What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 122 added, 84 removed, 188 unchanged (52% of the section changed)

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We serve as a trusted business partner in both the front office and back office, enabling personalized, seamless interactions on a massive scale that improve end-user experience.

Headquartered in Florham Park, New Jersey, we have a team of approximately 59,000 associates as of June 30, 2021, servicing customers from service centers in 23 countries.

Headquartered in Florham Park, New Jersey, we have a team of approximately 61,000 associates as of September 30, 2021, servicing customers from service centers in 24 countries.

Our reportable segments correspond to how we organize and manage the business and are aligned to the industries in which our clients operate.

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We continue to transform our business through an intense focus on growth, quality, and efficiency – utilizing a programmatic and project management approach.

Beginning in the first quarter of 2020 and through the second quarter of 2021, we have expanded the focus of our project portfolio to include both efficiency and growth initiatives, aimed to position the company to pivot to revenue growth and margin expansion over time.

Beginning in the first quarter of 2020 and through the third quarter of 2021, we have expanded the focus of our project portfolio to include both efficiency and growth initiatives, aimed to position the company to pivot to revenue growth and margin expansion over time.

We intend to drive portfolio focus, operating discipline, sales and delivery excellence and innovation, complemented by tightly aligned investments to achieve this mission and purpose.

Our strategy is designed to deliver value by delivering profitable growth, expanding operating margins and deploying a disciplined capital allocation strategy.

During the three and six months ended June 30, 2021, our strategy is showing results, including the following:

• Revenue of $1,026 million and $2,054 million for the three and six months ended June 30, 2021, respectively, was an increase of 1.0% and a decrease of less than 1.0%, respectively, a significantly improved trend compared with the same periods last year.

• Positive net income of $12 million and $1 million for the three and six months ended June 30, 2021, respectively, as compared to net loss of $51 million and $100 million for the same periods in the prior year.

• Strong new business signings results:

During the three and nine months ended September 30, 2021, our strategy is showing results, including the following:

• Revenue of $1,038 million and $3,092 million for the three and nine months ended September 30, 2021, respectively, was substantially unchanged.

• Positive net income of $11 million and $12 million for the three and nine months ended September 30, 2021, respectively, as compared to net loss of $7 million and $107 million for the same periods in the prior year.

• Net Annual Recurring Revenue (ARR) activity metric (as defined in "Metrics") of $132 million, a 25% improvement over the second quarter of 2021.

This metric continues to be positive for the fourth consecutive quarter.

CNDT Q3 2021 Form 10-Q

◦ New business total contract value (TCV) signings of $775 million for the three months ended June 30, 2021, representing an increase of 24% compared to that of the prior year period.

◦ Annual recurring revenue signings of $115 million for the three months ended June 30, 2021, an increase of 10% compared to that of the prior year period.

• New business signings results:

◦ New business total contract value (TCV) signings of $344 million and $1,475 million for the three and nine months ended September 30, 2021, respectively, representing a decrease of 26% and an increase of 4%, respectively, compared to the same periods of the prior year.

◦ Annual recurring revenue signings of $87 million and $297 million for the three and nine months ended September 30, 2021, respectively, representing a decrease of 9% and an increase of 15%, respectively, compared to the same periods of the prior year.

• The Company has shown year-over-year operational progress, including an improvement to technology platform uptime, improvements in associate satisfaction survey results and increases in performance incentives from customers.

• The Company redeemed the remainder of its previously outstanding $34 million Senior Notes.

• Subsequent to September 30, 2021, the Company closed on a debt refinancing and extended its maturity profile.

COVID-19 Pandemic

Throughout the COVID-19 pandemic, we have continued to provide critical and best-in-class services to our customers and their end-users, while ensuring the health and safety of our greatest assets - our associates.

To address the potential impact to our business over the near-term, our Business Continuity team established a proactive plan in the first quarter of 2020 that has continued into the second quarter of 2021, which includes:

• Supporting our associates with a number of specific initiatives, including making improvements to our policies to extend short-term disability, providing extra supplemental sick leave coverage and introducing a hardship leave policy.

