We have provided an outlook
for revenue on a constant currency basis due to the inability to
accurately predict foreign currency impact on revenues.
Outlook for Free Cash Flow and Adjusted Free Cash Flow is provided
as a factor of expected adjusted EBITDA, see above.
Non-GAAP Reconciliations: Adjusted Revenue, Adjusted Net
Income (Loss), Adjusted Effective Tax, Adjusted Operating Income
(Loss) and Adjusted EBITDA were as follows:
|
Three Months
Ended
March 31,
|
(in
millions)
|
2019
|
|
2018
|
ADJUSTED
REVENUE
|
|
|
|
Revenue
|
$
|
1,158
|
|
|
$
|
1,420
|
|
Adjustment:
|
|
|
|
2018
Divestitures(1)
|
(36)
|
|
|
(248)
|
|
Adjusted
Revenue
|
$
|
1,122
|
|
|
$
|
1,172
|
|
|
|
|
|
ADJUSTED NET
INCOME (LOSS)
|
|
|
|
Income (Loss) From
Continuing Operations
|
$
|
(308)
|
|
|
$
|
(50)
|
|
Adjustments:
|
|
|
|
Amortization of
acquired intangible assets(2)
|
62
|
|
|
61
|
|
Restructuring and
related costs
|
16
|
|
|
20
|
|
Goodwill
impairment
|
284
|
|
|
—
|
|
(Gain) loss on
divestitures and transaction costs
|
14
|
|
|
15
|
|
Litigation costs
(recoveries), net
|
12
|
|
|
31
|
|
Other (income)
expenses, net
|
(1)
|
|
|
(1)
|
|
Total Non-GAAP
Adjustments(3)
|
387
|
|
|
126
|
|
Income tax
adjustments(3)
|
(47)
|
|
|
(29)
|
|
Adjusted Income
(Loss) Before Adjustment for Divestitures
|
$
|
32
|
|
|
$
|
47
|
|
|
|
|
|
ADJUSTED EFFECTIVE
TAX
|
|
|
|
Income (Loss)
Before Income Taxes
|
$
|
(338)
|
|
|
$
|
(54)
|
|
Adjustments:
|
|
|
|
Total Non-GAAP
Adjustments(3)
|
387
|
|
|
126
|
|
Adjusted PBT
(Before Adjustment for Divestitures)
|
49
|
|
|
72
|
|
2018
Divestitures(1)
|
(1)
|
|
|
(39)
|
|
Adjusted
PBT
|
$
|
48
|
|
|
$
|
33
|
|
|
|
|
|
Income tax expense
(benefit)
|
$
|
(30)
|
|
|
$
|
(4)
|
|
Income tax
adjustments(3)
|
47
|
|
|
29
|
|
Adjusted Income
Tax Expense (Benefit)
|
17
|
|
|
25
|
|
Adjusted Net
Income (Loss) Before Adjustment for Divestitures)
|
$
|
32
|
|
|
$
|
47
|
|
|
CONTINUED
|
Three Months
Ended
March 31,
|
(in
millions)
|
2019
|
|
2018
|
ADJUSTED OPERATING
INCOME (LOSS)
|
|
|
|
Income (Loss)
Before Income Taxes
|
$
|
(338)
|
|
|
$
|
(54)
|
|
Adjustments:
|
|
|
|
Total non-GAAP
adjustments(3)
|
387
|
|
|
126
|
|
Interest
expense
|
20
|
|
|
33
|
|
Adjusted Operating
Income (Loss) Before Adjustment for Divestitures
|
69
|
|
|
105
|
|
2018
divestitures(1)
|
(1)
|
|
|
(39)
|
|
Adjusted Operating
Income (Loss)
|
$
|
68
|
|
|
$
|
66
|
|
|
|
|
|
ADJUSTED
EBITDA
|
|
|
|
Income (Loss) From
Continuing Operations
|
$
|
(308)
|
|
|
$
|
(50)
|
|
Income tax expense
(benefit)
|
(30)
|
|
|
(4)
|
|
Depreciation and
amortization
|
115
|
|
|
116
|
|
Contract inducement
amortization
|
1
|
|
|
1
|
|
Interest
expense
|
20
|
|
|
33
|
|
EBITDA Before
Adjustment for Divestiture
|
