Part I — Financial Information [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements and related accounting notes [Condensed Consolidated Statements of Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)) Condensed Consolidated Statements of Income (Loss) (Unaudited) (in millions, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $1,016 | $1,112 | $2,067 | $2,270 | | Cost of services (excluding D&A) | 795 | 879 | 1,627 | 1,785 | | SG&A (excluding D&A) | 111 | 121 | 227 | 248 | | R&D (excluding D&A) | — | 2 | 1 | 5 | | Depreciation and amortization | 115 | 112 | 232 | 227 | | Restructuring and related costs | 29 | 26 | 36 | 42 | | Interest expense | 15 | 20 | 32 | 40 | | Goodwill impairment | — | 1,067 | — | 1,351 | | (Gain) loss on divestitures and transaction costs | 2 | 2 | 6 | 16 | | Litigation costs (recoveries), net | 14 | 1 | 20 | 13 | | Other (income) expenses, net | (1) | 1 | 1 | — | | Total Operating Costs and Expenses | 1,080 | 2,231 | 2,182 | 3,727 | | Income (Loss) Before Income Taxes | (64) | (1,119) | (115) | (1,457) | | Income tax expense (benefit) | (13) | (90) | (15) | (120) | | Net Income (Loss) | $(51) | $(1,029) | $(100) | $(1,337) | | Net Income (Loss) per Share: | | | | | | Basic | $(0.25) | $(4.94) | $(0.50) | $(6.44) | | Diluted | $(0.25) | $(4.94) | $(0.50) | $(6.44) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | $(51) | $(1,029) | $(100) | $(1,337) | | Other Comprehensive Income (Loss), Net: | | | | | | Currency translation adjustments, net | 2 | (1) | (26) | 6 | | Reclassification of currency translation adjustments on divestitures | — | — | — | 15 | | Reclassification of divested benefit plans and other | — | — | — | (1) | | Unrecognized gains (losses), net | 2 | — | (1) | 1 | | Changes in benefit plans, net | — | — | 1 | — | | Other Comprehensive Income (Loss), Net | 4 | (1) | (26) | 21 | | Comprehensive Income (Loss), Net | $(47) | $(1,030) | $(126) | $(1,316) | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (Unaudited) (in millions, except share data in thousands) | Asset/Liability/Equity | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | **Assets:** | | | | Cash and cash equivalents | $428 | $496 | | Accounts receivable, net | 693 | 652 | | Contract assets | 160 | 155 | | Other current assets | 287 | 283 | | Total current assets | 1,568 | 1,586 | | Land, buildings and equipment, net | 309 | 342 | | Operating lease right-of-use assets | 255 | 271 | | Intangible assets, net | 306 | 426 | | Goodwill | 1,491 | 1,502 | | Other long-term assets | 397 | 387 | | **Total Assets** | **$4,326** | **$4,514** | | **Liabilities and Equity:** | | | | Current portion of long-term debt | $68 | $50 | | Accounts payable | 170 | 198 | | Accrued compensation and benefits costs | 182 | 174 | | Unearned income | 106 | 108 | | Other current liabilities | 496 | 647 | | Total current liabilities | 1,022 | 1,177 | | Long-term debt | 1,581 | 1,464 | | Deferred taxes | 93 | 111 | | Operating lease liabilities | 218 | 229 | | Other long-term liabilities | 95 | 91 | | **Total Liabilities** | **3,009** | **3,072** | | Series A convertible preferred stock | 142 | 142 | | Common stock | 2 | 2 | | Additional paid-in capital | 3,896 | 3,890 | | Retained earnings (deficit) | (2,290) | (2,185) | | Accumulated other comprehensive loss | (433) | (407) | | **Total Equity** | **1,175** | **1,300** | | **Total Liabilities and Equity** | **$4,326** | **$4,514** | | Shares of common stock issued and outstanding | 209,225 | 211,511 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Unaudited) (in millions) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(100) | $(1,337) | | Depreciation and amortization | 232 | 227 | | Deferred income taxes | (29) | (140) | | Goodwill impairment | — | 1,351 | | Net cash provided by (used in) operating activities | $(118) | $(234) | | Net cash provided by (used in) investing activities | $(58) | $(209) | | Net cash provided by (used in) financing activities | $114 | $(39) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (6) | 2 | | Increase (decrease) in cash, cash equivalents and restricted cash | (68) | (480) | | Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 505 | 765 | | Cash, Cash Equivalents and Restricted Cash at End of period | $437 | $285 | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (in millions) | Metric | Common Stock | Additional Paid-in Capital | Retained Earnings (Deficit) | AOCL (1) | Shareholders' Equity | | :------------------------------------------------- | :----------- | :------------------------- | :-------------------------- | :------- | :------------------- | | **Balance at March 31, 2020** | **$2** | **$3,891** | **$(2,236)** | **$(437)** | **$1,220** | | Cash dividends paid - preferred stock, $20/share | — | — | (3) | — | (3) | | Stock option and incentive plans, net | — | 5 | — | — | 5 | | Net Income (Loss) | — | — | (51) | — | (51) | | Other comprehensive income (loss), net | — | — | — | 4 | 4 | | **Balance at June 30, 2020** | **$2** | **$3,896** | **$(2,290)** | **$(433)** | **$1,175** | Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (in millions) - Six Months Ended June 30, 2020 | Metric | Common Stock | Additional Paid-in Capital | Retained Earnings (Deficit) | AOCL (1) | Shareholders' Equity | | :------------------------------------------------- | :----------- | :------------------------- | :-------------------------- | :------- | :------------------- | | **Balance at December 31, 2019** | **$2** | **$3,890** | **$(2,185)** | **$(407)** | **$1,300** | | Cash dividends paid - preferred stock, $40/share | — | — | (5) | — | (5) | | Stock option and incentive plans, net | — | 6 | — | — | 6 | | Net Income (Loss) | — | — | (100) | — | (100) | | Other comprehensive income (loss), net | — | — | — | (26) | (26) | | **Balance at June 30, 2020** | **$2** | **$3,896** | **$(2,290)** | **$(433)** | **$1,175** | [Notes to the Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [Note 1 – Basis of Presentation](index=9&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) - Conduent is a global provider of **mission-critical services and solutions** for businesses and governments, leveraging transaction-intensive processing, analytics, and automation to **improve efficiencies, reduce costs, and enable revenue growth**. It serves a majority of Fortune 100 companies and over 500 government entities[27](index=27&type=chunk) - The unaudited interim financial statements are prepared in accordance with U.S. GAAP and SEC regulations, with management's estimates and assumptions requiring increased judgment due to the ongoing COVID-19 pandemic[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 2 – Recent Accounting Pronouncements](index=10&type=section&id=Note%202%20%E2%80%93%20Recent%20Accounting%20Pronouncements) - The Company adopted the new credit loss guidance (CECL model) as of January 1, 2020, which did not have a **material impact** on its consolidated financial statements[33](index=33&type=chunk) - The Company is currently evaluating the impact of new accounting guidance for income taxes (effective January 1, 2021) and reference rate reform (LIBOR discontinuation, applicable through December 31, 2022) on its financial statements[34](index=34&type=chunk)[35](index=35&type=chunk) [Note 3 – Revenue](index=11&type=section&id=Note%203%20%E2%80%93%20Revenue) - During Q1 2020, the Company changed its disaggregated revenue presentation by major service offering, with prior periods revised for consistency. Revenue is recognized over time for the majority of services[37](index=37&type=chunk)[40](index=40&type=chunk) Disaggregated Revenue by Major Service Offering (in millions) | Service Offering | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commercial Industries | $520 | $592 | $1,092 | $1,204 | | Government Services | 331 | 326 | 621 | 651 | | Transportation | 165 | 194 | 354 | 378 | | Other (Divestitures, Education) | — | — | — | 37 | | **Total Consolidated Revenue** | **$1,016** | **$1,112** | **$2,067** | **$2,270** | | Timing of Revenue Recognition: | | | | | | Point in time | $32 | $34 | $62 | $73 | | Over time | 984 | 1,078 | 2,005 | 2,197 | - Estimated future revenue from unsatisfied or partially satisfied performance obligations at June 30, 2020, was **approximately $1.6 billion**, with about **67%** expected to be recognized over the next two years[43](index=43&type=chunk) [Note 4 – Segment Reporting](index=12&type=section&id=Note%204%20%E2%80%93%20Segment%20Reporting) - The Company's three reportable segments are Commercial Industries, Government Services, and Transportation, aligned with client industries and managed based on Segment Profit / (Loss) and Segment Adjusted EBITDA[44](index=44&type=chunk)[45](index=45&type=chunk) Selected Financial Information for Reportable Segments (Three Months Ended June 30, 2020 vs. 2019, in millions) | Metric | Commercial Industries (2020/2019) | Government Services (2020/2019) | Transportation (2020/2019) | Shared IT / Infrastructure & Corporate Costs (2020/2019) | Total (2020/2019) | | :-------------------------- | :------------------------------ | :------------------------------ | :------------------------- | :------------------------------------------------------- | :---------------- | | Revenue | $520 / $592 | $331 / $326 | $165 / $194 | $0 / $0 | $1,016 / $1,112 | | Segment profit (loss) | $72 / $111 | $115 / $95 | $31 / $29 | $(162) / $(176) | $55 / $59 | | Adjusted EBITDA | $96 / $132 | $120 / $102 | $39 / $41 | $(144) / $(161) | $110 / $114 | Selected Financial Information for Reportable Segments (Six Months Ended June 30, 2020 vs. 2019, in millions) | Metric | Commercial Industries (2020/2019) | Government Services (2020/2019) | Transportation (2020/2019) | Shared IT / Infrastructure & Corporate Costs (2020/2019) | Total (2020/2019) | | :-------------------------- | :------------------------------ | :------------------------------ | :------------------------- | :------------------------------------------------------- | :---------------- | | Revenue | $1,092 / $1,204 | $621 / $651 | $354 / $378 | $0 / $0 | $2,067 / $2,270 | | Segment profit (loss) | $162 / $228 | $208 / $175 | $54 / $48 | $(327) / $(324) | $100 / $128 | | Adjusted EBITDA | $211 / $271 | $219 / $191 | $71 / $69 | $(291) / $(295) | $206 / $237 | [Note 5 – Restructuring Programs and Related Costs](index=14&type=section&id=Note%205%20%E2%80%93%20Restructuring%20Programs%20and%20Related%20Costs) - Conduent is undertaking restructuring programs to optimize its employee base, reduce real estate footprint, and consolidate data centers, aiming to reduce costs and improve productivity. These initiatives include employee severance, lease terminations, and asset impairments[54](index=54&type=chunk)[55](index=55&type=chunk) Restructuring Program Activity (Six Months Ended June 30, 2020, in millions) | Category | Severance and Related Costs | Termination and Other Costs | Asset Impairments | Total | | :----------------------------------- | :-------------------------- | :-------------------------- | :---------------- | :---- | | Accrued Balance at December 31, 2019 | $15 | $6 | $0 | $21 | | Provision | 10 | 10 | 11 | 31 | | Changes in estimates | — | 1 | — | 1 | | Total Net Current Period Charges | 10 | 11 | 11 | 32 | | Charges against reserve and currency | (13) | (13) | (11) | (37) | | Accrued Balance at June 30, 2020 | $12 | $4 | $0 | $16 | Total Net Restructuring Charges by Segment (in millions) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commercial Industries | $5 | $9 | $7 | $11 | | Government Services | 1 | 1 | 1 | 1 | | Transportation | 3 | — | 3 | 1 | | Shared IT / Infrastructure & Corporate Costs | 18 | 14 | 21 | 26 | | **Total Net Restructuring Charges** | **$27** | **$24** | **$32** | **$40** | [Note 6 – Debt](index=15&type=section&id=Note%206%20%E2%80%93%20Debt) Long-term Debt (in millions) | Debt Type | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Term loan A due 2022 | $648 | $664 | | Term loan B due 2023 | 820 | 824 | | Revolving credit facility due 2022 | 150 | — | | Senior notes due 2024 | — | 34 | | Finance lease obligations | — | 17 | | Principal debt balance | 1,671 | 1,539 | | Debt issuance costs and unamortized discounts | (22) | (25) | | Less: current maturities | (68) | (50) | | **Total Long-term Debt** | **$1,581** | **$1,464** | - As of June 30, 2020, the Company had borrowed **$150 million** from its **$750 million** Senior Revolving Credit Facility, with **$592 million** remaining available. The Company was **in compliance with all debt covenants**[60](index=60&type=chunk)[61](index=61&type=chunk) [Note 7 – Financial Instruments](index=16&type=section&id=Note%207%20%E2%80%93%20Financial%20Instruments) - Conduent uses derivative instruments, primarily forward contracts, to hedge foreign currency exchange rate fluctuations, reducing earnings volatility and protecting asset/liability fair values. As of June 30, 2020, outstanding forward exchange contracts had gross notional values of **$162 million**, with most maturing within three months[63](index=63&type=chunk) [Note 8 – Fair Value of Financial Assets and Liabilities](index=16&type=section&id=Note%208%20%E2%80%93%20Fair%20Value%20of%20Financial%20Assets%20and%20Liabilities) - The Company classifies fair value measurements into a three-level hierarchy based on input observability. All recurring fair value measurements for foreign exchange contracts were classified as **Level 2**[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) Financial Assets and Liabilities Accounted for at Fair Value on a Recurring Basis (in millions) | Asset/Liability | June 30, 2020 | December 31, 2019 | | :----------------------------------- | :------------ | :---------------- | | Assets: Foreign exchange contract - forward | $1 | $2 | | Liabilities: Foreign exchange contracts - forward | $1 | $0 | - The fair value of long-term debt was estimated using current rates for similar maturities (**Level 2**), while contingent consideration payable was measured using a Monte Carlo simulation model (**Level 3**)[72](index=72&type=chunk)[73](index=73&type=chunk) [Note 9 – Employee Benefit Plans](index=17&type=section&id=Note%209%20%E2%80%93%20Employee%20Benefit%20Plans) - Conduent has post-retirement savings and investment plans, including defined contribution plans. The Company suspended its 401(k) match for all U.S. salaried employees in 2019 and extended this suspension to all U.S. hourly employees in Q2 2020[74](index=74&type=chunk) Defined Contribution Plan Expense (in millions) | Period | Expense | | :------------------------------- | :------ | | Three Months Ended June 30, 2020 | $0 | | Three Months Ended June 30, 2019 | $2 | | Six Months Ended June 30, 2020 | $1 | | Six Months Ended June 30, 2019 | $5 | [Note 10 – Accumulated Other Comprehensive Loss (AOCL)](index=17&type=section&id=Note%2010%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Loss%20(AOCL)) Balances and Changes in AOCL (in millions) | Metric | Currency Translation Adjustments | Gains (Losses) on Cash Flow Hedges | Defined Pension Benefit Items | Total | | :------------------------------------------------- | :------------------------------- | :--------------------------------- | :---------------------------- | :---- | | Balance at December 31, 2019 | $(408) | $3 | $(2) | $(407) | | Other comprehensive income (loss) before reclassifications | (26) | (1) | 1 | (26) | | Amounts reclassified from accumulated other comprehensive loss | — | — | — | — | | Net current period other comprehensive income (loss) | (26) | (1) | 1 | (26) | | **Balance at June 30, 2020** | **$(434)** | **$2** | **$(1)** | **$(433)** | [Note 11 – Contingencies and Litigation](index=18&type=section&id=Note%2011%20%E2%80%93%20Contingencies%20and%20Litigation) - Conduent is involved in various claims and lawsuits, including governmental contracting, intellectual property, employment, and commercial law. The Company accrues estimated losses when probable and estimable, believing **adequate provisions have been recorded**, though ultimate outcomes are **unpredictable and could be material**[79](index=79&type=chunk)[80](index=80&type=chunk) - Key litigation includes a **resolved Texas Medicaid fraud lawsuit** (paid **$118M** in Jan 2020), an **ongoing securities class action** (motion to dismiss denied), a **dispute with Skyview Capital LLC** regarding a business sale, and a **long-standing actuarial negligence case** (Dennis Nasrawi v. Buck Consultants) which remains stayed[81](index=81&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) - The Company also has a **lawsuit against Cognizant Business Services** for breach of contract, seeking over **$150 million**, with Cognizant counterclaiming for **approximately $90 million**[87](index=87&type=chunk) - As of June 30, 2020, Conduent had **$578 million** in **outstanding surety bonds** and **$90 million** in **outstanding letters of credit** to guarantee contractual performance, primarily in Government Services and Transportation segments[89](index=89&type=chunk) [Note 12 – Preferred Stock](index=21&type=section&id=Note%2012%20%E2%80%93%20Preferred%20Stock) - In December 2016, Conduent issued **120,000** shares of Series A convertible perpetual preferred stock with a **$120 million liquidation preference** and an **initial fair value of $142 million**. It **pays quarterly cash dividends** at **8%** per year (**$9.6 million** annually) and is **convertible into 44.9438 shares** of common stock per preferred share[91](index=91&type=chunk) [Note 13 – Earnings per Share](index=21&type=section&id=Note%2013%20%E2%80%93%20Earnings%20per%20Share) Computation of Basic and Diluted Earnings per Share of Common Stock (in millions, except per share data in whole dollars and shares in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(51) | $(1,029) | $(100) | $(1,337) | | Cash dividend paid - preferred stock | (3) | (3) | (5) | (5) | | Adjusted Net Income (Loss) Available to Common Shareholders | $(54) | $(1,032) | $(105) | $(1,342) | | Weighted average common shares outstanding | 209,129 | 208,496 | 210,261 | 208,207 | | Adjusted Weighted Average Common Shares Outstanding | 209,129 | 208,496 | 210,261 | 208,207 | | Net Income (Loss) per Share: | | | | | | Basic | $(0.25) | $(4.94) | $(0.50) | $(6.44) | | Diluted | $(0.25) | $(4.94) | $(0.50) | $(6.44) | [Note 14 – Supplementary Financial Information](index=22&type=section&id=Note%2014%20%E2%80%93%20Supplementary%20Financial%20Information) Components of Other Assets and Liabilities (in millions) | Category | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | **Other Current Assets:** | | | | Prepaid expenses | $87 | $70 | | Income taxes receivable | 25 | 38 | | Restricted cash | 9 | 9 | | Net receivable from buyers of divested businesses | 52 | 52 | | Total Other Current Assets | $287 | $283 | | **Other Current Liabilities:** | | | | Accrued liabilities | $266 | $309 | | Litigation related accruals | 74 | 178 | | Current operating lease liabilities | 82 | 91 | | Restructure reserves | 11 | 15 | | Total Other Current Liabilities | $496 | $647 | | **Other Long-term Assets:** | | | | Internal use software, net | $152 | $150 | | Deferred contract costs, net | 73 | 84 | | Product software, net | 55 | 40 | | Capitalized cloud computing implementation costs, net | 41 | 40 | | Total Other Long-term Assets | $397 | $387 | | **Other Long-term Liabilities:** | | | | Income tax liabilities | $16 | $20 | | Unearned income | 22 | 21 | | Restructuring reserves | 5 | 6 | | Total Other Long-term Liabilities | $95 | $91 | [Note 15 – Related Party Transactions](index=23&type=section&id=Note%2015%20%E2%80%93%20Related%20Party%20Transactions) - Carl C. Icahn and his affiliates **increased their ownership** in Q3 2019. Conduent engages in **normal course transactions** with related parties sharing the same shareholders, including providing HR and support services and purchasing office equipment[97](index=97&type=chunk) Transactions with Related Parties (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue