Conduent(US:CNDT)2025-05-07 12:02Part I — Financial Information Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, show a net loss of $51 million, a significant decrease from the $99 million net income in the prior-year period, primarily due to lower revenue and the absence of a large gain on divestitures seen in 2024. Total assets decreased slightly to $2.53 billion from $2.60 billion at year-end 2024. The company experienced a net cash outflow from operations of $58 million Condensed Consolidated Statements of Income (Loss) For the first quarter of 2025, Conduent reported a net loss of $51 million, or ($0.33) per diluted share, compared to a net income of $99 million, or $0.46 per diluted share, for the same period in 2024. The decline was driven by a revenue decrease to $751 million from $921 million and a $3 million loss on divestitures compared to a $161 million gain in the prior year Q1 2025 vs Q1 2024 Income Statement Highlights | Metric (in millions, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $751 | $921 | | Income (Loss) Before Income Taxes | $(56) | $127 | | Net Income (Loss) | $(51) | $99 | | Diluted Net Income (Loss) per Share | $(0.33) | $0.46 | Condensed Consolidated Balance Sheets As of March 31, 2025, Conduent's total assets were $2.53 billion, a slight decrease from $2.60 billion at December 31, 2024. Total liabilities also decreased to $1.59 billion from $1.61 billion. Consequently, total equity declined to $804 million from $843 million over the same period Balance Sheet Summary | Metric (in millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $277 | $366 | | Total Assets | $2,532 | $2,599 | | Total Liabilities | $1,586 | $1,614 | | Total Equity | $804 | $843 | Condensed Consolidated Statements of Cash Flows In Q1 2025, net cash used in operating activities was $58 million, compared to $37 million in Q1 2024. Investing activities used $17 million, a sharp contrast to the $143 million provided in the prior year, which included proceeds from divestitures. Financing activities used $10 million, significantly less than the $199 million used in Q1 2024, which included debt repayments and treasury stock purchases. Overall cash and cash equivalents decreased by $84 million Q1 2025 vs Q1 2024 Cash Flow Summary | Cash Flow Activity (in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(58) | $(37) | | Net cash provided by (used in) investing activities | $(17) | $143 | | Net cash provided by (used in) financing activities | $(10) | $(199) | | Increase (decrease) in cash | $(84) | $(95) | Notes to the Condensed Consolidated Financial Statements The notes detail key accounting policies and events. Revenue disaggregation shows declines across all segments, with total revenue falling to $751 million from $921 million YoY, largely impacted by 2024 divestitures. The company incurred $4 million in restructuring costs and recorded a $3 million loss on divestitures. A subsequent event in April 2025 involved the acquisition of the remaining 20% interest in Conduent Victoria Ticketing System Pty Ltd. for $5 million - In Q1 2025, the company updated the presentation of disaggregated revenue by major service offering within the Commercial segment, with prior periods revised to reflect this change33 - Estimated revenue from remaining performance obligations as of March 31, 2025, was approximately $1.4 billion, with 74% expected to be recognized over the next two years41 - In April 2025, the Company acquired the remaining 20% interest in Conduent Victoria Ticketing System Pty Ltd for $5 million, making it a wholly-owned subsidiary90 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 18% YoY revenue decline to $751 million primarily to the impact of 2024 divestitures. Excluding divestitures, lost business and lower commercial volumes were key factors. A significant event was a January 2025 cyberattack, which resulted in $25 million of direct response costs, increasing SG&A expenses. The company continues its portfolio rationalization strategy and highlights progress in its Government segment with an AI-powered fraud prevention tool. Net ARR Activity, a key forward-looking metric, improved to $116 million for the trailing twelve months - The company continues to execute its three-year strategy focused on growth, portfolio rationalization, and balanced capital allocation, aiming to complete its commitment of deploying $1 billion of capital through further rationalization in 20259799 - A cyber event in January 2025 resulted in unauthorized access and data exfiltration. While operational impact was not material, the company incurred and accrued material non-recurring expenses for the response99100102 - Revenue for Q1 2025 decreased by $170 million (18%) YoY, with approximately 54% of the decline attributed to the impact of businesses divested in 2024104105 Operations Review of Segment Revenue and Profit In Q1 2025, all core segments saw revenue declines. Commercial revenue fell to $402 million due to lower volumes. Government revenue dropped to $216 million from lost business. Transportation revenue decreased to $133 million. Adjusted EBITDA margins were 10.0% for Commercial, 17.6% for Government, and 4.5% for Transportation. Unallocated costs increased, driven by $25 million in cyber event response costs, partially offset by a $9 million legal cost recovery Q1 2025 Segment Performance | Segment (in millions) | Revenue | Adjusted EBITDA | Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | | Commercial | $402 | $40 | 10.0% | | Government | $216 | $38 | 17.6% | | Transportation | $133 | $6 | 4.5% | | Divestitures | $0 | $0 | N/A | | Unallocated Costs | N/A | $(47) | N/A | | Total | $751 | $37 | 4.9% | - Commercial segment profit and Adjusted EBITDA decreased due to lower volumes and higher fixed overhead, despite cost efficiencies121 - Government segment profit and Adjusted EBITDA decreased due to lost business and service