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This is an ongoing phased process and is based on the specific COVID-19 conditions in certain geographies, as well as business requirements.

• Increased sanitation and social distancing for required on-site essential associates.

• Increased sanitation and social distancing for required on-site associates.

As the world increasingly becomes vaccinated, we will evolve our approach to various initiatives or take additional actions to meet the needs of our employees, customers and their end-users and the Company to continue to provide our mission-critical services and solutions.

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Three Months Ended

June 30, 2021 vs.

September 30, 2021 vs.

($ in millions) 2021 2020 $ Change % Change

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(Gain) loss on divestitures and transaction costs — 8 (8) (100) %

Litigation costs 1 14 (13) (93) %

Litigation costs — — — n/m

Loss on extinguishment of debt — — — n/m

Other (income) expenses, net — (1) 1 (100) %

Other (income) expenses, net 4 (1) 5 n/m

Total Operating Costs and Expenses 1,019 1,054 (35)

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Net Income (Loss) $ 11 $ (7) $ 18

Six Months Ended

June 30, 2021 vs.

Nine Months Ended

September 30, 2021 vs.

($ in millions) 2021 2020 $ Change % Change

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Loss on extinguishment of debt 2 — 2 n/m

Other (income) expenses, net — 1 (1) (100) %

Other (income) expenses, net 4 — 4 n/m

Total Operating Costs and Expenses 3,063 3,236 (173)

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CNDT Q3 2021 Form 10-Q

Revenue for the three months ended June 30, 2021 increased by 1%, compared to the prior year period, primarily due to lesser impacts of the COVID-19 pandemic across our Transportation and Commercial Industries segments, increased volumes in our Government Services Solutions offering within our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business.

These increases were partially offset by lost business from prior years.

Revenue for the six months ended June 30, 2021 decreased by less than 1%, compared to the prior year period, primarily due to lost business from prior years and the effect of the COVID-19 pandemic across our Commercial Industries and our Transportation segments, which had only a minimal impact on the first quarter of 2020.

These unfavorable impacts were partially offset by increased volumes in our Government Services Solutions service offering within our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business.

Revenue for the three months ended September 30, 2021 was substantially unchanged, compared to the prior year period, primarily due to lesser impacts of the COVID-19 pandemic across our Transportation and Commercial Industries segments, increased volumes in our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business.

These increases were offset by lost business from prior years.

Revenue for the nine months ended September 30, 2021 decreased by less than 1%, compared to the prior year period, primarily due to lost business from prior years and the effect of the COVID-19 pandemic across our Commercial Industries and our Transportation segments, which had only a minimal impact on the first quarter of 2020.

These unfavorable impacts were largely offset by increased volumes in our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business.

Cost of Services (excluding depreciation and amortization)

Cost of services for the three months ended June 30, 2021 decreased, compared to the prior year period, driven by lost business from prior years as well as increased operational efficiency, which led to reductions in information technology, labor and real estate costs.

Cost of services for the six months ended June 30, 2021 decreased, compared to the prior year period, driven by lost business from prior years and lower volumes as well as increased operational efficiency, which led to reductions in information technology, labor and real estate costs.

Cost of services for the three months ended September 30, 2021 was substantially unchanged compared to the prior year period, which tracked to the small change in Revenue.

Cost of services for the nine months ended September 30, 2021 decreased slightly, compared to the prior year period, driven by lost business from prior years as well as increased operational efficiency, which led to reductions in information technology, labor and real estate costs.

Also contributing to the decline were lower costs to support volume loss resulting from the effect of the COVID-19 pandemic.

Selling, General and Administrative (SG&A) (excluding depreciation and amortization)

SG&A for the three and six months ended June 30, 2021 increased, compared to the prior year periods, driven by an increase in certain employee-related costs and growth in the sales organization and higher recruiting expenses.

SG&A for the three and nine months ended September 30, 2021 increased, compared to the prior year periods, driven by an increase in certain employee-related compensation costs and growth in the sales organization and higher recruiting expenses, partially offset by lower medical benefit costs in the third quarter of 2021.