from related parties | $7 | $8 | $13 | $17 | | Purchases from related parties | $2 | $6 | $8 | $18 | [Note 16 – Goodwill](index=23&type=section&id=Note%2016%20%E2%80%93%20Goodwill) Changes in the Carrying Amount of Goodwill by Reportable Segment (in millions) | Segment | Commercial Industries | Government Services | Transportation | Total | | :----------------------------------- | :-------------------- | :------------------ | :------------- | :---- | | Balance at December 31, 2019 | $821 | $621 | $60 | $1,502 | | Foreign currency translation | (7) | (5) | 1 | (11) | | **Balance at June 30, 2020** | **$814** | **$616** | **$61** | **$1,491** | - The Company assessed goodwill for impairment in Q1 and Q2 2020 and concluded that **no interim impairment test was necessary**, as the **fair values of reporting units were not more likely than not below their carrying values**. However, the COVID-19 pandemic **could lead to future impairment charges**[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Conduent's financial condition, operations, transformation, COVID-19 impact, segment performance, and liquidity [Overview](index=24&type=section&id=Overview) - Conduent is a global business process services company providing **mission-critical solutions** to businesses and governments, focusing on **improving efficiencies, reducing costs, and enabling revenue growth** through expertise in transaction-intensive processing, analytics, and automation[104](index=104&type=chunk)[105](index=105&type=chunk) - Headquartered in Florham Park, New Jersey, the Company has **approximately 63,000 associates**, including **2,000 furloughed**, servicing customers from 24 countries as of June 30, 2020[106](index=106&type=chunk) [Executive Summary](index=24&type=section&id=Executive%20Summary) - Conduent is **transforming its business** with a **focus on growth, quality, and efficiency**, **expanding its cost reduction initiative** in Q1 and Q2 2020 to **offset COVID-19 impacts**[107](index=107&type=chunk) - The strategy aims for **profitable growth**, **expanded operating margins**, and **disciplined capital allocation**. Key results for the three and six months ended June 30, 2020, include **strong new business signings** and **operational progress**[108](index=108&type=chunk)[111](index=111&type=chunk) Key Business Signings (in millions) | Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :----------------------------- | | New business TCV signings | $623 (up 90% YoY) | $947 (up 71% YoY) | | Annual recurring revenue signings | $105 (up 25% YoY) | $162 (up 19% YoY) | [COVID-19 Outbreak](index=25&type=section&id=COVID-19%20Outbreak) - Conduent **continued critical services** during COVID-19, implementing a **proactive plan** including associate support (extended disability, sick leave), **shifting 75% of the workforce to work-from-home** by Q2 2020, increasing sanitation, and **drawing on its revolving credit facility as a precautionary measure**[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - The pandemic has **diverted management's time and delayed strategic, transformational, and technology initiatives**[115](index=115&type=chunk) [Financial Review of Operations](index=26&type=section&id=Financial%20Review%20of%20Operations) Financial Review of Operations (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (2020 vs 2019) | % Change (2020 vs 2019) | | :----------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | :---------------------- | | Revenue | $1,016 | $1,112 | $(96) | (9)% | | Cost of services (excluding D&A) | 795 | 879 | (84) | (10)% | | Selling, general and administrative (excluding D&A) | 111 | 121 | (10) | (8)% | | Research and development (excluding D&A) | — | 2 | (2) | (100)% | | Depreciation and amortization | 115 | 112 | 3 | 3% | | Restructuring and related costs | 29 | 26 | 3 | 12% | | Interest expense | 15 | 20 | (5) | (25)% | | Goodwill impairment | — | 1,067 | (1,067) | (100)% | | (Gain) loss on divestitures and transaction costs | 2 | 2 | — | 0% | | Litigation costs (recoveries), net | 14 | 1 | 13 | 1300% | | Other (income) expenses, net | (1) | 1 | (2) | (200)% | | Total Operating Costs and Expenses | 1,080 | 2,231 | (1,151) | (51)% | | Income (Loss) Before Income Taxes | (64) | (1,119) | 1,055 | 94% | | Income tax expense (benefit) | (13) | (90) | 77 | 86% | | Net Income (Loss) | $(51) | $(1,029) | $978 | 95% | - **Revenue decreased by 9%** for both the three and six months ended June 30, 2020, **primarily due to lost business and COVID-19 impacts** in Transportation and Commercial Industries, **partially offset by COVID-19 related volume increases** in Government Services. **Approximately $35 million** and **$49 million** of the revenue decline for the three and six months, respectively, were **attributable to COVID-19**[121](index=121&type=chunk)[122](index=122&type=chunk) - **Cost of services and SG&A decreased** due to lost business, lower volumes, and cost reduction initiatives (real estate, IT, labor costs), including **$27 million** and **$31 million** in **temporary COVID-19 mitigation cost savings** for the three and six months, respectively. The **net COVID-19 impact on pre-tax income was a loss of $8 million** and **$18 million** for the three and six months, respectively[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - **Depreciation and amortization increased** due to **capitalized software amortization**. **Interest expense decreased** due to a **lower average debt balance**. There was **no goodwill impairment in 2020**, compared to **significant charges in 2019**[129](index=129&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - **Litigation costs increased significantly** in 2020, **primarily due to reserves for various matters and reimbursement costs with Xerox Corporation**, compared to the Texas litigation expense in 2019[136](index=136&type=chunk) [Income Taxes](index=30&type=section&id=Income%20Taxes) - The **CARES Act, signed in March 2020, provides tax relief**, including **deferral of employer payroll taxes** to 2021 and 2022, offering a **temporary operating cash flow benefit**[140](index=140&type=chunk) Effective Tax Rates | Period | Effective Tax Rate | Normalized Effective Tax Rate | | :------------------------------- | :----------------- | :---------------------------- | | Three Months Ended June 30, 2020 | 20.3% | 32.5% | | Three Months Ended June 30, 2019 | 8.0% | 30.2% | | Six Months Ended June 30, 2020 | 13.0% | 32.8% | | Six Months Ended June 30, 2019 | 8.2% | 32.6% | - The **effective tax rate** for Q2 2020 was **20.3%** (vs. **8.0%** in Q2 2019), **influenced by geographic income mix**. The six-month rate was **13.0%** (vs. **8.2%** in 2019), **impacted by geographic mix, valuation allowances, and tax credits**. **Normalized rates exclude specific non-recurring items**[141](index=141&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - The Company believes it is **reasonably possible that approximately $13 million** in **unrecognized tax benefits will reverse within 12 months** due to an **anticipated audit settlement**[145](index=145&type=chunk) [Operations Review of Segment Revenue and Profit](index=30&type=section&id=Operations%20Review%20of%20Segment%20Revenue%20and%20Profit) [Commercial Industries Segment](index=32&type=section&id=Commercial%20Industries%20Segment) - Commercial Industries **revenue decreased** for both three and six months ended June 30, 2020, primarily due to **lost business** in Customer Experience Management (CXM) and Human Resource Services (HRS), as well as **COVID-19 related volume declines** and **interest rate impacts** in BenefitWallet[155](index=155&type=chunk)[156](index=156&type=chunk) - COVID-19 **accounted for approximately $44 million** and **$51 million** of the revenue decline for the three and six months, respectively, driven by **reduced transaction processing, workers' compensation/healthcare claims, and BenefitWallet revenue**[155](index=155&type=chunk)[156](index=156&type=chunk) - **Segment profit and Adjusted EBITDA margin decreased** due to **overall revenue declines**, **adverse COVID-19 effects**, and **exit costs from prior year contract losses**, partially offset by **IT, real estate, and labor cost reductions**[157](index=157&type=chunk) [Government Services Segment](index=33&type=section&id=Government%20Services%20Segment) - Government Services **revenue increased** for the three months ended June 30, 2020, driven by **new business ramp-up** and **COVID-19 related volume increases**, particularly in **SNAP and unemployment insurance benefits**, partially offset by **contract losses**[159](index=159&type=chunk) - COVID-19 **contributed approximately $45 million** and **$46 million** to revenue increases for the three and six months, respectively, primarily from **increased SNAP and Pandemic SNAP volumes and unemployment insurance benefit distributions**[159](index=159&type=chunk)[160](index=160&type=chunk) - **Segment profit and Adjusted EBITDA margin increased** due to **higher revenue and reductions in IT and delivery spend**[161](index=161&type=chunk) [Transportation Segment](index=33&type=section&id=Transportation%20Segment) - Transportation **revenue decreased** for both three and six months ended June 30, 2020, due to **lost business and COVID-19 impacts**, partially offset by **new business ramp-up**[162](index=162&type=chunk) - COVID-19 **caused approximately $36 million** and **$44 million** of revenue declines for the three and six months, respectively, mainly from **reduced tolling and curbside management volumes and project delays in transit solutions**[162](index=162&type=chunk) - **Segment profit and Adjusted EBITDA margin increased** due to **reduced IT and labor costs from the cost reduction initiative**[163](index=163&type=chunk) [Other](index=33&type=section&id=Other) - Other **revenue was flat** for the three months ended June 30, 2020, but **decreased for the six months due to divestitures completed in Q1 2019**[164](index=164&type=chunk) - Other **segment profit increased** for the six months ended June 30, 2020, primarily due to a **$7 million adjustment to the California MMIS settlement liability**, partially offset by **ongoing costs from divested customer care contracts**[166](index=166&type=chunk) [Shared IT / Infrastructure & Corporate Costs](index=34&type=section&id=Shared%20IT%20%2F%20Infrastructure%20%26%20Corporate%20Costs) - **Shared IT/Infrastructure and Corporate costs decreased** for both three and six months ended June 30, 2020, driven by **cost reduction initiatives and lower facilities costs due to COVID-19 stay-at-home orders**, partially offset by **increased shared infrastructure IT costs and COVID-19 related expenses**[167](index=167&type=chunk) [Metrics](index=34&type=section&id=Metrics) [Signings](index=34&type=section&id=Signings) - **Total signings for the three and six months ended June 30, 2020, increased significantly**, driven by **new business and renewal Total Contract Value (TCV) signings**[169](index=169&type=chunk) Signings (in millions, excluding divestitures) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :----- | :------- | | New business TCV | $623 | $328 | $295 | 90% | | Renewals TCV | 912 | 485 | 427 | 88% | | **Total Signings** | **$1,535** | **$813** | **$722** | **89%** | | Annual recurring revenue signings | $105 | $84 | $21 | 25% | | Non-recurring revenue signings | $76 | $49 | $27 | 55% | Signings (in millions, excluding divestitures) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | New Business TCV | $947 | $553 | $394 | 71% | | Renewals TCV | 1,427 | 1,212 | 215 | 18% | | **Total Signings** | **$2,374** | **$1,765** | **$609** | **35%** | | Annual recurring revenue signings | $162 | $136 | $26 | 19% | | Non-recurring revenue signings | $120 | $81 | $39 | 48% | - The **total new business pipeline grew** from **$18.0 billion** at June 30, 2019, to **$22.0 billion** at June 30, 2020[178](index=178&type=chunk) [Critical Accounting Policies](index=35&type=section&id=Critical%20Accounting%20Policies) - The **COVID-19 pandemic has caused disruptions**, leading to **increased volumes** in some government subsidy programs (SNAP, Unemployment Insurance) but **declines in retail call volumes, banking, healthcare, automotive, transaction processing, and tolling businesses**[179](index=179&type=chunk) - Management uses **significant judgment in assessing the pandemic's impact on financial results**, and changes in these assumptions could **materially affect** reported amounts. The **ultimate effect remains highly uncertain**[180](index=180&type=chunk) [Capital Resources and Liquidity](index=36&type=section&id=Capital%20Resources%20and%20Liquidity) - As of June 30, 2020, **cash and cash equivalents were $428 million** (down from **$496 million** at Dec 31, 2019). The Company has a **$750 million revolving credit facility**, with **$150 million drawn in March 2020 as a COVID-19 precautionary measure**, **leaving $592 million available**[182](index=182&type=chunk) - **Total long-term debt was $1.6 billion**, with **$68 million** due within one year. The Company believes its cash, projected cash flow, balance sheet, and revolving credit facility provide **sufficient resources for the next twelve months**[184](index=184&type=chunk)[185](index=185&type=chunk) - The Company **completed a $118 million payment** in January 2020 as part of a **$236 million settlement with the State of Texas**, **resolving the Medicaid fraud lawsuit**[183](index=183&type=chunk) [Cash Flow Analysis](index=36&type=section&id=Cash%20Flow%20Analysis) Cash Flow Summary (Six Months Ended June 30, in millions) | Cash Flow Activity | 2020 | 2019 | Better (Worse) | | :-------------------------------------------------------------------- | :--- | :--- | :------------- | | Net cash provided by (used in) operating activities | $(118) | $(234) | $116 | | Net cash provided by (used in) investing activities | $(58) | $(209) | $151 | | Net cash provided by (used in) financing activities | $114 | $(39) | $153 | - **Operating cash flow improved by $116 million**, driven by **timing of accounts payable**, **deferral of payroll taxes under the CARES Act**, **lower net cash income tax payments**, and **other working capital changes**[187](index=187&type=chunk) - **Investing cash flow improved by $151 million** due to **decreased capital expenditures**, **absence of the HSP acquisition**, and **lower divestiture payments**. **Financing cash flow increased by $153 million**, primarily from the **$150 million draw on the revolving credit facility**[188](index=188&type=chunk)[189](index=189&type=chunk) [Market Risk Management](index=37&type=section&id=Market%20Risk%20Management) - Conduent is **exposed to foreign currency exchange rate fluctuations** and **manages this risk through operating and financing activities**, including **derivative financial instruments like forward contracts**, to **hedge economic exposures and reduce earnings/cash flow volatility**[191](index=191&type=chunk) - Recent market and economic events, including COVID-19, have **not materially altered the Company's financial risk management strategies**[192](index=192&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Incorporates market risk management information from Item 2, noting no material changes since the 2019 Annual Report on Form 10-K - The disclosures about market risk are **incorporated by reference** from the "Market Risk Management" section in Item 2 of this Form 10-Q[193](index=193&type=chunk) - There have been **no material changes to the quantitative and qualitative disclosures regarding market risk** as set forth in the 2019 Annual Report on Form 10-K[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Evaluation of disclosure controls and procedures, confirming effectiveness and no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The Company's management, including the principal executive and financial officers, **evaluated the effectiveness of disclosure controls and procedures** as of June 30, 2020, and **concluded they were effective**[195](index=195&type=chunk) [Changes in Internal Control Over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - There were **no changes in internal control over financial reporting** during the quarter ended June 30, 2020, that **materially affected, or are reasonably likely to materially affect**, the Company's **internal control over financial reporting**[196](index=196&type=chunk) Part II — Other Information [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 11 of the Condensed Consolidated Financial Statements for legal proceedings and contingencies - Information regarding legal proceedings is **incorporated by reference** from Note 11 – Contingencies and Litigation in the Condensed Consolidated Financial Statements[197](index=197&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) Details new risks from the COVID-19 pandemic, impacting business, operations, service delivery, and financial stability [Supplemental Risk Factor](index=38&type=section&id=Supplemental%20Risk%20Factor) - The COVID-19 pandemic has **negatively impacted and will continue to impact** Conduent's business, operations, service delivery, and customer demand[199](index=199&type=chunk)[201](index=201&type=chunk)[203](index=203&type=chunk) - Key risks include **added burdens and costs** from **shifting to work-from-home** (e.g., cybersecurity, data security, logistical issues), **adverse impacts on revenues and sales** due to **decreased transaction volumes and customer uncertainty**, and **diversion of management time from strategic initiatives**[201](index=201&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) - Additional risks include **potential government contract reductions or terminations**, **challenges in meeting customer contractual requirements**, **impacts on customer payment cycles**, **reliance on third parties**, **potential goodwill or asset impairment**, **increased debt levels**, and **stock price volatility**[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Confirms no unregistered sales or issuer purchases of equity securities during the quarter [Sales of Unregistered Securities during the Quarter ended June 30, 2020](index=40&type=section&id=Sales%20of%20Unregistered%20Securities%20during%20the%20Quarter%20ended%20June%2030,%202020) - The Company **did not issue any securities** in transactions that were **not registered under the Securities Act of 1933** during the quarter ended June 30, 2020[214](index=214&type=chunk) [Issuer Purchases of Equity Securities during the Quarter ended June 30, 2020](index=40&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities%20during%20the%20Quarter%20ended%20June%2030,%202020) - The Company **did not make any issuer purchases of equity securities** during the quarter ended June 30, 2020[215](index=215&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL - The exhibits include the **Restated Certificate of Incorporation**, **Amended and Restated By-Laws**, **CEO and CFO certifications** (pursuant to Rule 13a-14(a) or Rule 15d-14(a) and 18 U.S.C. Section 1350), and various **Inline XBRL taxonomy documents**[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk) [Signatures](index=42&type=section&id=Signatures) Contains the required signatures for the Form 10-Q, submitted by the Chief Financial Officer - The report was **duly signed on behalf of Conduent Incorporated by Brian J. Webb-Walsh, Chief Financial Officer**, on **August 6, 2020**[223](index=223&type=chunk)

August 6, 2020 Conduent Q2 2020 Earnings Results Cautionary Statements Forward-Looking Statements This document contains "forward-looking statements", as defined in the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. The words "anticipate," "believe," "estimate," "expect," "plan," "intend," "will," "aim," "should," "could", "may," "continue to," "if," "growing," "projected," "potential," "likely," and similar expressions, as they relate to us, are intended to identify ...

