Business Context and Reporting Period
Company: Conduent Incorporated
Filing Type: Form 8-K (Current Report)
Date of Report: September 29, 2017
Reporting Period: Events occurring on September 29, 2017, impacting Q3 and full-year 2017 results.
Key Financial Metrics and Transactions
- Deferred Compensation Plan Termination:
- Recorded tax expense: Approximately $19 million (non-cash, offset by deferred tax assets).
- Impact on GAAP EPS: Approximately $0.09 reduction for Q3 and full year.
- Impact on Adjusted EBITDA/Adjusted EPS: None.
- Cash Position: Plans hold approximately $141 million in cash post-transaction.
- Liquidity Impact: Approximately $25 million in previously unavailable cash will become available by year-end 2018.
- Divestitures:
- Aggregate purchase price received: Approximately $56 million in cash.
- Businesses sold: FIREHOUSE business, healthcare provider consulting services, Breakaway Group, and Wireless Data Services Limited's mobile device management business.
- Historical Revenue Impact: Sold businesses represented $69 million of 2016 revenue and $38 million of 2017 YTD revenue (first two quarters).
Material Changes and Cash Flow Implications
The termination of the deferred compensation plans triggers a one-time accounting adjustment affecting cash flow classification. While the sale of plan investments is recorded under Investing Activities, the distribution of cash to participants is recorded under Operating Activities. Consequently, this event was not included in previous Free Cash Flow guidance and will be adjusted accordingly. The divestitures represent a strategic reduction in specific service lines, removing approximately $38 million of revenue from the current year's run rate.
Guidance, Outlook, and Risks
Management Commentary: The company expects the $19 million tax expense to be fully offset by existing deferred tax assets, resulting in no cash impact. The transaction will release $25 million in restricted cash by the end of 2018. The company will make payments to plan participants of approximately $15 million in 2017 and $101 million in 2018.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. Key risks cited include government contract termination rights, competitive bidding outcomes, ability to recover capital, retention of technical personnel, significant indebtedness, cybersecurity breaches, and compliance with data privacy laws.
Investor Verification Checklist
- Verify the $19 million tax expense is non-cash and fully offset by deferred tax assets as stated.
- Confirm the adjustment to Free Cash Flow guidance due to the reclassification of cash flows from the plan termination.
- Assess the impact of the $38 million revenue reduction from divestitures on Q3 and full-year 2017 revenue targets.
- Monitor the timeline for the release of the $25 million in previously restricted cash by year-end 2018.
- Review the $56 million cash proceeds from divestitures and their intended use.