Depreciation and Amortization

Depreciation and amortization for the three and six months ended June 30, 2021 decreased, compared to the prior year periods, primarily due to a portion of certain customer relationship intangible assets being fully amortized in the first quarter of 2021.

Depreciation and amortization for the three and nine months ended September 30, 2021 decreased, compared to the prior year periods, primarily due to a portion of certain customer relationship intangible assets being fully amortized in the first quarter of 2021.

Restructuring and Related Costs

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

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(1) Represents professional support costs associated with certain strategic transformation programs.

CNDT Q2 2021 Form 10-Q

Refer to Note 5 – Restructuring Programs and Related Costs to the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

CNDT Q3 2021 Form 10-Q

Interest Expense

Interest expense represents interest on long-term debt and the amortization of debt issuance costs.

The decreases in Interest expense for the three and six months ended June 30, 2021, compared to the prior year periods, was driven primarily by lower interest rates, a lower Term Loan A principal balance and the May 1, 2021 repayment of the previously outstanding $34 million Senior Notes.

Additionally, the three and six months ended June 30, 2020 included interest expense attributable to the drawdown on our Senior Revolving Credit Facility (Revolver) in March 2020, which was repaid in December 2020.

The decreases in Interest expense for the three and nine months ended September 30, 2021, compared to the prior year periods, was driven primarily by lower interest rates, a lower Term Loan A due 2023 principal balance and the May 1, 2021 repayment of the previously outstanding $34 million Senior Notes due 2024.

Additionally, the three and nine months ended September 30, 2020 included interest expense attributable to the $150 million drawdown on our Senior Revolving Credit Facility (Prior Revolver) in March 2020, which was repaid in December 2020.

Refer to Note 6 – Debt in the Condensed Consolidated Financial Statements for additional information.

Additionally, refer to Note 17 - Subsequent Event for additional information about the refinancing of our debt on October 15, 2021.

(Gain) Loss on Divestitures and Transaction Costs

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Litigation Costs

Net litigation costs for the three and six months ended June 30, 2021 primarily consist of reserves for various matters that are subject to litigation;

the three and six months ended June 30, 2020 amount also included costs related to certain reimbursement matters with our former parent company, Xerox Corporation.

Net litigation costs for the nine months ended September 30, 2021 primarily consist of reserves for various matters that are subject to litigation;

the nine months ended September 30, 2020 amount also included costs related to certain reimbursement matters with our former parent company, Xerox Corporation.

Refer to Note 11 – Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information.

The effective tax rate for the three months ended June 30, 2021 was 38.2%, compared to 20.3% for the three months ended June 30, 2020.

The June 30, 2021 rate was higher than the U.S.

statutory rate of 21%, primarily due to geographic mix of income, other non-deductible permanent differences, valuation allowances and tax audit reserves, partially offset by tax credits.

The June 30, 2020 rate was slightly lower than the U.S.

statutory rate of 21%, primarily due to the geographic mix of income.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring costs, the normalized effective tax rate for the three months ended June 30, 2021 was 25.7%.

The normalized effective tax rate for the three months ended June 30, 2020 was 32.5%, predominately due to excluding the impact of amortization and restructuring costs.

The normalized effective tax rate for the three months ended June 30, 2021 was lower than the three months ended June 30, 2020 rate predominantly due to earnings mix.

The effective tax rate for the six months ended June 30, 2021 was 94.3% compared with 13.0% for the six months ended June 30, 2020.

The June 30, 2021 rate was higher than the U.S.

statutory rate of 21% primarily due to geographic mix of income, other non-deductible permanent differences, valuation allowances, and tax audit reserve partially offset by tax credits.

The June 30, 2020 rate was lower than the U.S.

statutory rate of 21% primarily due to the geographic mix of income, valuation allowances, and tax charges recognized on the vesting of employee equity awards partially offset by tax credits.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring, the normalized effective tax rate for the six months ended June 30, 2021 was 24.7%.