Conduent, Inc. (NASDAQ:CNDT) Q1 2020 Earnings Conference Call May 7, 2020 6:30 PM ET Company Participants Alan Katz – Vice President-Investor Relations Cliff Skelton – Chief Executive Officer Brian Walsh – Chief Financial Officer Conference Call Participants Puneet Jain – JPMorgan Bryan Bergin – Cowen Kyle Peterson – Needham Shannon Cross – Cross Research Ashwin Shirvaikar – Citi Operator Hello, and welcome to the Conduent First Quarter 2020 Earnings Conference Call and Webcast. All participants will be in ...

[PART I — FINANCIAL INFORMATION](index=4&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2020 [ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)](index=4&type=section&id=Item%201%20%E2%80%94%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Conduent Incorporated for the three months ended March 31, 2020, including statements of income (loss), comprehensive income (loss), balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining the basis of presentation, accounting policies, revenue disaggregation, segment reporting, debt, contingencies, and other financial information [Condensed Consolidated Statements of Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)) The company reported a significant reduction in net loss for the three months ended March 31, 2020, compared to the prior year, primarily due to the absence of goodwill impairment charges and lower operating costs, despite a decrease in revenue Condensed Consolidated Statements of Income (Loss) (in millions, except per share data) | (in millions, except per share data) | March 31, 2020 | March 31, 2019 | | :----------------------------------- | :------------- | :------------- | | Revenue | $1,051 | $1,158 | | Total Operating Costs and Expenses | $1,102 | $1,496 | | Income (Loss) Before Income Taxes | $(51) | $(338) | | Income tax expense (benefit) | $(2) | $(30) | | Net Income (Loss) | $(49) | $(308) | | Basic Net Income (Loss) per Share | $(0.24) | $(1.49) | | Diluted Net Income (Loss) per Share | $(0.24) | $(1.49) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company's comprehensive loss decreased significantly year-over-year, driven by the improved net income (loss) and a shift from other comprehensive income to loss, primarily due to currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) | (in millions) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income (Loss) | $(49) | $(308) | | Other Comprehensive Income (Loss), Net | $(30) | $22 | | Comprehensive Income (Loss), Net | $(79) | $(286) | - Currency translation adjustments contributed a loss of **$28 million** in Q1 2020, compared to a gain of $7 million in Q1 2019[11](index=11&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2020, the company's total assets and liabilities slightly decreased compared to December 31, 2019, with a notable decrease in cash and cash equivalents and an increase in long-term debt Condensed Consolidated Balance Sheets (in millions) | Asset/Liability Category | March 31, 2020 | December 31, 2019 | | :------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $395 | $496 | | Total current assets | $1,572 | $1,586 | | Goodwill | $1,486 | $1,502 | | Total Assets | $4,394 | $4,514 | | Total current liabilities | $1,023 | $1,177 | | Long-term debt | $1,596 | $1,464 | | Total Liabilities | $3,032 | $3,072 | | Total Equity | $1,220 | $1,300 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2020, the company experienced increased cash usage in operating activities, significantly reduced cash usage in investing activities, and a substantial increase in cash from financing activities, primarily due to drawing on its revolving credit facility Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(192) | $(49) | | Net cash provided by (used in) investing activities | $(23) | $(168) | | Net cash provided by (used in) financing activities | $130 | $(22) | | Increase (decrease) in cash, cash equivalents and restricted cash | $(92) | $(237) | | Cash, Cash Equivalents and Restricted Cash at End of period | $413 | $528 | - The company drew **$150 million** from its revolving credit facility in Q1 2020, contributing to the positive financing cash flow[18](index=18&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity decreased from $1,300 million at December 31, 2019, to $1,220 million at March 31, 2020, primarily due to the net loss and other comprehensive losses during the period Condensed Consolidated Statements of Shareholders' Equity (in millions) | Item | Balance at Dec 31, 2019 | Net Income (Loss) | Other comprehensive income (loss), net | Balance at Mar 31, 2020 | | :------------------------------------- | :---------------------- | :---------------- | :------------------------------------- | :---------------------- | | Common Stock | $2 | — | — | $2 | | Additional Paid-in Capital | $3,890 | — | — | $3,891 | | Retained Earnings (Deficit) | $(2,185) | $(49) | — | $(2,236) | | Accumulated Other Comprehensive Loss (AOCL) | $(407) | — | $(30) | $(437) | | Total Shareholders' Equity | $1,300 | $(49) | $(30) | $1,220 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context and detail for the condensed consolidated financial statements, covering accounting policies, revenue recognition, segment performance, debt, financial instruments, contingencies, and the impact of the COVID-19 pandemic on estimates and operations [Note 1 – Basis of Presentation](index=9&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) Conduent is a global provider of mission-critical services and solutions for businesses and governments. The unaudited interim financial statements are prepared in accordance with U.S. GAAP, and the COVID-19 pandemic has introduced increased judgment and variability into financial estimates - Conduent provides mission-critical services and solutions to a majority of Fortune 100 companies and over 500 government entities, leveraging transaction-intensive processing, analytics, and automation[25](index=25&type=chunk) - The COVID-19 pandemic has required increased judgment and introduced higher variability and volatility in the company's financial estimates and assumptions as of March 31, 2020[28](index=28&type=chunk) [Note 2 – Recent Accounting Pronouncements](index=10&type=section&id=Note%202%20%E2%80%93%20Recent%20Accounting%20Pronouncements) The company adopted new credit loss guidance (CECL) as of January 1, 2020, with no material impact. It is currently evaluating the impact of new guidance on income taxes (effective January 1, 2021) and reference rate reform (applicable through December 31, 2022) - The adoption of the new credit loss guidance (CECL) on January 1, 2020, did not have a material impact on the company's consolidated financial statements[31](index=31&type=chunk) - The company is evaluating the impact of new accounting guidance for income taxes (effective January 1, 2021) and reference rate reform (applicable through December 31, 2022)[32](index=32&type=chunk)[33](index=33&type=chunk) [Note 3 – Revenue](index=11&type=section&id=Note%203%20%E2%80%93%20Revenue) The company changed its disaggregated revenue presentation in Q1 2020, showing total consolidated revenue of $1,051 million for the three months ended March 31, 2020, a decrease from $1,158 million in the prior year. The majority of revenue is recognized over time Disaggregated Revenue by Major Service Offering (in millions) | Service Offering | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Commercial Industries | $572 | $612 | | Government Services | $290 | $325 | | Transportation | $189 | $184 | | Other (Divestitures, Education) | $0 | $37 | | **Total Consolidated Revenue** | **$1,051** | **$1,158** | | Timing of Revenue Recognition: | | | | Point in time | $30 | $39 | | Over time | $1,021 | $1,119 | - Estimated future revenue from remaining performance obligations at March 31, 2020, was approximately **$1.8 billion**, with **66%** expected to be recognized over the next two years[41](index=41&type=chunk) [Note 4 – Segment Reporting](index=12&type=section&id=Note%204%20%E2%80%93%20Segment%20Reporting) The company operates through three reportable segments: Commercial Industries, Government Services, and Transportation, along with 'Other' operations and 'Shared IT / Infrastructure & Corporate Costs'. Segment financial performance is based on Segment Profit / (Loss) and Segment Adjusted EBITDA - The company realigned its sales organization and certain shared IT and allocated functions in Q1 2020, revising prior periods for consistency[42](index=42&type=chunk) Segment Financial Performance (in millions) | Segment | 2020 Revenue | 2019 Revenue | 2020 Segment Profit (Loss) | 2019 Segment Profit (Loss) | 2020 Adjusted EBITDA | 2019 Adjusted EBITDA | | :------------------------------- | :----------- | :----------- | :------------------------- | :------------------------- | :------------------- | :------------------- | | Commercial Industries | $572 | $612 | $90 | $117 | $115 | $139 | | Government Services | $290 | $325 | $93 | $80 | $99 | $89 | | Transportation | $189 | $184 | $23 | $19 | $32 | $28 | | Other | $0 | $37 | $4 | $1 | $(3) | $1 | | Shared IT / Infrastructure & Corporate Costs | $0 | $0 | $(165) | $(148) | $(147) | $(134) | | **Total** | **$1,051** | **$1,158** | **$45** | **$69** | **$96** | **$123** | [Note 5 – Restructuring Programs and Related Costs](index=14&type=section&id=Note%205%20%E2%80%93%20Restructuring%20Programs%20and%20Related%20Costs) The company continues restructuring programs to optimize its employee base, reduce real estate, and consolidate data centers, incurring $7 million in restructuring and related costs for Q1 2020, down from $16 million in Q1 2019 - Restructuring programs aim to reduce cost structure and improve productivity through employee downsizing, real estate footprint reduction, and data center consolidation[53](index=53&type=chunk) Restructuring Program Activity (in millions) | Category | Accrued Balance at Dec 31, 2019 | Provision | Changes in estimates | Total Net Current Period Charges | Charges against reserve and currency | Accrued Balance at Mar 31, 2020 | | :----------------------------- | :------------------------------ | :-------- | :------------------- | :------------------------------- | :----------------------------------- | :------------------------------ | | Severance Related Costs | $15 | — | — | — | $(8) | $7 | | Termination and Other Costs | $6 | $3 | $1 | $4 | $(5) | $5 | | Asset Impairments | — | $1 | — | $1 | $(1) | — | | **Total** | **$21** | **$4** | **$1** | **$5** | **$(14)** | **$12** | Total Net Restructuring Charges by Segment (in millions) | Segment | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Commercial Industries | $2 | $2 | | Shared IT / Infrastructure & Corporate Costs | $3 | $14 | | **Total Net Restructuring Charges** | **$5** | **$16** | [Note 6 – Debt](index=15&type=section&id=Note%206%20%E2%80%93%20Debt) As of March 31, 2020, the company's total long-term debt was $1,596 million, with $60 million due within one year. It had drawn $150 million from its $750 million revolving credit facility and was in compliance with all debt covenants Long-term Debt (in millions) | Debt Type | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | Term loan A due 2022 | $652 | $664 | | Term loan B due 2023 | $822 | $824 | | Revolving credit facility due 2022 | $150 | — | | Senior notes due 2024 | — | $34 | | Finance lease obligations | — | $17 | | Principal debt balance | $1,678 | $1,539 | | Less: current maturities | $(60) | $(50) | | **Total Long-term Debt** | **$1,596** | **$1,464** | - As of March 31, 2020, the company had **$518 million** available to be drawn from its **$750 million** Senior Revolving Credit Facility, after utilizing $150 million and $82 million for letters of credit[59](index=59&type=chunk) - The company was in compliance with all debt covenants as of March 31, 2020, and December 31, 2019[60](index=60&type=chunk) [Note 7 – Financial Instruments](index=15&type=section&id=Note%207%20%E2%80%93%20Financial%20Instruments) The company uses derivative instruments, primarily forward contracts, to hedge foreign currency exchange rate fluctuations, with gross notional values of $176 million at March 31, 2020, mostly maturing within three months - The company is exposed to market risk from changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to hedge economic exposures and reduce volatility[61](index=61&type=chunk) - Outstanding forward exchange contracts had gross notional values of **$176 million** at March 31, 2020, with approximately **72%** maturing within three months[61](index=61&type=chunk) [Note 8 – Fair Value of Financial Assets and Liabilities](index=16&type=section&id=Note%208%20%E2%80%93%20Fair%20Value%20of%20Financial%20Assets%20and%20Liabilities) The company measures financial assets and liabilities at fair value using a hierarchy (Level 1, 2, 3). Foreign exchange forward contracts are measured at Level 2, while long-term debt and contingent consideration payable are also valued, with the latter using a Level 3 Monte Carlo simulation Financial Assets and Liabilities Accounted for at Fair Value (in millions) | Item | March 31, 2020 | December 31, 2019 | | :---------------------------------- | :------------- | :---------------- | | Assets: Foreign exchange contract - forward | $1 | $2 | | Liabilities: Foreign exchange contracts - forwards | $3 | — | Other Financial Assets and Liabilities (in millions) | Item | March 31, 2020 Carrying Amount | March 31, 2020 Fair Value | December 31, 2019 Carrying Amount | December 31, 2019 Fair Value | | :---------------------------------- | :----------------------------- | :------------------------ | :-------------------------------- | :--------------------------- | | Long-term debt | $1,596 | $1,373 | $1,464 | $1,449 | | Contingent consideration payable | $4 | $4 | $4 | $4 | - The fair value of long-term debt is estimated based on current rates for similar maturities (Level 2), while contingent consideration payable uses a Monte Carlo simulation model (Level 3)[70](index=70&type=chunk)[71](index=71&type=chunk) [Note 9 – Employee Benefit Plans](index=17&type=section&id=Note%209%20%E2%80%93%20Employee%20Benefit%20Plans) The company recognized $1 million in expense for its defined contribution plans in Q1 2020, a decrease from $3 million in Q1 2019, following the suspension of its 401(k) plan match for U.S. salaried employees in 2019 - The company suspended its 401(k) plan match for all U.S. salaried employees beginning in 2019[73](index=73&type=chunk) Defined Contribution Plan Expense (in millions) | Period | Expense | | :------------------------------------ | :------ | | Three months ended March 31, 2020 | $1 | | Three months ended March 31, 2019 | $3 | [Note 10 – Accumulated Other Comprehensive Loss (AOCL)](index=17&type=section&id=Note%2010%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Loss%20(AOCL)) The Accumulated Other Comprehensive Loss (AOCL) increased from $(407) million at December 31, 2019, to $(437) million at March 31, 2020, primarily due to negative currency translation adjustments Changes in Accumulated Other Comprehensive Loss (AOCL) (in millions) | Item | Balance at Dec 31, 2019 | Other comprehensive income (loss) before reclassifications | Net current period other comprehensive income (loss) | Balance at Mar 31, 2020 | | :------------------------------------- | :---------------------- | :--------------------------------------------------------- | :--------------------------------------------------- | :---------------------- | | Currency Translation Adjustments | $(408) | $(28) | $(28) | $(436) | | Gains on (Losses) Cash Flow Hedges | $3 | $(3) | $(3) | — | | Defined Pension Benefit Items | $(2) | $1 | $1 | $(1) | | **Total** | **$(407)** | **$(30)** | **$(30)** | **$(437)** | [Note 11 – Contingencies and Litigation](index=17&type=section&id=Note%2011%20%E2%80%93%20Contingencies%20and%20Litigation) The company is involved in various claims and lawsuits, including a settled Texas Medicaid fraud case (final payment made in January 2020), an ongoing dispute related to a customer care call center business sale, and a lawsuit against Cognizant Business Services. The company also has outstanding surety bonds and letters of credit totaling $801 million - The Texas Medicaid Fraud Prevention Act lawsuit was settled, with the final **$118 million** payment made in January 2020, resulting in dismissal with prejudice[81](index=81&type=chunk) - A lawsuit filed by Skyview Capital LLC and Continuum Global Solutions, LLC alleges breach of representation and warranty, breach of contract, and fraud related to the sale of a customer care call center business, with plaintiffs seeking to withhold payments on **$23 million** in notes[82](index=82&type=chunk) - Conduent Business Services LLC filed a lawsuit against Cognizant Business Services Corporation for breach of contract, seeking damages over **$150 million**, while Cognizant counterclaimed for approximately **$90 million**[85](index=85&type=chunk) - As of March 31, 2020, the company had **$591 million** in outstanding surety bonds and **$210 million** in outstanding letters of credit to secure contractual and corporate obligations[88](index=88&type=chunk) [Note 12 – Preferred Stock](index=20&type=section&id=Note%2012%20%E2%80%93%20Preferred%20Stock) The company has Series A convertible perpetual preferred stock with a $120 million liquidation preference, paying 8% quarterly cash dividends, and convertible into 44.9438 shares of common stock per preferred share - In December 2016, the company issued **120,000 shares** of Series A convertible perpetual preferred stock with an aggregate liquidation preference of **$120 million** and an initial fair value of **$142 million**[89](index=89&type=chunk) - The preferred stock pays quarterly cash dividends at an **8% annual rate** (**$9.6 million** per year) and is convertible into **44.9438 shares** of common stock per preferred share[89](index=89&type=chunk) [Note 13 – Earnings per Share](index=21&type=section&id=Note%2013%20%E2%80%93%20Earnings%20per%20Share) Basic and diluted net loss per share for common stock was $(0.24) for the three months ended March 31, 2020, a significant improvement from $(1.49) in the prior year, after accounting for preferred stock dividends Earnings per Share Computation (in millions, except per share data) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(49) | $(308) | | Cash dividend paid - preferred stock | $(2) | $(2) | | Adjusted Net Income (Loss) Available to Common Shareholders | $(51) | $(310) | | Weighted average common shares outstanding (thousands) | 211,093 | 207,944 | | Basic Net Income (Loss) per Share | $(0.24) | $(1.49) | | Diluted Net Income (Loss) per Share | $(0.24) | $(1.49) | [Note 14 – Supplementary Financial Information](index=22&type=section&id=Note%2014%20%E2%80%93%20Supplementary%20Financial%20Information) This note provides a detailed breakdown of the components within 'Other Current Assets,' 'Other Current Liabilities,' 'Other Long-term Assets,' and 'Other Long-term Liabilities' as of March 31, 2020, and December 31, 2019 Components of Other Assets and Liabilities (in millions) | Category | March 31, 2020 | December 31, 2019 | | :---------------------------- | :------------- | :---------------- | | **Other Current Assets** | | | | Prepaid expenses | $86 | $70 | | Income taxes receivable | $43 | $38 | | Restricted cash | $18 | $9 | | Total Other Current Assets | $318 | $283 | | **Other Current Liabilities** | | | | Accrued liabilities | $285 | $309 | | Litigation related accruals | $67 | $178 | | Restructure reserves | $7 | $15 | | Total Other Current Liabilities | $535 | $647 | | **Other Long-term Assets** | | | | Internal use software, net | $147 | $150 | | Deferred contract costs, net | $76 | $84 | | Total Other Long-term Assets | $384 | $387 | | **Other Long-term Liabilities** | | | | Income