Conduent (NASDAQ: CNDT), a global technology-led business process
solutions company, today announced its third quarter 2022 financial
results.
Cliff Skelton, Conduent President & CEO stated, “Q3 2022 was
a solid quarter for Conduent, continuing to deliver on our
financial and client commitments. Q3 2022 also represented a very
strong sales quarter, at just under $200M in new business ACV, and
our pipeline continues to expand. We continue to focus on
incremental improvements in our sales, operations, technology
performance and capabilities to drive sustained success. We are
confident about our long-term game plan, especially given recent
industry recognition for our solutions and our culture. Regarding
the future, clients are focused on reducing spend and vendor costs
while at the same time needing partners that can drive efficiency
and resilience. Our team of talented associates and technology-led
solutions strongly positions us as the partner that can help our
clients through these uncertain times.”
Key Financial Q3 2022 Results
($ in millions, except margin and per share
data) |
Q3 2022 |
Q3 2021 |
CurrentQuarterY/Y B/(W) |
Revenue |
$977 |
$1,038 |
(5.9)% |
Adjusted Revenue(1) |
$977 |
$1,019 |
(4.1)% |
GAAP Net Income (Loss) |
$15 |
$11 |
36.4% |
Adjusted EBITDA(1) |
$105 |
$119 |
(11.8)% |
Adjusted EBITDA Margin (1) |
10.7% |
11.7% |
(100) bps |
GAAP Income (Loss) Before Income Tax |
$23 |
$19 |
21.1% |
GAAP Diluted EPS |
$0.06 |
$0.04 |
50.0% |
Adjusted Diluted EPS(1) |
$0.09 |
$0.19 |
(52.6)% |
Cash Flow from Operating Activities |
$98 |
$55 |
78.2% |
Adjusted Free Cash Flow(1) |
$78 |
$23 |
239.1% |
Q3 2022 Performance CommentaryConduent's
balance sheet remains strong with an ending cash balance of $587
million, Cash Flow from Operating Activities of $98 million and
Adjusted Free Cash Flow of $78 million for the quarter.
Revenue and Adjusted Revenue for Q3 2022 were in line with
expectations, however, lower than the prior year period, primarily
driven by significant, non-recurring stimulus payments volume in
our Government Services business in the prior year, as well as
unfavorable foreign exchange impact, particularly from the Euro and
British pound.
New Business ACV of $191 million for Q3 2022 increased for the
fifth consecutive quarter.
Additional Q3 2022 and Recent Performance
HighlightsIndustry recognition for technology, solutions,
culture and governance, including;
- ISG named Conduent a leader across
Digital Operations, AI & Analytics, Work From Home and Social
Media quadrants in the 2022 ISG Provider LensTM Contact Center -
Customer Experience Services U.S. Report.
- Newsweek named Conduent to its list of
America's 100 Most Loved Workplaces 2022.
- Brandon Hall Group named Conduent as a
Bronze winner in the category of Best Certification Program for
Train the Digital Trainer, as part of its 2022 Excellence
Awards.
- Everest Group named Conduent as Major
Contender in Customer Experience Management.
FY 2022 Outlook (4)
|
FY 2021 Actuals |
FY 2022 Outlook |
|
|
|
Adj. Revenue(1) |
$4,070M |
$3,850M - $3,950M |
|
|
|
Adj. EBITDA(1) / Adj. EBITDA Margin(1) |
$448M / 11.0% |
10.0% - 10.5% |
|
|
|
Adj. Free Cash Flow(2) as
% of Adj. EBITDA(1) |
Approx. 18% (3) |
Approx. 15% (3) |
(1) Refer to Appendix for definition and complete non-GAAP
reconciliations of Adjusted Revenue, Adjusted EBITDA, Adjusted
EBITDA Margin, Adjusted Diluted EPS and Adjusted Free Cash Flow(2)
Refer to Appendix for definition.(3) Normalized for the impact of
payment of deferred payroll taxes primarily related to the CARES
Act of $32M in 2021 and $27M in 2022, Adjusted Free Cash Flow as a
percentage of Adjusted EBITDA for 2021 is approximately 25% and
approximately 22% in 2022. Adjusted Free Cash Flow for 2022 also
includes an outstanding US Federal tax refund expected to be
received by December 31, 2022.(4) Refer to Appendix for additional
information regarding Non-GAAP Outlook
Conference CallManagement will present the
results during a conference call and webcast on November 1,
2022 at 5:00 p.m. ET.
The call will be available by live audio webcast along with the
news release and online presentation slides at
https://investor.conduent.com/.
The conference call will also be available by calling
877-407-4019 toll-free. If requested, the conference ID for this
call is 13732835.
The international dial-in is 1-201-689-8337. The international
conference ID is also 13732835.A recording of the conference call
will be available by calling 1-877-660-6853 three hours after the
conference call concludes. The replay ID is 13732835.