The normalized effective tax rate for the six months ended June 30, 2020 was 32.8%, predominantly due to excluding the impact of valuation allowances, vesting of equity awards, charges for amortization of intangible assets and restructuring.

The normalized effective tax rate for the six months ended June 30, 2021 was lower than the six months ended June 30, 2020 rate predominantly due to earnings mix.

The Company believes it is reasonably possible that unrecognized tax benefits of approximately $14 million will reverse within 12 months due to an anticipated audit settlement.

The effective tax rate for the three months ended September 30, 2021 was 38.3%, compared to 46.2% for the three months ended September 30, 2020.

The September 30, 2021 rate was higher than the U.S.

statutory rate of 21%, primarily due to the geographic mix of income, permanent book-tax differences and valuation allowances, partially offset by a benefit attributable to the 2020 return to provision adjustment.

The effective tax rate for the three months ended September 30, 2020 was higher than the U.S.

statutory rate of 21%, primarily due to the geographic mix of income, the election of the high tax exception for Global Intangible Low Tax Income (GILTI), an increase in US federal tax credits and a benefit attributable to the 2019 return to provision adjustment, partially offset by audit adjustments.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring costs, the normalized effective tax rate for the three months ended September 30, 2021 was 30.4%.

The normalized effective tax rate for the three months ended September 30, 2020 was 23.0%, predominately due to excluding the impact of discrete tax adjustments, the true-up for divestitures, amortization of intangible assets and the restructuring cost.

The normalized effective tax rate for the three months ended September 30, 2021 was higher than the three months ended September 30, 2020 rate predominantly due to earnings mix.

The effective tax rate for the nine months ended September 30, 2021 was 58.5% compared with 16.4% for the nine months ended September 30, 2020.

The September 30, 2021 rate was higher than the U.S.

statutory rate of 21% primarily due to the geographic mix of income, permanent book-tax differences, valuation allowances, and tax audit reserves, partially offset by tax credits.

The September 30, 2020 rate was lower than the U.S.

statutory rate of 21%, primarily due to geographic mix of income, increases in valuation allowances, audit adjustments and tax charges recognized on the vesting of employee equity awards, partially offset by an increase in US federal tax credits and a benefit attributable to the 2019 return to provision adjustment.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring costs, the normalized effective tax rate for the nine months ended September 30, 2021 was 26.8%.

The normalized effective tax rate for the nine months ended September 30, 2020 was 27.4%, predominantly due to excluding the impact of true up for divestitures, amortization of intangible assets and restructuring costs and discrete tax items.

The normalized effective tax rate for the nine months ended September 30, 2021 was lower than the nine months ended September 30, 2020 rate predominantly due to the geographic mix of income.

CNDT Q3 2021 Form 10-Q

The Company believes it is reasonably possible that unrecognized tax benefits of approximately $14 million will reverse within 12 months due to an anticipated audit settlement.

Operations Review of Segment Revenue and Profit

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See Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.

CNDT Q2 2021 Form 10-Q

Results of financial performance by segment were:

Three Months Ended

September 30,

(in millions) Commercial Industries Government Services Transportation Other Unallocated Costs Total

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Adjusted EBITDA Margin 10.8 % 36.8 % 20.0 % — % — % 13.5 %

Six Months Ended

CNDT Q3 2021 Form 10-Q

Nine Months Ended

September 30,

(in millions) Commercial Industries Government Services Transportation Other Unallocated Costs Total

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Adjusted EBITDA Margin 11.1 % 31.1 % 15.7 % — % — % 11.2 %

(in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2021 2020 2021 2020

Income (Loss) Before Income Taxes $ 19 $ (13) $ 29 $ (128)

Reconciling items:

Amortization of acquired intangible assets 31 60 103 180

Restructuring and related costs 10 20 31 56

Interest expense 12 14 38 46

(Gain) loss on divestitures and transaction costs — 8 1 14

Litigation costs — — 2 20

Loss on extinguishment of debt — — 2 —

Other (income) expenses, net 4 (1) 4 —

Segment Pre-tax Income (Loss) $ 76 $ 88 $ 210 $ 188

Segment depreciation and amortization (including contract inducements) $ 54 $ 53 $ 163 $ 166