tax liabilities | $20 | $20 | | Unearned income | $19 | $21 | | Total Other Long-term Liabilities | $81 | $91 | [Note 15 – Related Party Transactions](index=23&type=section&id=Note%2015%20%E2%80%93%20Related%20Party%20Transactions) The company engages in transactions with related parties sharing common shareholders, reporting $6 million in revenue from and $6 million in purchases from these entities for Q1 2020, with immaterial receivable and payable balances Related Party Transactions (in millions) | Transaction Type | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Revenue from related parties | $6 | $9 | | Purchases from related parties | $6 | $12 | - Receivable and payable balances with related party entities were not material as of March 31, 2020, and December 31, 2019[97](index=97&type=chunk) [Note 16 – Goodwill](index=23&type=section&id=Note%2016%20%E2%80%93%20Goodwill) Goodwill decreased slightly to $1,486 million at March 31, 2020, primarily due to foreign currency translation. The company concluded no goodwill impairment test was necessary for Q1 2020 but acknowledges potential future impacts from the COVID-19 pandemic Changes in Carrying Amount of Goodwill by Segment (in millions) | Segment | Balance at Dec 31, 2019 | Foreign currency translation | Balance at Mar 31, 2020 | | :---------------------- | :---------------------- | :--------------------------- | :---------------------- | | Commercial Industries | $821 | $(9) | $812 | | Government Services | $621 | $(6) | $615 | | Transportation | $60 | $(1) | $59 | | **Total** | **$1,502** | **$(16)** | **$1,486** | - No interim goodwill impairment test was deemed necessary for any reporting units as of March 31, 2020[98](index=98&type=chunk) - The ongoing COVID-19 pandemic could potentially lead to future goodwill impairment charges if reporting unit fair values fall below carrying values[99](index=99&type=chunk) [ITEM 2 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=24&type=section&id=Item%202%20%E2%80%94%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2020, including an overview of the business, the impact of the COVID-19 pandemic, detailed financial and segment performance reviews, key business metrics, critical accounting policies, and analysis of capital resources and cash flows [Overview](index=24&type=section&id=Overview) Conduent is a global leader in business process services, providing mission-critical solutions to businesses and governments. Its strategy focuses on portfolio focus, operational discipline, sales excellence, and innovation, supported by a workforce of approximately 65,000 people across 25 countries - Conduent is one of the largest business process services companies globally, delivering mission-critical services and solutions to businesses and governments[103](index=103&type=chunk) - The company's strategy emphasizes portfolio focus, operational discipline, sales and delivery excellence, and innovation, complemented by aligned investments[104](index=104&type=chunk) - As of March 31, 2020, Conduent had approximately **65,000 employees** servicing customers from service centers in **25 countries**[105](index=105&type=chunk) [COVID-19 Outbreak](index=24&type=section&id=COVID-19%20Outbreak) In response to the COVID-19 pandemic, Conduent implemented a proactive plan including employee support, transitioning the majority of its workforce to work-from-home, increasing on-site sanitation, and drawing on its revolving credit facility as a precautionary measure, which has also delayed strategic initiatives - The company established a proactive plan to address COVID-19, including extending short-term disability, providing extra sick leave, and introducing a hardship leave policy for associates[106](index=106&type=chunk) - A majority of the workforce was shifted to work-from-home, requiring coordinated effort and stringent safety/security precautions[107](index=107&type=chunk) - The company drew on its revolving credit facility as a precautionary measure and experienced diversion of management time and delayed investments from strategic initiatives due to the COVID-19 response[109](index=109&type=chunk) [Financial Review of Operations](index=25&type=section&id=Financial%20Review%20of%20Operations) For Q1 2020, revenue decreased by 9% year-over-year to $1,051 million, primarily due to divestitures, contract losses, and COVID-19 impacts. However, net loss significantly improved from $(308) million to $(49) million, largely due to the absence of a goodwill impairment charge and reductions in operating costs Financial Review of Operations (in millions) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change ($) | Change (%) | | :---------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenue | $1,051 | $1,158 | $(107) | (9)% | | Cost of services (excluding depreciation and amortization) | $832 | $906 | $(74) | (8)% | | Selling, general and administrative (excluding depreciation and amortization) | $116 | $127 | $(11) | (9)% | | Research and development (excluding depreciation and amortization) | $1 | $3 | $(2) | (67)% | | Depreciation and amortization | $117 | $115 | $2 | 2% | | Restructuring and related costs | $7 | $16 | $(9) | (56)% | | Interest expense | $17 | $20 | $(3) | (15)% | | Goodwill impairment | — | $284 | $(284) | (100)% | | (Gain) loss on divestitures and transaction costs | $4 | $14 | $(10) | (71)% | | Litigation costs (recoveries), net | $6 | $12 | $(6) | (50)% | | Other (income) expenses, net | $2 | $(1) | $3 | | | Total Operating Costs and Expenses | $1,102 | $1,496 | $(394) | | | Income (Loss) Before Income Taxes | $(51) | $(338) | $287 | | | Income tax expense (benefit) | $(2) | $(30) | $28 | | | Net Income (Loss) | $(49) | $(308) | $259 | | - Approximately **$14 million** of the Q1 2020 revenue decline was directly attributable to the COVID-19 impact, primarily from lower volume demand in Transportation and Commercial Industries[114](index=114&type=chunk) - The effective tax rate for Q1 2020 was **3.9%**, lower than the U.S. statutory rate, primarily due to geographic mix of income, valuation allowances, and tax credits[128](index=128&type=chunk) [Operations Review of Segment Revenue and Profit](index=27&type=section&id=Operations%20Review%20of%20Segment%20Revenue%20and%20Profit) Segment performance varied, with Commercial Industries revenue and profit declining due to contract losses and COVID-19. Government Services saw revenue decrease but profit increase from cost reductions. Transportation revenue and profit increased due to new business and reduced IT spend, despite COVID-19 impacts. Shared IT/Infrastructure & Corporate Costs increased due to IT and COVID-19 related expenses Segment Financial Performance (in millions) | Segment | 2020 Revenue | 2019 Revenue | 2020 Segment Profit (Loss) | 2019 Segment Profit (Loss) | 2020 Adjusted EBITDA | 2019 Adjusted EBITDA | | :------------------------------- | :----------- | :----------- | :------------------------- | :------------------------- | :------------------- | :------------------- | | Commercial Industries | $572 | $612 | $90 | $117 | $115 | $139 | | Government Services | $290 | $325 | $93 | $80 | $99 | $89 | | Transportation | $189 | $184 | $23 | $19 | $32 | $28 | | Other | $0 | $37 | $4 | $1 | $(3) | $1 | | Shared IT / Infrastructure & Corporate Costs | $0 | $0 | $(165) | $(148) | $(147) | $(134) | | **Total** | **$1,051** | **$1,158** | **$45** | **$69** | **$96** | **$123** | - Commercial Industries revenue decreased due to contract losses and COVID-19, particularly in Customer Experience Management and Human Resource Services (BenefitWallet interest rates)[138](index=138&type=chunk) - Government Services segment profit and Adjusted EBITDA margin increased due to reductions in IT and delivery spend, despite revenue declines from contract losses and volume pressure[142](index=142&type=chunk) - Transportation revenue and profit increased, driven by new business and reduced IT platform spend, partially offset by COVID-19 related volume pressure and project delays[143](index=143&type=chunk)[144](index=144&type=chunk) [Metrics](index=29&type=section&id=Metrics) The company redefined its new business classification, reporting a 127% increase in New Logo/New Capability TCV to $282 million in Q1 2020. However, Add-on Expansion TCV decreased by 58% and Renewals TCV decreased by 29%, leading to an overall 12% decrease in Total Signings to $839 million. The renewal rate, excluding strategic non-renewals, was 93% - New Logo/New Capability sales increased by **127%** to **$282 million** in Q1 2020, driven by large wins in Commercial Industries, Government Services, and Transportation segments[148](index=148&type=chunk) Signings (Total Contract Value - TCV) (in millions) | Category | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change ($) | Change (%) | | :---------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | New logo & New capability TCV | $282 | $124 | $158 | 127% | | Add-on expansion TCV | $42 | $101 | $(59) | (58)% | | Renewals TCV | $515 | $727 | $(212) | (29)% | | **Total Signings** | **$839** | **$952** | **$(113)** | **(12)%** | - The renewal rate for Q1 2020 was **93%**, up from 92% in Q1 2019, excluding strategic decisions not to renew certain contracts and divestiture impacts[155](index=155&type=chunk) [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) The COVID-19 pandemic has significantly impacted the company's business, operations, and customer demand, requiring substantial management judgment in financial reporting. While some government subsidy programs saw increases, these were offset by declines in retail call volumes, banking transaction processing, and other areas, leading to high uncertainty regarding future financial impacts - The COVID-19 pandemic has caused disruptions to the company's business, costs, operations, supply chain, and customer demand, requiring significant management judgment in determining financial