The telephone recording will be available until November 15,
2022.
About Conduent Conduent delivers
mission-critical services and solutions on behalf of businesses and
governments – creating exceptional outcomes for its clients and the
millions of people who count on them. Through our dedicated people,
processes, and technologies, Conduent solutions and services
enhance customer experience, increase efficiencies, reduce costs,
and improve performance for most Fortune 100 companies and more
than 500 government entities. Whether it’s enabling 1.3 billion
customer service interactions, touching three out of every four
U.S. patients, delivering 45% of SNAP payments, or empowering 10
million employees through HR services, Conduent services and
solutions interact with millions of people every day and move our
clients’ operations forward. Learn more at
https://www.conduent.com
Non-GAAP Financial MeasuresWe have reported our
financial results in accordance with U.S. generally accepted
accounting principles (U.S. 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 U.S. 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 results of the current period
against the corresponding prior period. However, these non-GAAP
financial measures should be viewed in addition to, and not as a
substitute for, our 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
Consolidated Financial Statements prepared in accordance with U.S.
GAAP. Our management regularly uses our 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 of these 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 U.S. GAAP measures.
Forward-Looking Statements
This release and any attachments to this release may contain
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. The words “anticipate,” “believe,”
“estimate,” “expect,” "plan," “intend,” “will,” “aim,” “should,”
“could,” “forecast,” “target,” “may,” "continue to," "if,”
“growing,” “projected,” “potential,” “likely,” and similar
expressions, as they relate to us, are intended to identify
forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking. All statements other
than statements of historical fact included in this press release
are forward-looking statements, including, but not limited to,
statements regarding our financial results, condition and outlook;
changes in our operating results; general market and economic
conditions; our long-term game plan; our belief that our team of
talented associates and technology-led solutions strongly position
us as the partner that can help our clients through these uncertain
times; our continued focus on incremental improvement in our sales,
operations, technology performance and capabilities to drive
sustained success; and our projected financial performance for the
full year 2022, including all statements made under the section
captioned “FY 2022 Outlook” within this release. In addition, all
statements regarding anticipated effects of the novel coronavirus,
or COVID-19, pandemic and the responses thereto, including the
pandemic’s impact on general economic and market conditions, as
well as on our business, customers, and markets, results of
operations and financial condition and anticipated actions to be
taken by management to sustain our business during the economic
uncertainty caused by the pandemic and related governmental and
business actions, as well as other statements that are not strictly
historical in nature, are forward looking. These statements reflect
our current views with respect to future events and are subject to
certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those expressed or implied herein as anticipated, believed,
estimated, expected or intended or using other similar
expressions.
In accordance with the provisions of the Litigation Reform Act,
we are making investors aware that such forward-looking statements,
because they relate to future events, are by their very nature
subject to many important factors and uncertainties that could
cause actual results to differ materially from those contemplated
by the forward-looking statements contained in this press release,
any exhibits to this press release and other public statements we
make. Our actual results may vary materially from those expressed
or implied in our forward-looking statements.
Important factors and uncertainties that could cause our actual
results to differ materially from those in our forward-looking
statements include, but are not limited to: the significant
continuing effects of the ongoing COVID-19 pandemic on our
business, operations, financial results and financial condition,
which is dependent on developments which are highly uncertain and
cannot be predicted; government appropriations and termination
rights contained in our government contracts; our ability to renew
commercial and government contracts, including contracts awarded
through competitive bidding processes; our ability to recover
capital and other investments in connection with our contracts; our
reliance on third-party providers; our ability to deliver on our
contractual obligations properly and on time; changes in interest
in outsourced business process services; risk and impact of
geopolitical events (such as the war in the Ukraine), natural
disasters and other factors (such as pandemics, including
coronavirus) in a particular country or region on our workforce,
customers and vendors; claims of infringement of third-party
intellectual property rights; our ability to estimate the scope of
work or the costs of performance in our contracts; the loss of key
senior management and our ability to attract and retain necessary
technical personnel and qualified subcontractors; increases in the
cost of telephone and data services or significant interruptions in
such services; our failure to develop new service offerings and
protect our intellectual property rights; our ability to modernize
our information technology infrastructure and consolidate data
centers; the failure to comply with laws relating to individually
identifiable information and personal health information; the
failure to comply with 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 comply with data security standards; changes in tax and
other laws and regulations; risk and impact of potential goodwill
and other asset impairments; our significant indebtedness; our
ability to obtain adequate pricing for our services and to improve
our cost structure; our ability to collect our receivables,
including those for unbilled services; a decline in revenues from,
or a loss of, or a reduction in business from or failure of
significant clients; fluctuations in our non-recurring revenue; our
failure to maintain a satisfactory credit rating; our ability to
receive dividends or other payments from our subsidiaries;
developments in various contingent liabilities that are not
reflected on our balance sheet, including those arising as a result
of being involved in a variety of claims, lawsuits, investigations
and proceedings; conditions abroad, including local economics,
political environments, fluctuating foreign currencies and shifting
regulatory schemes; changes in government regulation and economic,
strategic, political and social conditions; volatility of our stock
price and the risk of litigation following a decline in the price
of our stock; economic factors such as inflation, the level of
economic activity and labor market conditions, as well as rising
interest rates; 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 2021
Annual Report on Form 10-K, as well as in our Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K filed with or furnished
to the Securities and Exchange Commission. Any forward-looking
statements made by us in this release 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 because of new information, subsequent events
or otherwise.