level dispute reserves, partially offset by cost savings from AI-driven fraud prevention123 - Unallocated costs increased primarily due to $25 million in direct response costs for the cyber event, partially offset by a $9 million insurance recovery for a prior legal matter127 Metrics The company's key performance metrics showed mixed results in Q1 2025. New business Annual Contract Value (ACV) signings increased 14% YoY to $109 million. However, total signings (TCV) decreased slightly by 3% to $523 million due to lower renewals. The total new business pipeline grew to $3.2 billion from $2.7 billion a year ago. The Net ARR Activity metric, a trailing twelve-month indicator of net revenue impact, showed significant positive momentum, rising to $116 million as of March 31, 2025 Q1 2025 Signings vs Q1 2024 | Signings ($ in millions) | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | New business ACV | $109 | $96 | 14% | | New business TCV | $280 | $143 | 96% | | Renewals TCV | $243 | $395 | (38)% | | Total Signings | $523 | $538 | (3)% | - The total new business pipeline increased to $3.2 billion at the end of Q1 2025, compared to $2.7 billion at the end of Q1 2024133 Net ARR Activity Trend (Trailing 12 Months) | Quarter End | Net ARR Activity (in millions) | | :--- | :--- | | March 31, 2025 | $116 | | December 31, 2024 | $92 | | September 30, 2024 | $46 | | June 30, 2024 | $(47) | | March 31, 2024 | $6 | Capital Resources and Liquidity As of March 31, 2025, Conduent had $277 million in cash and cash equivalents and $540 million available under its revolving credit facility. Total principal debt stood at $657 million. The company believes its current liquidity is sufficient to meet obligations for at least the next twelve months. The net cash used in operating activities increased to $58 million in Q1 2025 from $37 million in Q1 2024, primarily due to a one-time tax refund received in the prior year - As of March 31, 2025, the company had total cash and cash equivalents of $277 million and a net available revolving credit facility of $540 million136 - Total principal debt outstanding was $657 million as of March 31, 2025, with $26 million due within one year138 - The decrease in cash from financing activities was mainly due to a $164 million voluntary debt prepayment in Q1 2024 using divestiture proceeds, which did not recur in Q1 2025143 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk from foreign currency exchange rates, which it manages through operational activities and derivative financial instruments. There have been no material changes to the company's market risk disclosures or financial risk management strategies since the 2024 Annual Report - The company is exposed to foreign currency exchange rate fluctuations and uses derivative instruments, primarily forward contracts, to hedge these risks156 - There have been no material changes to the quantitative and qualitative disclosures regarding market risk from the Annual Report on Form 10-K for the year ended December 31, 2024158 Controls and Procedures Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025. There were no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period covered by the report159 - No changes occurred in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control160 Part II — Other Information Legal Proceedings This section incorporates by reference the information on contingencies and litigation from Note 12 of the financial statements. Key ongoing litigation includes the case of Skyview Capital LLC v. Conduent Business Services, LLC, related to a 2019 business sale, where appeals are ongoing - The report refers to Note 12 for details on legal proceedings, which discusses the ongoing litigation with Skyview Capital LLC and other contingencies16382 Risk Factors The report highlights the significant risk of cybersecurity threats to the company's data systems and network infrastructure. It explicitly references the January 13, 2025, cyber event where a threat actor gained unauthorized access and exfiltrated client-associated files. The company warns that such incidents could lead to liability, reputational damage, and service interruptions, and that preventative measures may not be sufficient against increasingly sophisticated attacks - The company emphasizes its susceptibility to hacking, malware, and other cyber-attacks, which could expose it to liability, impair its reputation, and disrupt service obligations165166 - The January 13, 2025, cyber event is cited as an example of these risks, where an operational disruption occurred and a threat actor exfiltrated a set of files associated with a limited number of clients169 - The company acknowledges that because attack techniques are constantly changing, its preventative measures may be insufficient, and it may be unable to anticipate or fully remediate such incidents in a timely manner167 Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2025, Conduent did not issue any unregistered securities. Additionally, there were no share repurchases made by the company or its affiliates during this period - The Company did not issue any securities in unregistered transactions during the quarter ended March 31, 2025171 - There were no share repurchases during the three months ended March 31, 2025172 Other Information The company disclosed that during the first quarter of 2025, none of its directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - During Q1 2025, no directors or officers adopted, terminated, or modified a Rule 10b5-1 trading plan or other non-Rule 10b5-1 trading arrangement175 Exhibits This section lists the exhibits filed with the Form 10-Q, including agreements, forms of award agreements under the 2021 Performance Incentive Plan, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include various award agreements, a letter agreement with Michael McDaniel, and CEO/CFO certifications177