Conduent(US:CNDT)2023-05-02 16:00Part I — Financial Information This section provides a comprehensive overview of the company's financial performance, condition, and cash flows, along with management's analysis, market risk disclosures, and internal controls Financial Statements Conduent reported a 5% revenue decline to $922 million and a net loss of $6 million in Q1 2023, with negative operating cash flow and a stable balance sheet Condensed Consolidated Statements of Income (Loss) This statement details the company's revenue, operating costs, and net income/loss for the specified periods Condensed Consolidated Statements of Income (Loss) | Financial Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue | $922 million | $967 million | | Total Operating Costs and Expenses | $930 million | $757 million | | Income (Loss) Before Income Taxes | $(8) million | $210 million | | Net Income (Loss) | $(6) million | $136 million | | Diluted EPS | $(0.04) | $0.61 | - The significant decrease in Net Income year-over-year is primarily due to a $163 million gain on divestitures recorded in Q1 2022, which was absent in Q1 202310 Condensed Consolidated Balance Sheets This statement presents the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets | Balance Sheet Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $526 million | $582 million | | Total current assets | $1,587 million | $1,625 million | | Total Assets | $3,571 million | $3,571 million | | Total current liabilities | $918 million | $923 million | | Long-term debt | $1,277 million | $1,277 million | | Total Liabilities | $2,512 million | $2,512 million | | Total Equity | $1,059 million | $1,059 million | Condensed Consolidated Statements of Cash Flows This statement outlines the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(12) million | $11 million | | Net cash provided by (used in) investing activities | $(22) million | $273 million | | Net cash provided by (used in) financing activities | $(19) million | $(110) million | | Increase (decrease) in cash | $(51) million | $173 million | - The significant year-over-year decrease in investing cash flow was due to $323 million in proceeds from divestitures received in Q1 2022. The decrease in operating cash flow was primarily due to the absence of a $38 million insurance recovery received in the prior year period49253254 Notes to the Condensed Consolidated Financial Statements Key notes detail a $7 million revenue adjustment, segment performance declines, a $29 million restructuring charge, and a $26 million litigation settlement benefit - An out-of-period adjustment was recorded in Q1 2023 to correct a revenue recognition error from a Government contract originating in 2020. This resulted in a $7 million reduction to revenue and income before taxes132 - The company completed the sale of its Midas business in Q1 2022 for $322 million, generating a pre-tax gain of $166 million69 - Restructuring costs increased to $29 million in Q1 2023 from $9 million in Q1 2022, driven by severance, data center consolidation, and other termination costs7397 - A settlement with Cognizant was reached on March 30, 2023, resulting in a $17 million benefit to Cost of Services and a $26 million benefit in Litigation settlements (recoveries), net during the first quarter143 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 5% revenue decline to $922 million in Q1 2023, segment performance, decreased new business signings, and sufficient liquidity despite negative operating cash flow Results of Operations Q1 2023 revenue decreased 5% to $922 million due to various factors, while cost of services declined and SG&A and restructuring costs increased Results of Operations | Metric | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $922M | $967M | (5)% | | Cost of services | $720M | $755M | (5)% | | SG&A | $111M | $102M | 9% | | Restructuring costs | $29M | $9M | 222% | | Net Income (Loss) | $(6)M | $136M | n/m | - The increase in SG&A was driven by the absence of a $14 million recovery of defense costs related to the State of Texas matter that was recorded in Q1 20222 - The effective tax rate was 20.8% for Q1 2023, compared to 35.2% for Q1 2022. The normalized effective tax rate increased to 35.0% from 29.6% due to the geographic mix of income176196 Operations Review of Segment Revenue and Profit All three segments experienced revenue declines in Q1 2023, with Commercial profit improving, Government stable, and Transportation profit significantly decreasing Operations Review of Segment Revenue and Profit | Segment | Revenue Q1 2023 | Revenue Q1 2022 | Adjusted EBITDA Q1 2023 | Adjusted EBITDA Q1 2022 | | :--- | :--- | :--- | :--- | :--- | | Commercial | $508M | $512M | $65M | $54M | | Government | $264M | $286M | $83M | $83M | | Transportation | $150M | $162M | $3M | $17M | - Commercial segment profit and EBITDA margin increased, mainly driven by higher interest rates positively impacting the Benefit Wallet business201 - Government revenue decline was primarily driven by non-repeating federal stimulus revenue, lost business, and an out-of-period adjustment244 - Transportation revenue and profit decreased due to extended completion timelines for client requirements in the Transit solutions service offering178203 Metrics New business ACV signings decreased 25% to $125 million in Q1 2023, while the total new business pipeline grew to $23.2 billion Signings Metric | Signings Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | New business ACV | $125M | $167M | (25)% | | New business TCV | $244M | $464M | (47)% | | Renewals TCV | $390M | $936M | (58)% | | Total Signings | $634M | $1,400M | (55)% | - The Net ARR Activity metric for the trailing twelve months ending March 31, 2023 was $108 million226 - The total new business pipeline increased to $23.2 billion as of March 31, 2023, compared to $22.0 billion at the end of Q1 2022225 Capital Resources and Liquidity The company maintained $526 million in cash and $1.3 billion in debt as of March 31, 2023, with sufficient liquidity from cash and available credit - Cash and cash equivalents were $526 million at March 31, 2023226257 - Total outstanding debt was $1,277 million, with $38 million due within one year250 - The company has a $550 million revolving credit facility, with $548 million available to be drawn upon as of March 31, 202376226 Quantitative and Qualitative Disclosures About Market Risk The company manages foreign currency exchange rate risk using derivative instruments, with no material changes to its market risk disclosures this quarter - The company uses derivative instruments, primarily forward contracts, to hedge foreign currency exchange rate fluctuations77260 - There were no material changes to the quantitative and qualitative disclosures regarding market risk from the company's 2022 Annual Report on Form 10-K261 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective238 - No changes occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting265 Part II — Other Information This section covers legal proceedings, risk factors, equity security sales, and exhibits Legal Proceedings Legal proceedings, including ongoing litigation and settlements, are detailed by reference in Note 12 of the financial statements - Information regarding legal proceedings is detailed in Note 12 – Contingencies and Litigation in the Condensed Consolidated Financial Statements237264 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have been made to the risk factors as previously reported in the Annual Report on Form 10-K for the year ended December 31, 2022263 Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2023, the company did not issue any unregistered securities, and there were no issuer purchases of its equity securities - The company did not issue any securities in unregistered transactions during the quarter ended March 31, 2023240267 - There were no issuer purchases of equity securities during the quarter ended March 31, 2023271 Exhibits This section lists filed exhibits, including corporate governance documents, award agreements, and CEO/CFO certifications - The report includes a list of filed exhibits, such as the Restated Certificate of Incorporation, Amended By-Laws, various award agreements, and required CEO/CFO certifications241