Media Contacts:Sean Collins, Conduent,
+1-310-497-9205, sean.collins2@conduent.com
Investor Contacts:Giles Goodburn, Conduent,
+1-203-216-3546, ir@conduent.com
CONDUENT
INCORPORATEDCONDENSED CONSOLIDATED STATEMENTS OF
INCOME (LOSS) (UNAUDITED)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions, except per share data) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
|
2021 |
Revenue |
$ |
977 |
|
$ |
1,038 |
|
$ |
2,872 |
|
|
$ |
3,092 |
|
|
|
|
|
|
|
|
Operating Costs and
Expenses |
|
|
|
|
|
|
|
Cost of services (excluding depreciation and amortization) |
|
754 |
|
|
776 |
|
|
2,236 |
|
|
|
2,335 |
Selling, general and administrative (excluding depreciation and
amortization) |
|
117 |
|
|
131 |
|
|
332 |
|
|
|
382 |
Research and development (excluding depreciation and
amortization) |
|
2 |
|
|
2 |
|
|
5 |
|
|
|
3 |
Depreciation and amortization |
|
54 |
|
|
84 |
|
|
168 |
|
|
|
265 |
Restructuring and related costs |
|
4 |
|
|
10 |
|
|
24 |
|
|
|
31 |
Interest expense |
|
22 |
|
|
12 |
|
|
59 |
|
|
|
38 |
(Gain) loss on divestitures and transaction costs |
|
1 |
|
|
— |
|
|
(159 |
) |
|
|
1 |
Litigation settlements (recoveries), net |
|
— |
|
|
— |
|
|
(31 |
) |
|
|
2 |
Loss on extinguishment of debt |
|
— |
|
|
— |
|
|
— |
|
|
|
2 |
Other (income) expenses, net |
|
— |
|
|
4 |
|
|
— |
|
|
|
4 |
Total Operating Costs
and Expenses |
|
954 |
|
|
1,019 |
|
|
2,634 |
|
|
|
3,063 |
|
|
|
|
|
|
|
|
Income (Loss) Before
Income Taxes |
|
23 |
|
|
19 |
|
|
238 |
|
|
|
29 |
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
8 |
|
|
8 |
|
|
87 |
|
|
|
17 |
Net Income
(Loss) |
$ |
15 |
|
$ |
11 |
|
$ |
151 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
Net Income (Loss) per
Share: |
|
|
|
|
|
|
|
Basic |
$ |
0.06 |
|
$ |
0.04 |
|
$ |
0.67 |
|
|
$ |
0.02 |
Diluted |
$ |
0.06 |
|
$ |
0.04 |
|
$ |
0.66 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDUENT
INCORPORATEDCONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net Income
(Loss) |
$ |
15 |
|
|
$ |
11 |
|
|
$ |
151 |
|
|
$ |
12 |
|
Other Comprehensive
Income (Loss), Net(1) |
|
|
|
|
|
|
|
Currency translation adjustments, net |
|
(37 |
) |
|
|
(16 |
) |
|
|
(82 |
) |
|
|
(23 |
) |
Unrecognized gains (losses), net |
|
(1 |
) |
|
|
— |
|
|
|
(2 |
) |
|
|
(1 |
) |
Changes in benefit plans, net |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Other Comprehensive
Income (Loss), Net |
|
(38 |
) |
|
|
(16 |
) |
|
|
(84 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
Comprehensive Income
(Loss), Net |
$ |
(23 |
) |
|
$ |
(5 |
) |
|
$ |
67 |
|
|
$ |
(13 |
) |
__________
(1) All amounts are net of tax. Tax effects
were immaterial.
