Conduent Incorporated (NASDAQ: CNDT) — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. Conduent provides digital business-process services across commercial, government and transportation markets.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $3.722 billion | $3.858 billion |
| Net loss | $296 million; $(1.41) per diluted share | $182 million; $(0.89) per diluted share |
| Adjusted EBITDA (non-GAAP) | $378 million; 10.2% margin | $396 million; 10.3% margin |
| Operating cash flow | $89 million | $144 million |
| Cash and cash equivalents at year-end | $498 million | $582 million |
Revenue declined 4%. Segment revenue was Commercial $1.932 billion (down 3%), Government $1.094 billion (down 5%) and Transportation $696 million (down 2%). Commercial, Government and Transportation Adjusted EBITDA margins were 14.2%, 29.7% and 5.9%, respectively.
The reported loss included a $287 million Commercial goodwill impairment, $62 million of restructuring costs and $111 million of interest expense. The impairment followed the BenefitWallet transfer agreement. Interest expense rose 32%, primarily due to higher rates on variable-rate debt. The income tax benefit was $36 million.
Year-end principal debt, including finance leases, was $1.300 billion, versus $1.335 billion in 2022; $34 million was due within 12 months. The company had $743 million of variable-rate debt and a $550 million revolving facility, with $548 million available after letters of credit. It reported compliance with debt covenants. Management said cash, expected operating cash flow and available revolver capacity should cover expected obligations for at least the next 12 months.
Material changes and notable items
- Revenue fell $136 million, reflecting prior-period lost business and non-repeating Commercial minimum-volume and Government stimulus revenue, partly offset by Government new-business ramp and higher interest rates benefiting BenefitWallet.
- Operating cash flow declined $55 million, primarily reflecting the absence of $38 million of prior-year insurance recoveries, higher cash interest and restructuring payments, and the impact of receivables sales.
- Conduent repurchased $27 million of common stock under a newly authorized $75 million, three-year program. It paid no common dividends; preferred-stock dividends were $10 million.
- In the first quarter, the company recorded a $7 million out-of-period reduction to Government revenue and pre-tax income related to a prior contract. It said the adjustment was not material to prior financial statements or FY 2023.
Outlook, management commentary and risks
- Conduent signed $2.257 billion of new-business TCV, up 20%, but new-business ACV fell 13% to $639 million and recurring-revenue signings fell 21% to $317 million. Renewal TCV decreased 5% to $2.341 billion, while the renewal rate was consistent with 2022. The new-business pipeline was $24.8 billion.
- Management expects the BenefitWallet portfolio transfer to HealthEquity, for approximately $425 million subject to adjustments, and the $230 million sale of Curbside Management and Public Safety businesses to close in the first half of 2024, subject to closing conditions. It revised expected total after-tax divestiture proceeds, including other anticipated sales, to $600–$800 million. The filing does not provide clear quantified FY 2024 revenue or earnings guidance.
- Management cited opportunities in cloud-native Medicaid claims and immediate payments, and anticipated faster new-business signings in 2024. It expects data-center consolidation work to be completed in 2024.
- Key risks include contract renewals and competitive bidding, government funding and termination rights, client concentration or volume reductions, delivery and implementation performance, legacy technology modernization, cybersecurity and privacy, litigation and other contingencies, foreign-exchange exposure, and substantial debt and interest costs.
- Ongoing legal matters include the Skyview dispute, which proceeds toward trial and appeals; the company said it cannot estimate a possible loss beyond recorded reserves. The Cognizant matter settled in 2023, generating reserve reversals. Management believes litigation provisions are adequate but notes outcomes could materially affect results.
- PricewaterhouseCoopers issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective.
Important facts for investors to verify
- Completion, final proceeds, purchase-price adjustments and any conditions or liabilities associated with both announced 2024 divestitures.
- Whether new-business signings convert into recurring revenue and reported revenue, given the decline in ACV and ARR signings despite higher TCV.
- Cash generation, working-capital movements and reliance on receivables factoring, alongside debt maturities, variable rates and covenant headroom.
- Execution and cost of technology modernization and data-center consolidation, and any effects on client service levels or contract penalties.
- Developments in litigation, government-contract audits and other contingencies, including any material change to reserves.