(202)
|
|
|
96
|
|
2018
divestitures(1)
|
(1)
|
|
|
(39)
|
|
2018 divestitures
depreciation and amortization(1)
|
—
|
|
|
(2)
|
|
EBITDA
|
(203)
|
|
|
55
|
|
Adjustments:
|
|
|
|
Restructuring and
related costs
|
16
|
|
|
20
|
|
Goodwill
impairment
|
284
|
|
|
—
|
|
(Gain) loss on
divestitures and transaction costs
|
14
|
|
|
15
|
|
Litigation costs
(recoveries), net
|
12
|
|
|
31
|
|
Other (income)
expenses, net
|
(1)
|
|
|
(1)
|
|
Adjusted EBITDA
Before Adjustment for Divestiture
|
$
|
123
|
|
|
$
|
161
|
|
|
|
|
|
Adjusted
EBITDA
|
$
|
122
|
|
|
$
|
120
|
|
___________
|
(1)
|
Adjusted for the
full impact from revenue and income/loss from
divestitures.
|
(2)
|
Included in
Depreciation and amortization on the Condensed Consolidated
Statements of Income (Loss).
|
(3)
|
The tax impact of
Adjusted Pre-tax income (loss) from continuing operations was
calculated under the same accounting principles applied to the 'As
Reported' pre-tax income (loss), which employs an annual effective
tax rate method to the results and without regard to the business
divestitures, the State of Texas litigation reserve, loss on
extinguishment of debt, charges for amortization of intangible
assets, restructuring and divestiture related costs.
|
Non-GAAP Reconciliations: Adjusted Weighted Average
Shares Outstanding, Diluted EPS, Adjusted Effective Tax, Adjusted
Operating Margin and Adjusted EBITDA Margins for the Non-GAAP
reconciliations above were as follows:
|
Three Months
Ended
March 31,
|
(Amounts are in whole
dollars, shares are in thousands and margins are in %)
|
2019
|
|
2018
|
ADJUSTED DILUTED
EPS(1)
|
|
|
|
Weighted Average
Common Shares Outstanding
|
207,944
|
|
205,093
|
Adjustments:
|
|
|
|
Stock
options
|
27
|
|
143
|
Restricted stock and
performance units / shares
|
2,783
|
|
2,773
|
Adjusted Weighted
Average Common Shares Outstanding
|
210,754
|
|
208,009
|
|
|
|
|
Diluted EPS from
Continuing Operations
|
$
|
(1.49)
|
|
|
$
|
(0.26)
|
|
Adjustments:
|
|
|
|
Total non-GAAP
adjustments(2)
|
1.85
|
|
|
0.62
|
|
Income tax
adjustments(2)
|
(0.22)
|
|
|
(0.14)
|
|
Adjusted Diluted
EPS Before Adjustment for Divestitures
|
$
|
0.14
|
|
|
$
|
0.22
|
|
|
|
|
|
ADJUSTED EFFECTIVE
TAX RATE
|
|
|
|
Effective tax
rate
|
8.9
|
%
|
|
7.4
|
%
|
Adjustments:
|
|
|
|
Total non-GAAP
adjustments(2)
|
25.8
|
%
|
|
27.3
|
%
|
Adjusted Effective
Tax Rate(2)
|
34.7
|
%
|
|
34.7
|
%
|
|
|
|
|
ADJUSTED OPERATING
MARGIN
|
|
|
|
Income (Loss) Before
Income Taxes Margin
|
(29.2)
|
%
|
|
(3.8)
|
%
|
Adjustments:
|
|
|
|
Total non-GAAP
adjustments
|
33.5
|
%
|
|
8.9
|
%
|
Interest
expense
|
1.7
|
%
|
|
2.3
|
%
|
Margin for
Adjusted Operating Income Before Adjustment for
Divestitures
|
6.0
|
%
|
|