CONDUENT
INCORPORATEDCONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except share
data in thousands) |
September 30, 2022 |
|
December 31, 2021 |
Assets |
|
|
|
Cash and cash equivalents |
$ |
577 |
|
|
$ |
415 |
|
Accounts receivable, net |
|
653 |
|
|
|
699 |
|
Assets held for sale |
|
— |
|
|
|
184 |
|
Contract assets |
|
161 |
|
|
|
154 |
|
Other current assets |
|
250 |
|
|
|
228 |
|
Total current assets |
|
1,641 |
|
|
|
1,680 |
|
Land, buildings and equipment,
net |
|
262 |
|
|
|
281 |
|
Operating lease right-of-use
assets |
|
205 |
|
|
|
231 |
|
Intangible assets, net |
|
41 |
|
|
|
52 |
|
Goodwill |
|
1,286 |
|
|
|
1,339 |
|
Other long-term assets |
|
486 |
|
|
|
453 |
|
Total Assets |
$ |
3,921 |
|
|
$ |
4,036 |
|
Liabilities and
Equity |
|
|
|
Current portion of long-term
debt |
$ |
33 |
|
|
$ |
30 |
|
Accounts payable |
|
203 |
|
|
|
198 |
|
Accrued compensation and
benefits costs |
|
227 |
|
|
|
243 |
|
Unearned income |
|
75 |
|
|
|
82 |
|
Liabilities held for sale |
|
— |
|
|
|
29 |
|
Other current liabilities |
|
395 |
|
|
|
443 |
|
Total current liabilities |
|
933 |
|
|
|
1,025 |
|
Long-term debt |
|
1,272 |
|
|
|
1,383 |
|
Deferred taxes |
|
117 |
|
|
|
75 |
|
Operating lease
liabilities |
|
167 |
|
|
|
184 |
|
Other long-term
liabilities |
|
84 |
|
|
|
95 |
|
Total Liabilities |
|
2,573 |
|
|
|
2,762 |
|
|
|
|
|
Series A convertible preferred
stock |
|
142 |
|
|
|
142 |
|
|
|
|
|
Common stock |
|
2 |
|
|
|
2 |
|
Additional paid-in
capital |
|
3,924 |
|
|
|
3,910 |
|
Retained earnings
(deficit) |
|
(2,207 |
) |
|
|
(2,351 |
) |
Accumulated other
comprehensive loss |
|
(513 |
) |
|
|
(429 |
) |
Total Equity |
|
1,206 |
|
|
|
1,132 |
|
Total Liabilities and Equity |
$ |
3,921 |
|
|
$ |
4,036 |
|
|
|
|
|
Shares of common stock issued
and outstanding |
|
215,803 |
|
|
|
215,381 |
|
Shares of series A convertible
preferred stock issued and outstanding |
|
120 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
CONDUENT
INCORPORATEDCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Cash Flows from
Operating Activities: |
|
|
|
|
|
|
|
Net income (loss) |
$ |
15 |
|
|
$ |
11 |
|
|
$ |
151 |
|
|
$ |
12 |
|
Adjustments required to
reconcile net income (loss) to cash flows from operating
activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
54 |
|
|
|
84 |
|
|
|
168 |
|
|
|
265 |
|
Contract inducement amortization |
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
Deferred income taxes |
|
11 |
|
|
|
(1 |
) |
|
|
43 |
|
|
|
(7 |
) |
(Gain) loss from investments |
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
Amortization of debt financing costs |
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
5 |
|
Loss on extinguishment of debt |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
(Gain) loss on divestitures and sales of fixed assets, net |
|
— |
|
|
|
— |
|
|
|
(166 |
) |
|
|
1 |
|
Stock-based compensation |
|
6 |
|
|
|
5 |
|
|
|
15 |
|
|
|
14 |
|
Allowance for credit losses |
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
Changes in operating assets and liabilities |
|
10 |
|
|
|
(50 |
) |
|
|
(123 |
) |
|
|
(139 |
) |
Net cash provided by (used in) operating activities |
|
98 |
|
|
|
55 |
|
|
|
93 |
|
|
|
158 |
|
Cash Flows from
Investing Activities: |
|
|
|
|
|
|
|
Cost of additions to land, buildings and equipment |
|
(11 |
) |
|
|
(13 |
) |
|
|
(62 |
) |
|
|
(52 |
) |
Cost of additions to internal use software |
|
(16 |
) |
|
|
(17 |
) |
|
|
(48 |
) |
|
|
(49 |
) |
Proceeds from divestitures |
|
1 |
|
|
|
2 |
|
|
|
326 |
|
|
|
4 |
|
Net cash provided by (used in) investing activities |
|
(26 |
) |
|
|
(28 |
) |
|
|
216 |
|
|
|
(97 |
) |
Cash Flows from
Financing Activities: |
|
|
|
|
|
|
|
Payments on revolving credit facility |
|
— |
|
|
|
— |
|
|
|
(100 |
) |
|
|
— |
|
Payments on debt |
|
(8 |
) |
|
|
(23 |
) |
|
|
(24 |
) |
|
|
(102 |
) |
Premium on debt redemption |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
Taxes paid for settlement of stock-based compensation |
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
Dividends paid on preferred stock |
|
(2 |
) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
Net cash provided by (used in) financing activities |
|
(11 |
) |
|
|
(25 |
) |
|
|
(132 |
) |
|
|
(112 |
) |
Effect of exchange rate
changes on cash, cash equivalents and restricted cash |
|
(4 |
) |
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(7 |
) |
Increase (decrease) in cash,
cash equivalents and restricted cash |
|
57 |
|
|
|
(3 |
) |
|
|
167 |
|
|
|
(58 |
) |
Cash, Cash Equivalents and
Restricted Cash at Beginning of Period |
|
530 |
|
|
|
403 |
|
|
|
420 |
|
|
|
458 |
|
Cash, Cash Equivalents
and Restricted Cash at End of
period(1) |
$ |
587 |
|
|
$ |
400 |
|
|
$ |
587 |
|
|
$ |
400 |
|
___________
(1) Includes $10 million and $6 million
restricted cash as of September 30, 2022 and 2021, respectively,
that were included in Other current assets on their respective
Condensed Consolidated Balance Sheets.