CA MMIS charge (credit) — — — (7)

Adjusted EBITDA $ 130 $ 141 $ 373 $ 347

Commercial Industries Segment

Commercial Industries revenue for the three months ended June 30, 2021 decreased, compared to the prior year period, due to lost business from prior years, partially offset by higher volumes as the impacts from COVID-19 were lesser in the second quarter of 2021 as many regions began to loosen restrictions.

Commercial Industries revenue for the three months ended September 30, 2021 decreased, compared to the prior year period, due to lost business from prior years, partially offset by higher volumes as the impacts from COVID-19 were less in the third quarter of 2021 as many regions continued to loosen restrictions.

Commercial Industries revenue for the nine months ended September 30, 2021 decreased, compared to the prior year period, due to COVID-19 related volume declines in our Business Operations Solutions service offering and reduced revenue from our HSA offering "Benefit Wallet" (within our HRLS business) as a result of Federal Reserve initiated interest rate reductions, as well as lost business from prior years.

CNDT Q3 2021 Form 10-Q

Commercial Industries revenue for the six months ended June 30, 2021 decreased, compared to the prior year period, due to COVID-19 related volume declines in our Business Operations Solutions service offering and reduced revenue from our HSA offering "Benefit Wallet" (within our HRLS business) as a result of Federal Reserve initiated interest rate reductions, as well as lost business from prior years.

Segment Profit and Adjusted EBITDA

Increases in the Commercial Industries segment profit and adjusted EBITDA margin for the three months ended June 30, 2021, compared to the prior year period, were mainly driven by the result of progress in our efficiency initiatives and one-time contract exit costs in the second quarter of 2020.

Commercial Industries segment profit decreased and adjusted EBITDA margin increased for the six months ended June 30, 2021, compared to the prior year period, mainly driven by overall revenue declines, partially offset by the result of progress in our efficiency initiatives and one-time contract exit costs in the second quarter of 2020.

Decreases in the Commercial Industries segment profit and adjusted EBITDA margin for the three months ended September 30, 2021, compared to the prior year period, were mainly driven by revenue declines, the dynamics of a challenging labor market in both North America and Europe and the impact of temporary cost savings in the third quarter of 2020.

Commercial Industries segment profit and adjusted EBITDA margin decreased for the nine months ended September 30, 2021, compared to the prior year period, mainly driven by overall revenue declines and the dynamics of a challenging labor market in both North America and Europe, partially offset by the result of progress in our efficiency initiatives and one-time contract exit costs in the second quarter of 2020.

Government Services Segment

Government Services revenue for the three months ended June 30, 2021 increased, compared to the prior year period, primarily driven by COVID-19 related volume increases.

These increases were partially offset by lost business from prior years.

Government Services revenue for the three months ended September 30, 2021 were substantially unchanged, compared to the prior year period.

COVID-19 related volume increases were largely offset by lost business from prior years.

The increased volumes from the COVID-19 pandemic were largely driven by the increases in the Supplemental Nutrition Assistance Program (SNAP) volumes and Pandemic SNAP volumes.

Government Services revenue for the six months ended June 30, 2021 increased, compared to the prior year period, primarily driven by COVID-19 related volume increases.

The legislation for two Federal stimulus programs (Pandemic SNAP and additional unemployment insurance) ended in September 2021.

However, some residual revenue from these programs is expected to continue into the fourth quarter of 2021.

Government Services revenue for the nine months ended September 30, 2021 increased, compared to the prior year period, primarily driven by COVID-19 related volume increases.

These increases were partially offset by lost business from prior years.

The increased volumes from the COVID-19 pandemic was largely driven by the increases in the Supplemental Nutrition Assistance Program (SNAP) volumes and Pandemic SNAP volumes, an increase in the number of citizens to which we distribute unemployment insurance benefits, and additional unemployment insurance benefit distributions as a result of Federal stimulus.