7.4
|
%
|
2018
divestitures(3)
|
0.1
|
%
|
|
(1.8)
|
%
|
Margin for
Adjusted Operating Income
|
6.1
|
%
|
|
5.6
|
%
|
|
CONTINUED
|
Three Months
Ended
March 31,
|
(margins are in
%)
|
2019
|
|
2018
|
ADJUSTED EBITDA
MARGIN
|
|
|
|
EBITDA margin Before
Adjustment for Divestitures
|
(17.4)
|
%
|
|
6.8
|
%
|
Adjustments:
|
|
|
|
2018
divestitures(3)
|
(0.7)
|
%
|
|
(2.1)
|
%
|
EBITDA
Margin
|
(18.1)
|
%
|
|
4.7
|
%
|
Total non-GAAP
adjustments
|
28.0
|
%
|
|
4.5
|
%
|
2018
divestitures(3)
|
(0.1)
|
%
|
|
2.1
|
%
|
Adjusted EBITDA
Margin Before Adjustment for Divestitures
|
10.6
|
%
|
|
11.3
|
%
|
2018
divestitures(3)
|
0.3
|
%
|
|
(1.1)
|
%
|
Adjusted EBITDA
Margin
|
10.9
|
%
|
|
10.2
|
%
|
__________
|
(1)
|
Average shares for
the 2019 and 2018 calculation of adjusted EPS excludes 5 million
shares associated with our Series A convertible preferred stock and
includes the impact of the preferred stock dividend of $2.4
million for both of the three months ended March 31, 2019 and 2018,
respectively
|
(2)
|
The tax impact of
Adjusted Pre-tax income (loss) from continuing operations was
calculated under the same accounting principles applied to the 'As
Reported' pre-tax income (loss), which employs an annual effective
tax rate method to the results and without regard to the business
divestitures, the State of Texas litigation reserve, loss on
extinguishment of debt, charges for amortization of intangible
assets, restructuring and divestiture related costs.
|
(3)
|
Adjusted for the
full impact from revenue and income/loss from
divestitures.
|
Free Cash Flow
Reconciliation:
|
|
|
|
Three Months Ended
March 31,
|
(in
millions)
|
|
2019
|
|
2018
|
Operating Cash
Flow
|
|
$
|
(49)
|
|
|
$
|
(38)
|
|
Cost of additions to
land, buildings and equipment
|
|
(53)
|
|
|
(33)
|
|
Proceeds from sales
of land, buildings and equipment
|
|
1
|
|
|
—
|
|
Cost of additions to
internal use software
|
|
(17)
|
|
|
(6)
|
|
Tax payment related
to divestitures
|
|
2
|
|
|
—
|
|
Free Cash
Flow
|
|
$
|
(116)
|
|
|
$
|
(77)
|
|
Free Cash
Flow
|
|
$
|
(116)
|
|
|
$
|
(77)
|
|
Transaction
costs
|
|
3
|
|
|
1
|
|
Litigation
payments
|
|
20
|
|
|
—
|
|
Deferred compensation
payments and adjustments
|
|
—
|
|
|
7
|
|
Adjusted Free Cash
Flow
|
|
$
|
(93)
|
|
|
$
|
(69)
|
|
Cash / Adjusted
Cash Reconciliation:
|
|
(in
millions)
|
|
As of March 31,
2019
|
|
As of December 31,
2018
|
Cash and cash
equivalents
|
|
$
|
520
|
|
|
$
|
756
|
|
Deferred compensation
payments and adjustments
|
|
—
|
|
|
99
|
|
Deferred compensation
payable
|
|
—
|
|
|
(99)
|
|
Adjusted cash and
cash equivalents
|
|
$
|
520
|
|
|
$
|
756
|
|
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SOURCE Conduent Incorporated