Conduent Incorporated (NASDAQ: CNDT) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Conduent provides technology-enabled business process services to commercial, government and transportation clients.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $921 million | $922 million |
| Net income (loss) | $99 million | $(6) million |
| Diluted EPS | $0.46 | $(0.04) |
| Adjusted EBITDA | $69 million | $90 million |
| Adjusted EBITDA margin | 7.5% | 9.8% |
| Operating cash flow | $(37) million | $(12) million |
| Cash and cash equivalents, quarter-end | $415 million | $498 million at Dec. 31, 2023 |
| Principal debt, quarter-end | $1.131 billion | $1.300 billion at Dec. 31, 2023 |
Reported earnings benefited substantially from a $164 million pre-tax gain on the first BenefitWallet transfer tranche. The company reported $127 million of pre-tax income, versus an $8 million pre-tax loss a year earlier; the gain makes GAAP profit a poor proxy for recurring performance. Interest expense was $27 million, unchanged year over year. The effective tax rate was 21.9%.
Segment revenue and profit (loss): Commercial $483 million / $40 million; Government $258 million / $42 million; Transportation $180 million / $(3) million. Unallocated costs were $72 million. Segment profit totaled $7 million, versus $30 million in Q1 2023.
Cash, debt and liquidity
Operating cash use increased by $25 million year over year, which management attributed primarily to lower Adjusted EBITDA, higher receivables days and lower payables days, partly offset by lower cash taxes. The company received $164 million from the first BenefitWallet tranche and used that amount to prepay Term Loan B principal. It had no revolving-credit borrowings and $548 million available to draw, net of letters of credit. Management said cash, expected operating cash flow and available credit should meet obligations for at least the next 12 months and beyond.
Q1 investing cash flow was $143 million, including the $164 million divestiture proceeds; financing cash use was $199 million, including $175 million of debt payments and $17 million of share repurchases. The company repurchased 4.8 million shares at an average $3.48 per share. Approximately $31 million remained under the $75 million repurchase authorization at quarter-end.
Changes, transactions and outlook
- Revenue was essentially flat. Commercial and Government revenue declined, while Transportation grew on new business, including the State of Victoria contract, and stronger volumes.
- Adjusted EBITDA fell to $69 million from $90 million. Government segment profit declined largely because the prior-year period included a $17 million Cognizant-related liability reversal; Commercial improved on cost efficiencies, and Transportation improved with higher revenue and fewer implementation delays.
- New business ACV was $99 million, down 21%; new business TCV was $153 million, down 37%; total signings fell 10% to $570 million. Trailing-twelve-month Net ARR Activity was $17 million, down from $108 million a year earlier. The new-business pipeline was $24.0 billion, versus $23.2 billion.
- The BenefitWallet transfer has an aggregate purchase price of $425 million, subject to adjustments. The first tranche closed in March for $164 million; the second closed in April for $85 million, and the final tranche was expected in Q2. Management said proceeds from the first two tranches, together with cash, funded $259 million of Term Loan B prepayments.
- The sale of Curbside Management and Public Safety Solutions closed April 30, after quarter-end. Consideration included $174 million cash, a $50 million note receivable and $50 million of other receivables, subject to customary adjustments. The businesses generated $36 million of Q1 revenue.
- Remaining performance obligations were approximately $1.5 billion; about 63% was expected to be recognized over the next two years. The filing provides no specific full-year revenue or earnings guidance.
Risks and unusual items
Key risks include contract renewals and performance, government contract funding and termination rights, client losses, receivables collection, cybersecurity and data privacy, dependence on third-party providers, and execution and costs of divestitures. The company reported $636 million of surety bonds and $180 million of letters of credit supporting contractual and other obligations. It said litigation accruals were adequate, but outcomes may exceed reserves. In the Skyview/Continuum dispute, both parties appealed aspects of a partial summary judgment; the company said it could not estimate any loss beyond recorded reserves. The company was in compliance with debt covenants at March 31.
Q1 restructuring costs were $9 million, down from $29 million. A $2 million debt-extinguishment loss related to the Term Loan B prepayment. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Completion and final proceeds, adjustments and remaining economics of the BenefitWallet transfer and the Curbside/Public Safety sale.
- Whether operating cash flow improves as receivables and payables timing normalizes, and how cash is allocated between debt reduction and repurchases.
- Whether declining Government performance and weak Net ARR Activity and new-business signings stabilize or persist.
- Recurring earnings and margins excluding the one-time BenefitWallet gain, alongside segment profitability and unallocated costs.
- Developments in the Skyview litigation, other contingencies, and compliance with debt covenants.