Conduent Incorporated — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; fourth-quarter figures are identified separately below. Unless noted otherwise, amounts are in millions of dollars.
Business context
Conduent provides business-process services to commercial clients and governments, organized into Commercial Industries, Government Services and Transportation. It reported approximately 63,000 associates across 22 countries; 90% of 2020 revenue was generated in the U.S.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $4,163 | $4,467 |
| Net loss | $(118) | $(1,934) |
| Loss per diluted share | $(0.61) | $(9.29) |
| Adjusted EBITDA | $480 | $494 |
| Adjusted EBITDA margin | 11.5% | 11.1% |
| Cash from operating activities | $161 | $132 |
Revenue fell 7%, mainly from lost business and COVID-19 effects, partly offset by new-business ramp and higher Government Services activity. The 2019 net loss included $1,952 of goodwill impairment; no goodwill impairment was recorded in 2020. Interest expense declined to $60 from $78.
By segment, revenue was $2,163 in Commercial Industries (down from $2,385), $1,281 in Government Services (up from $1,263), and $719 in Transportation (down from $781). Segment adjusted EBITDA was $258, $397 and $117, respectively.
At year-end, cash and cash equivalents were $450, total assets $4,256, and total liabilities $2,924. Principal debt was $1,528, including $90 of current maturities; the $750 revolving facility had $743 available after letters of credit. Cash decreased from $496. Operating cash flow improved by $29, while investing activities used $134 and financing activities used $74. The company sold $529 of receivables during 2020, versus $204 in 2019.
Fourth quarter: Revenue was $1,055 versus $1,099 in Q4 2019; net loss was $11 versus $581, and diluted loss per share was $0.07 versus $2.76. The prior-year quarter included a $601 goodwill impairment charge.
Material changes, outlook and notable items
- Management estimated COVID-19 reduced FY2020 revenue by $85 and pre-tax income by $23, after approximately $59 of temporary cost savings. Government Services received an estimated $149 revenue benefit, while Commercial Industries and Transportation faced estimated adverse effects of $158 and $76, respectively.
- Cost initiatives generated approximately $145 of savings impact in 2020, including temporary measures. Restructuring and related costs were $67, and reported headcount reductions were 1,600.
- New-business contract signings reached $1,934, up 94%; renewal TCV was $2,809, up 26%. Remaining performance obligations were approximately $1.2 billion, with about 82% expected to be recognized over the next two years. These are operating indicators, not revenue guidance.
- The company provided no specific numerical revenue or earnings guidance in the supplied filing text. It described continued efforts to pursue growth, improve efficiency and service quality, modernize IT, and consolidate data centers. Approximately 75% of employees were working from home at year-end.
- Material risks include COVID-19 uncertainty, government contract funding and termination rights, contract execution and client concentration, cybersecurity and data privacy, IT modernization and service interruptions, foreign exchange, debt and covenant exposure, and possible further goodwill impairment. Goodwill was $1,528, or 35.9% of total assets; the annual 2020 impairment test found no impairment.
- The $236 Texas Medicaid settlement was fully paid by January 2020. Other disclosed matters include securities class-action litigation, Skyview divestiture-related litigation, and the Cognizant contract dispute; outcomes and potential losses were not estimable beyond recorded reserves. The company stated it had accrued adequate provisions for contingencies.
- The company paid no common-stock dividends in 2020 and did not anticipate common dividends for the foreseeable future. It paid $10 in preferred-stock dividends. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor verification priorities
- Verify the durability and composition of the $145 cost-savings impact, particularly the distinction between recurring and temporary savings, and the ability to protect margins as pandemic-related effects change.
- Track segment revenue, contract retention and conversion of signings into recognized revenue, especially Commercial Industries and Transportation recovery and Government Services’ pandemic-related activity.
- Review debt maturities, variable-rate exposure, covenant compliance and refinancing needs; most debt carried variable interest rates at year-end.
- Assess receivables and cash conversion, including the scale and recurring use of receivable sales and the timing effects cited in operating cash flow.
- Monitor pending litigation and investigations, IT modernization and data-center migration execution, and the assumptions supporting the goodwill valuation.