Appendix
Definition
Net ARR Activity Metric (TTM)
Projected Annual Recurring Revenue for contracts signed in the
prior 12 months, less the annualized impact of any client losses,
contractual volume and price changes, and other known impacts for
which the company was notified in that same time period, which
could positively or negatively impact results. The metric
annualizes the net impact to revenue. Timing of revenue impact
varies and may not be realized within the forward 12-month
timeframe. The metric is for indicative purposes only. This metric
excludes COVID-related volume impacts and non-recurring revenue
signings. This metric is not indicative of any specific 12 month
timeframe.
New Business Annual Contract Value (ACV): (New
Business TCV / contract term) multiplied by 12.
Non-GAAP Financial Measures
We have reported our financial results in accordance with U.S.
generally accepted accounting principles (U.S. 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 U.S.
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
results of the current period against the corresponding prior
period. 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 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 of these non-GAAP measures.
A reconciliation of the following non-GAAP financial measures to
the most directly comparable financial measures calculated and
presented in accordance with U.S. 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 Diluted Earnings
per Share, Adjusted Weighted Average Common Shares Outstanding, and
Adjusted Effective Tax Rate
We make adjustments to Net Income (Loss) before Income Taxes for
the following items, as applicable, to the particular financial
measure, for the purpose of calculating Adjusted Revenue, Adjusted
Net Income (Loss), Adjusted Diluted Earnings per Share, Adjusted
Weighted Average Common Shares Outstanding, 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.
- (Gain) loss on divestitures and transaction costs. Represents
(gain) loss on divested businesses and transaction costs.
- Litigation settlements (recoveries), net represents settlements
or recoveries for various matters subject to litigation.
- Other charges (credits). This includes Other (income) expenses,
net on the Condensed Consolidated Statements of Income (loss) and
other insignificant (income) expense associated with providing
transition services on the California Medicaid contract loss and
other adjustments.
- Abandonment of Cloud Computing Project. This includes charges
in connection with the abandonment of a cloud computing project.
The costs include writing off previously capitalized costs and
remaining hosting fees that would have continued to be incurred
without any economic benefit.
- 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, Adjusted Operating Income and Adjusted
Operating Margin
We make adjustments to Revenue, Costs and Expenses and Operating
Margin, as applicable, 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.
- (Gain) loss on divestitures and transaction costs.
- Litigation settlements (recoveries), net.
- Other charges (credits).
- Abandonment of Cloud Computing Project.
- 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 U.S. GAAP results and the accompanying
reconciliations to corresponding U.S. 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 revenue or adjusted revenue,
as applicable.
- Restructuring and related costs.
- (Gain) loss on divestitures and transaction costs.
- Litigation settlements (recoveries), net.
- Abandonment of Cloud Computing Project.
- Other charges (credits).
- 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 performance. 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, and proceeds from sales of
land, buildings and equipment. We use the non-GAAP measure of Free
Cash Flow as a criterion of liquidity. We use Free Cash Flow as a
measure of liquidity to determine amounts we can reinvest in our
core businesses, such as amounts available to make acquisitions and
invest in land, buildings and equipment and internal use software,
after required payments on debt. 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 adjustments for litigation insurance recoveries, transaction
costs, taxes paid on gains from divestitures and litigation
recoveries, and certain other identified adjustments. We use
Adjusted Free Cash Flow, in addition to Free Cash Flow, to provide
supplemental information to our investors concerning our ability to
generate cash from our ongoing operating activities and for
performance based components of employee compensation; by excluding
these items, we believe we provide useful additional information to
our investors to help them further understand our ability to
generate cash period-over-period as well as added information on
comparability to our competitors. Such as with Free Cash Flow
information, as so adjusted, it is specifically not intended to
provide amounts available for discretionary spending. We have added
certain adjustments to account for items which we do not believe
reflect our core business or operating performance, and we computed
all periods with such adjusted costs.