impacts[156](index=156&type=chunk)[157](index=157&type=chunk) - Benefits from increased government subsidy programs were offset by declines in retail call volumes, banking client transaction processing, interest rate exposure in BenefitWallet, and reduced child support/Medicaid volumes[156](index=156&type=chunk) [Capital Resources and Liquidity](index=31&type=section&id=Capital%20Resources%20and%20Liquidity) As of March 31, 2020, the company had $395 million in cash and cash equivalents and $518 million available from its revolving credit facility. Total long-term debt was $1.7 billion, with $60 million due within one year. Management believes current resources are sufficient to meet obligations for at least the next twelve months Capital Resources (in millions) | Item | March 31, 2020 | December 31, 2019 | | :---------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $395 | $496 | | Revolving Credit Facility (drawn) | $150 | — | | Net Revolver available to be drawn | $518 | | | Total long-term debt outstanding | $1,700 | | | Current portion of long-term debt | $60 | | - The company drew **$150 million** from its **$750 million** revolving credit facility in March 2020 as a precautionary measure due to COVID-19[159](index=159&type=chunk) - Management believes that cash on hand, projected cash flow from operations, a sound balance sheet, and the revolving line of credit will provide sufficient financial resources for at least the next twelve months[162](index=162&type=chunk) [Cash Flow Analysis](index=31&type=section&id=Cash%20Flow%20Analysis) Net cash used in operating activities increased by $143 million year-over-year to $(192) million, primarily due to the final Texas litigation payment and lower adjusted EBITDA. Investing activities used less cash, while financing activities provided $130 million, mainly from the revolving credit facility draw-down Cash Flow Summary (in millions) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Better (Worse) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | :------------- | | Net cash provided by (used in) operating activities | $(192) | $(49) | $(143) | | Net cash provided by (used in) investing activities | $(23) | $(168) | $145 | | Net cash provided by (used in) financing activities | $130 | $(22) | $152 | - The increase in cash used in operating activities was primarily due to the **$118 million** final payment for the Texas litigation, lower adjusted EBITDA, and other working capital decreases[165](index=165&type=chunk) - The decrease in cash used in investing activities was mainly due to reduced capital expenditures and the absence of acquisition/divestiture payments[166](index=166&type=chunk) - Cash from financing activities increased primarily due to the **$150 million** draw-down from the revolving credit facility[167](index=167&type=chunk) [Market Risk Management](index=32&type=section&id=Market%20Risk%20Management) The company is exposed to market risk from foreign currency exchange rate fluctuations and manages this through operating and financing activities, and derivative financial instruments like forward contracts, without material changes to its risk management strategies - The company is exposed to market risk from changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to hedge economic exposures and reduce volatility[169](index=169&type=chunk) - Recent market and economic events have not caused the company to materially modify its financial risk management strategies for foreign currency risk[170](index=170&type=chunk) [ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=32&type=section&id=Item%203%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates by reference the market risk management discussion from Item 2, detailing the company's exposure to foreign currency exchange rates and its strategies for managing these risks through derivative financial instruments - The information regarding quantitative and qualitative disclosures about market risk is incorporated by reference from the 'Market Risk Management' section in Item 2 of this Form 10-Q[171](index=171&type=chunk) [ITEM 4 — CONTROLS AND PROCEDURES](index=32&type=section&id=Item%204%20%E2%80%94%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2020, concluding they were effective. No material changes in internal control over financial reporting occurred during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020[172](index=172&type=chunk) - No material change in internal control over financial reporting occurred during the quarter ended March 31, 2020[173](index=173&type=chunk) [PART II — OTHER INFORMATION](index=32&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) This section covers legal proceedings, risk factors, equity security sales, and exhibits, providing additional context to the financial information [ITEM 1 — LEGAL PROCEEDINGS](index=32&type=section&id=Item%201%20%E2%80%94%20Legal%20Proceedings) This section incorporates by reference Note 11 – Contingencies and Litigation from the financial statements, which details various claims, lawsuits, and other legal matters the company is involved in - Information regarding legal proceedings is incorporated by reference from Note 11 – Contingencies and Litigation in the Condensed Consolidated Financial Statements[174](index=174&type=chunk) [ITEM 1A — RISK FACTORS](index=33&type=section&id=Item%201A%20%E2%80%94%20Risk%20Factors) This section supplements previously reported risk factors with a new, significant risk related to the ongoing COVID-19 pandemic. It highlights disruptions to business operations, challenges with work-from-home solutions, adverse impacts on customer demand, diversion of management attention, potential government contract reductions, and increased financial risks including goodwill impairment and debt implications - The company's business has been and will continue to be negatively impacted by the ongoing COVID-19 pandemic, supplementing previously disclosed risk factors[177](index=177&type=chunk) - COVID-19 has caused disruptions including challenges with work-from-home transitions (e.g., security, compliance, delays), adverse impacts on customer demand and sales pipeline, and diversion of management resources from strategic initiatives[179](index=179&type=chunk)[180](index=180&type=chunk)[182](index=182&type=chunk) - Additional risks include potential government contract reductions or terminations, adverse impacts on customer payment cycles, reliance on third parties, risk of goodwill or other asset impairment, increased debt levels, and volatility in common share trading prices[183](index=183&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) [ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=35&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter ended March 31, 2020, the company did not engage in any unregistered sales of equity securities or issuer purchases of equity securities - The company did not issue any securities in transactions that were not registered under the Securities Act of 1933 during the quarter ended March 31, 2020[192](index=192&type=chunk) - There were no issuer purchases of equity securities during the quarter ended March 31, 2020[193](index=193&type=chunk) [ITEM 6 — EXHIBITS](index=36&type=section&id=Item%206%20%E2%80%94%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, various restricted stock unit and performance restricted stock unit award agreements, CEO and CFO certifications, and Inline XBRL documents - Exhibits include the Restated Certificate of Incorporation, Amended and Restated By-Laws, forms of Restricted Stock Unit Award Agreement and Performance Restricted Stock Unit Award Agreement for 2020[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - Certifications from the CEO and CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) and 18 U.S.C. Section 1350 are included[200](index=200&type=chunk) - Inline XBRL documents (Instance, Calculation, Definition, Label, Presentation, Schema Linkbases) and the Cover Page Interactive Data File are also listed as exhibits[201](index=201&type=chunk) [SIGNATURES](index=37&type=section&id=Signatures) The report is duly signed on behalf of Conduent Incorporated by Mario A. Pompeo, Vice President and Chief Accounting Officer (Principal Accounting Officer), on May 7, 2020 - The report was signed by Mario A. Pompeo, Vice President and Chief Accounting Officer (Principal Accounting Officer) of Conduent Incorporated[204](index=204&type=chunk) - The signing date for the report was May 7, 2020[204](index=204&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________ FORM 10-K _________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: _______ to: _______ Commission File Number 001 ...

February 20, 2020 Conduent Q4 2019 Earnings Results Cautionary Statements Forward-Looking Statements This document contains "forward-looking statements", as defined in the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and projections about the business process outsourcing industry and our ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-Q _______________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37817 CONDUENT INCORPORATED (Exact Name of Registrant as specified in it ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-Q _______________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37817 CONDUENT INCORPORATED (Exact Name of Registrant as specified in its cha ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-Q _______________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2019 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37817 CONDUENT INCORPORATED (Exact Name of Registrant as specified in its ch ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________ FORM 10-K _________________________________________________ (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2018 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: ______ to: _______ Commission File Number 001- ...