Conduent Incorporated — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; compared with Q1 2021. Conduent provides business process services to commercial and government clients and operates Commercial, Government Services, and Transportation segments. The company reported approximately 58,000 associates across 24 countries.
Financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $967 million | $1,028 million |
| Net income (loss) | $136 million | $(11) million |
| Diluted EPS | $0.61 | $(0.06) |
| Operating cash flow | $11 million | $(2) million |
| Adjusted EBITDA | $109 million | $115 million |
| Adjusted EBITDA margin | 11.3% | 11.2% |
Revenue declined 6%, primarily from lower federal stimulus revenue in Government Services and business lost in prior years, partly offset by new-business ramp. Reported net income included a $165 million pretax gain on the Midas divestiture and $38 million of insurance recoveries tied to the previously disclosed State of Texas matter. The filing reports a 35.2% effective tax rate; the normalized rate, excluding specified unusual and discrete items, was 29.6%.
Segments and operating trends
- Commercial: Revenue was $512 million, flat year over year; segment profit increased to $28 million from $24 million. Adjusted EBITDA margin improved to 10.5% from 10.0%, reflecting efficiency and expense reductions.
- Government Services: Revenue fell to $286 million from $314 million, mainly due to lower federal stimulus revenue. Segment profit declined to $75 million from $85 million.
- Transportation: Revenue declined to $162 million from $184 million; segment profit fell to $8 million from $21 million. Management cited lost business, project timing, foreign exchange, and a prior-year one-time benefit.
New-business TCV signings were $464 million, up 32%; renewal TCV was $936 million. Annual recurring revenue signings rose 14% to $107 million. Trailing-twelve-month Net ARR Activity was $102 million, versus $87 million a year earlier. Management cautions that this metric is indicative, is not tied to a specific forward 12-month period, and does not guarantee revenue timing.
Cash, debt, and liquidity
- Cash and cash equivalents were $588 million at March 31, 2022, versus $415 million at December 31, 2021. Cash, cash equivalents, and restricted cash totaled $593 million at quarter-end.
- Debt was approximately $1.3 billion; $30 million was due within one year. The company repaid $100 million outstanding on its revolver and reported no revolver borrowings at quarter-end. Net available revolver capacity was $540 million.
- Investing cash inflow was $273 million, principally reflecting Midas sale proceeds; financing cash outflow was $110 million, including the revolver repayment.
- Management said cash, expected operating cash flow, and available credit were sufficient for expected obligations for at least the next 12 months. The company was in compliance with debt covenants.
Material changes, outlook, and risks
On February 8, 2022, Conduent sold its Midas patient-safety, quality, and analytics business for $321 million cash consideration, subject to customary working-capital adjustments not expected to be material. The sale generated a $165 million pretax gain and approximately $62 million of related income taxes. After quarter-end, the company announced a planned separation of Transportation; the filing does not provide a clear transaction timeline or terms. No specific full-year financial guidance is stated in the provided filing text.
Management described ongoing efficiency, growth, modernization, and data-center consolidation initiatives. It noted potential disruption risk from infrastructure modernization and continued uncertainty from COVID-19. Other disclosed risks include contract renewals and performance, government funding and termination rights, client concentration or losses, cybersecurity and data privacy, collecting receivables, significant indebtedness, foreign exchange, and litigation or regulatory outcomes.
Legal matters include a securities class action for which class certification was granted in February 2022, and other disputes with outcomes that the company said it could not reasonably estimate. The company recorded a reserve reversal after dismissal of the Nasrawi matter. It also disclosed $559 million of surety bonds and $105 million of letters of credit supporting contractual and other obligations.
Important facts for investors to verify
- How much of reported earnings and cash generation depends on the Midas gain and insurance recoveries, versus recurring operations.
- Whether new-business signings and Net ARR Activity convert into recognized revenue, particularly as federal stimulus revenue declines.
- The details, timing, and financial implications of the proposed Transportation separation.
- Potential exposure from pending litigation and regulatory matters, including matters for which loss estimates are unavailable.
- Debt repayment capacity, operating cash flow, and continued access to revolver and surety capacity.