Revenue at 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
determined as the difference between actual growth rates and
constant currency growth rates. This currency impact is calculated
by translating the current period activity in local currency using
the comparable prior-year period's currency translation rate.
Non-GAAP Outlook
In providing the outlook for Adjusted EBITDA we exclude certain
items which are otherwise included in determining the comparable
U.S. GAAP financial measure. A description of the adjustments which
historically have been applicable in determining Adjusted EBITDA
are reflected in the table below. In addition, for "FY 2021
Actuals" we are excluding the estimated impacts of $70 million of
Revenue and $39 million of Adjusted EBITDA related to the
divestiture of the Midas business. We are providing such outlook
only on a non-GAAP basis because the Company is unable without
unreasonable efforts to predict with reasonable certainty the
totality or ultimate outcome or occurrence of these adjustments for
the forward-looking period, 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 Adjusted
revenue only on a non-GAAP basis using foreign currency translation
rates at current period end due to the inability to, without
unreasonable efforts, accurately predict foreign currency impact on
revenues. Outlook for Adjusted Free Cash Flow is provided as a
factor of expected Adjusted EBITDA, and such outlook is only
available on a non-GAAP basis for the reasons described above. For
the same reason, we are unable to provide a GAAP expected adjusted
tax rate, which adjusts for our non-GAAP adjustments.
Non-GAAP Reconciliations:
Revenue at Constant Currency, Adjusted Net Income (Loss), Adjusted
Effective Tax, Adjusted Operating Income (Loss) and Adjusted EBITDA
were as follows:
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
2022 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
ADJUSTED
REVENUE |
|
|
|
|
|
|
|
Revenue |
$ |
977 |
|
$ |
1,038 |
|
|
$ |
2,872 |
|
|
$ |
3,092 |
|
Adjustment: |
|
|
|
|
|
|
|
Divestitures(1) |
|
— |
|
|
(19 |
) |
|
|
(7 |
) |
|
|
(54 |
) |
Adjusted
Revenue |
|
977 |
|
|
1,019 |
|
|
|
2,865 |
|
|
|
3,038 |
|
Foreign currency impact |
|
14 |
|
|
(3 |
) |
|
|
30 |
|
|
|
(20 |
) |
Revenue at Constant
Currency |
$ |
991 |
|
$ |
1,016 |
|
|
$ |
2,895 |
|
|
$ |
3,018 |
|
|
|
|
|
|
|
|
|
ADJUSTED NET INCOME
(LOSS) |
|
|
|
|
|
|
|
Net Income
(Loss) |
$ |
15 |
|
$ |
11 |
|
|
$ |
151 |
|
|
$ |
12 |
|
Adjustments: |
|
|
|
|
|
|
|
Amortization of acquired intangible assets(2) |
|
2 |
|
|
31 |
|
|
|
11 |
|
|
|
103 |
|
Restructuring and related costs |
|
4 |
|
|
10 |
|
|
|
24 |
|
|
|
31 |
|
Loss on extinguishment of debt |
|
— |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
(Gain) loss on divestitures and transaction costs |
|
1 |
|
|
— |
|
|
|
(159 |
) |
|
|
1 |
|
Litigation settlements (recoveries), net |
|
— |
|
|
— |
|
|
|
(31 |
) |
|
|
2 |
|
Other charges (credits) |
|
— |
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
Total Non-GAAP
Adjustments |
|
7 |
|
|
45 |
|
|
|
(155 |
) |
|
|
143 |
|
Income tax adjustments(3) |
|
— |
|
|
(12 |
) |
|
|
60 |
|
|
|
(29 |
) |
Adjusted Net Income