The increased volumes from the COVID-19 pandemic was largely driven by the increases in the SNAP volumes and Pandemic SNAP volumes, an increase in the number of citizens to which we distribute unemployment insurance benefits and additional unemployment insurance benefit distributions as a result of Federal stimulus.

Within the unemployment benefit business, we generate revenue based on the amount of spending by card holders.

Segment Profit and Adjusted EBITDA

Increases in the Government Services segment profit and adjusted EBITDA margin for the three and six months ended June 30, 2021, compared to the prior year period, were mainly driven by increased COVID-19 related volume increases at strong margins and expense reductions resulting from progress in our efficiency initiatives.

Increases in the Government Services segment profit and adjusted EBITDA margin for the three and nine months ended September 30, 2021, compared to the prior year period, were mainly driven by increased COVID-19 related volume increases at strong margins and expense reductions resulting from progress in our efficiency initiatives.

Transportation Segment

Transportation revenue for the three and six months ended June 30, 2021 increased, compared to the prior year period, primarily driven by the impact of loosening of numerous COVID-19 related restrictions, particularly in the United States, and the ramp of new business, partially offset by lost business from prior years.

Transportation revenue for the three and nine months ended September 30, 2021 increased, compared to the prior year period, primarily driven by the impact of loosening of numerous COVID-19 related restrictions, particularly in the United States, and the ramp of new business, partially offset by lost business from prior years.

Segment Profit and Adjusted EBITDA

Transportation segment profit and adjusted EBITDA margin decreased for the three months ended June 30, 2021, compared to the prior year period, mainly driven by unfavorable revenue mix in the quarter and short term cost savings in the prior year.

Transportation segment profit and adjusted EBITDA margin increased for the six months ended June 30, 2021, compared to the prior year period, mainly driven by progress in our efficiency initiatives and beneficial revenue mix.

Transportation segment profit and adjusted EBITDA margin decreased for the three and nine months ended September 30, 2021, compared to the prior year period, mainly driven by the impact of legacy lost business in the quarter and temporary cost savings in the prior year that more than offset progress in our efficiency initiatives.

CNDT Q3 2021 Form 10-Q

Segment Profit (Loss) and Adjusted EBITDA

The segment profit in the 2020 period was primarily due to an adjustment to the then remaining California Medicaid Management Information System settlement liability of $7 million as a result of the contract expiring in March 2020.

The segment profit for the nine months ended September 30, 2020 was primarily due to an adjustment to the then remaining California Medicaid Management Information System settlement liability of $7 million as a result of the contract expiring in March 2020.

This benefit was excluded from adjusted EBITDA for segment reporting purposes due to its non-recurring nature.

Unallocated Costs

Unallocated Costs for the three and six months ended June 30, 2021 increased, compared to the prior year period.

Unallocated Costs for the three months ended September 30, 2021 decreased, compared to the prior year period primarily due to lower employee medical expenses and a one-time unfavorable COVID-19 related item in the third quarter of 2020.

Unallocated Costs for the nine months ended September 30, 2021 were substantially unchanged compared to the prior year period.

This was primarily driven by increases in certain employee costs, partially offset by progress in our efficiency initiatives.

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TCV signings is defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts.

For the three months ended June 30, 2021, the Company signed $775 million of new business, representing a 24% increase compared to the prior year period.

This increase was driven by the signing of large contracts in the Transportation and Governments segments.

Renewal TCV for the three months ended June 30, 2021 was $825 million, a decrease of 10% compared to the prior year period, primarily as a result of fewer renewal opportunities in the quarter.

The Company continues to scale the centralized Sales and Account Management functions to deliver on our growth objectives.

For the six months ended June 30, 2021, the Company signed $1,131 million of new business, representing a 19% increase compared to the prior year period.

Renewal TCV for the six months ended June 30, 2021 was $1,098 million, a decrease of 23% compared to the prior year period, primarily as a result of fewer renewal opportunities in the quarter.