(Loss) |
$ |
22 |
|
$ |
44 |
|
|
$ |
56 |
|
|
$ |
126 |
|
|
|
|
|
|
|
|
|
ADJUSTED EFFECTIVE
TAX |
|
|
|
|
|
|
|
Income (Loss) Before
Income Taxes |
$ |
23 |
|
$ |
19 |
|
|
$ |
238 |
|
|
$ |
29 |
|
Adjustments: |
|
|
|
|
|
|
|
Total Non-GAAP Adjustments |
|
7 |
|
|
45 |
|
|
|
(155 |
) |
|
|
143 |
|
Adjusted PBT Before
Adjustment for Divestitures |
|
30 |
|
|
64 |
|
|
|
83 |
|
|
|
172 |
|
Divestitures(1) |
|
— |
|
|
(10 |
) |
|
|
(2 |
) |
|
|
(27 |
) |
Adjusted
PBT |
$ |
30 |
|
$ |
54 |
|
|
$ |
81 |
|
|
$ |
145 |
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
$ |
8 |
|
$ |
8 |
|
|
$ |
87 |
|
|
$ |
17 |
|
Income tax adjustments(3) |
|
— |
|
|
12 |
|
|
|
(60 |
) |
|
|
29 |
|
Adjusted Income Tax
Expense (Benefit) |
|
8 |
|
|
20 |
|
|
|
27 |
|
|
|
46 |
|
Adjusted Net Income
(Loss) Before Adjustment for Divestitures |
|
22 |
|
|
44 |
|
|
|
56 |
|
|
|
126 |
|
Divestitures(1) |
|
— |
|
|
(10 |
) |
|
|
(2 |
) |
|
|
(27 |
) |
Adjusted Net Income
(Loss) |
$ |
22 |
|
$ |
34 |
|
|
$ |
54 |
|
|
$ |
99 |
|
CONTINUED |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
2022 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
ADJUSTED OPERATING
INCOME (LOSS) |
|
|
|
|
|
|
|
Income (Loss) Before
Income Taxes |
$ |
23 |
|
$ |
19 |
|
|
$ |
238 |
|
|
$ |
29 |
|
Adjustments: |
|
|
|
|
|
|
|
Total non-GAAP adjustments |
|
7 |
|
|
45 |
|
|
|
(155 |
) |
|
|
143 |
|
Interest expense |
|
22 |
|
|
12 |
|
|
|
59 |
|
|
|
38 |
|
Adjusted Operating
Income (Loss) Before Adjustment for Divestitures |
|
52 |
|
|
76 |
|
|
|
142 |
|
|
|
210 |
|
Divestitures(1) |
|
— |
|
|
(10 |
) |
|
|
(2 |
) |
|
|
(27 |
) |
Adjusted Operating
Income (Loss) |
$ |
52 |
|
$ |
66 |
|
|
$ |
140 |
|
|
$ |
183 |
|
|
|
|
|
|
|
|
|
ADJUSTED
EBITDA |
|
|
|
|
|
|
|
Net Income
(Loss) |
$ |
15 |
|
$ |
11 |
|
|
$ |
151 |
|
|
$ |
12 |
|
Income tax expense
(benefit) |
|
8 |
|
|
8 |
|
|
|
87 |
|
|
|
17 |
|
Depreciation and
amortization |
|
54 |
|
|
84 |
|
|
|
168 |
|
|
|
265 |
|
Contract inducement
amortization |
|
1 |
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
Interest expense |
|
22 |
|
|
12 |
|
|
|
59 |
|
|
|
38 |
|
EBITDA Before
Adjustment for Divestitures |
|
100 |
|
|
116 |
|
|
|
467 |
|
|
|
333 |
|
Divestitures(1) |
|
— |
|
|
(10 |
) |
|
|
(2 |
) |
|
|
(27 |
) |
Divestitures depreciation and
amortization(1) |
|
— |
|
|
(1 |
) |
|
|
— |
|
|
|
(3 |
) |
EBITDA |
|
100 |
|
|
105 |
|
|
|
465 |
|
|
|
303 |
|
Adjustments: |
|
|
|
|
|
|
|
Restructuring and related costs |
|
4 |
|
|
10 |
|
|
|
24 |
|
|
|
31 |
|
(Gain) loss on divestitures and transaction costs |
|
1 |
|
|
— |
|
|
|
(159 |
) |
|
|
1 |
|
Litigation settlements (recoveries), net |
|
— |
|
|
— |
|
|
|
(31 |
) |
|
|
2 |
|
Loss on extinguishment of debt |
|
— |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Other charges (credits) |
|
— |
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
Adjusted
EBITDA |
$ |
105 |
|
$ |
119 |
|
|
$ |
299 |
|
|
$ |
343 |
|
___________
(1) Adjusted for the full impact from revenue
and income/loss from divestitures for all periods presented.
(2) Included in Depreciation and amortization
on the 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 adjustments listed.
Non-GAAP Reconciliations:
Adjusted Weighted Average Shares Outstanding, Adjusted Diluted EPS,
Adjusted Effective Tax Rate, Adjusted Operating Margin and Adjusted
EBITDA Margin were as follows:
|
Three Months Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
|
(Amounts are in whole dollars, shares are in thousands and margins
and rates are in %) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
ADJUSTED DILUTED
EPS(1) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Common Shares Outstanding |
215,775 |
|
|
212,633 |
|
|
215,632 |
|
|
212,438 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and performance units / shares |
3,668 |
|
|
7,184 |
|
|
3,384 |
|
|
7,239 |
|
Adjusted Weighted
Average Common Shares Outstanding |
219,443 |
|
|
219,817 |
|
|
219,016 |
|
|
219,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS from Continuing Operations |
$ |
0.06 |
|
|
$ |
0.04 |
|
|
$ |
0.66 |
|
|
$ |
0.02 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Total non-GAAP adjustments |
0.03 |
|
|
0.20 |
|
|
(0.71 |
) |
|
0.65 |
|
Income tax adjustments(2) |
— |
|
|
(0.05 |
) |
|
0.27 |
|
|
(0.13 |
) |
Adjusted Diluted
EPS |
$ |
0.09 |
|
|
$ |
0.19 |
|
|
$ |
0.22 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTED EFFECTIVE TAX
RATE |
|
|
|
|
|
|
|
|
|
|
|
Effective tax
rate |
33.8 |
% |
|
38.3 |
% |
|
36.7 |
% |
|
58.5 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Total non-GAAP adjustments |
(6.3 |
)% |
|
(7.9 |
)% |
|
(4.3 |
)% |
|
(31.7 |
)% |
Adjusted Effective Tax
Rate(2) |
27.5 |
% |
|
30.4 |
% |
|
32.4 |
% |
|
26.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTED OPERATING
MARGIN |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before
Income Taxes Margin |
2.4 |
% |
|
1.8 |
% |
|
8.3 |
% |
|
0.9 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Total non-GAAP adjustments |
0.6 |
% |
|
4.3 |
% |
|
(5.5 |
)% |
|
4.7 |
% |
Interest expense |
2.3 |
% |
|
1.2 |
% |
|
2.1 |
% |
|
1.2 |
% |
Margin for Adjusted
Operating Income Before Adjustment for Divestitures |
5.3 |
% |
|
7.3 |
% |
|
4.9 |
% |
|
6.8 |
% |
Divestitures(3) |
— |
|
|
(0.8 |
)% |
|
— |
|
|
(0.8 |
)% |
Margin for Adjusted
Operating Income |
5.3 |
% |
|
6.5 |
% |
|
4.9 |
% |
|
6.0 |
% |
ADJUSTED EBITDA MARGIN |
|
|
|
|
|
|
|
|
|
|
|
EBITDA Margin Before Adjustment for Divestitures |
10.2 |
% |
|
11.2 |
% |
|
16.3 |
% |
|
10.8 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Divestitures(3) |
— |
% |
|
(0.9 |
)% |
|
(0.1 |
)% |
|
(0.8 |
)% |
EBITDA
Margin |
10.2 |
% |
|
10.3 |
% |
|
16.2 |
% |
|
10.0 |
% |
Total non-GAAP adjustments |
0.5 |
% |
|
1.3 |
% |
|
(5.8 |
)% |
|
1.3 |
% |
Divestitures(3) |
— |
% |
|
0.9 |
% |
|
0.1 |
% |
|
0.8 |
% |
Adjusted EBITDA Margin
Before Adjustment for Divestitures |
10.7 |
% |
|
12.5 |
% |
|
10.5 |
% |
|
12.1 |
% |
Divestitures(3) |
— |
% |
|
(0.8 |
)% |
|
(0.1 |
)% |
|
(0.8 |
)% |
Adjusted EBITDA
Margin |
10.7 |
% |
|
11.7 |
% |
|
10.4 |
% |
|
11.3 |
% |
__________
(1) Average shares for the 2022 and 2021
calculation of adjusted EPS excludes 5.4 million shares associated
with our Series A convertible preferred stock and includes the
impact of preferred stock dividend of approximately $2.0 million
and $2.0 million for the three months ended September 30, 2022 and
2021, 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 Total Non-GAAP adjustments.
(3) Adjusted for the full impact from revenue
and income/loss from divestitures for all periods
presented.Free Cash Flow and Adjusted Free Cash Flow
Reconciliation:
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
(in millions) |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Operating Cash
Flow |
$ |
98 |
|
|
$ |
55 |
|
|
$ |
93 |
|
|
$ |
158 |
|
Cost of additions to land, buildings and equipment |
|
(11 |
) |
|
|
(13 |
) |
|
|
(62 |
) |
|
|
(52 |
) |
Cost of additions to internal use software |
|
(16 |
) |
|
|
(17 |
) |
|
|
(48 |
) |
|
|
(49 |
) |
Free Cash
Flow |
$ |
71 |
|
|
$ |
25 |
|
|
$ |
(17 |
) |
|
$ |
57 |
|
Free Cash Flow |
$ |
71 |
|
|
$ |
25 |
|
|
$ |
(17 |
) |
|
$ |
57 |
|
Transaction costs |
|
3 |
|
|
|
— |
|
|
|
6 |
|
|
|
2 |
|
Vendor financed lease payments |
|
(2 |
) |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
Portion of Texas litigation settlement (recoveries) recognized in
Litigation settlements (recoveries), net |
|
— |
|
|
|
— |
|
|
|
(24 |
) |
|
|
— |
|
Tax payment related to divestitures and litigation recoveries |
|
6 |
|
|
|
— |
|
|
|
24 |
|
|
|
— |
|
Adjusted Free Cash
Flow |
$ |
78 |
|
|
$ |
23 |
|
|
$ |
(18 |
) |
|
$ |
52 |
|
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