Due to the inconsistency of when existing contracts end, quarterly and yearly comparisons are not a good measure of renewal performance.

For the three months ended September 30, 2021, the Company signed $344 million of new business, representing a 26% decrease compared to the prior year period.

Renewal TCV for the three months ended September 30, 2021 was $276 million.

For the nine months ended September 30, 2021, the Company signed $1,475 million of new business, representing a 4% increase compared to the prior year period.

Renewal TCV for the nine months ended September 30, 2021 was $1,374 million.

Three Months Ended

June 30, 2021 vs.

September 30, 2021 vs.

($ in millions) 2021 2020 $ Change % Change

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$ 70 $ 58 $ 12 21 %

Six Months Ended

June 30, 2021 vs.

Nine Months Ended

September 30, 2021 vs.

($ in millions) 2021 2020 $ Change % Change

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CNDT Q3 2021 Form 10-Q

The total new business pipeline at the end of June 30, 2021 and 2020 was $21.0 billion and $22.0 billion, respectively.

The total new business pipeline at the end of September 30, 2021 and 2020 was $21.0 billion and $22.0 billion, respectively.

Total new business pipeline is defined as total new business TCV pipeline of deals in all sell stages.

This extends past the next twelve-month period to include total pipeline, excluding the impact of divested business as required.

Net ARR Activity

The Net ARR Activity metric is defined as Projected Annual Recurring Revenue for contracts signed in the prior 12 months, less the annualized impact of any client losses, contractual volume and price changes, and other known impacts for which the company was notified in that same time period, which could positively or negatively impact results.

The metric annualizes the net impact to revenue.

Timing of revenue impact varies and may not be realized within the forward 12-month timeframe.

The metric is for indicative purposes only.

This metric excludes COVID-related volume impacts and non-recurring revenue signings.

This metric is not indicative of any specific 12-month timeframe.

The Net ARR activity metric for the trailing twelve months for each of the prior four quarters was as follows:

(in millions) Net ARR Activity metric

September 30, 2021 $ 132

June 30, 2021 106

March 31, 2021 87

December 31, 2020 60

Capital Resources and Liquidity

As of June 30, 2021 and December 31, 2020, total cash and cash equivalents were $397 million and $450 million, respectively.

The Company also has a $750 million Revolver for its various cash needs, of which $7 million was used for letters of credit.

The net amount available to be drawn upon under our Revolver as of June 30, 2021, was $743 million.

As of June 30, 2021, our total debt outstanding was $1.4 billion of which $89 million was due within one year.

As of September 30, 2021 and December 31, 2020, total cash and cash equivalents were $394 million and $450 million, respectively.

Under the Prior Revolver, the Company also had $750 million available for its various cash needs, of which $10 million was used for letters of credit.

The net amount available to be drawn upon under our Prior Revolver as of September 30, 2021, was $740 million.

See Note 17 - Subsequent Event for information about the refinancing of our debt, including replacement of our Prior Revolver.

As of September 30, 2021, our total debt outstanding was $1.4 billion of which $21 million was due within one year.

Refer to Note 6 – Debt in the Condensed Consolidated Financial Statements for additional debt information.

In order to provide financial flexibility and finance certain investments and projects, we may continue to utilize external financing arrangements.

However, we believe that our cash on hand, projected cash flow from operations, sound balance sheet and revolving line of credit will continue to provide sufficient financial resources to meet our expected business obligations for at least the next twelve months.

However, we believe that our cash on hand, projected cash flow from operations, sound balance sheet and the extended maturity profile of our debt resulting from the refinancing described in Note 17 - Subsequent Event will continue to provide sufficient financial resources to meet our expected business obligations for at least the next twelve months.

Cash Flow Analysis

The following table summarizes our cash flows, as reported in our Condensed Consolidated Statement of Cash Flows in the accompanying Condensed Consolidated Financial Statements:

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2021 2020 Better (Worse)

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Net cash provided by (used in) financing activities $ (112) $ 99 (211)

CNDT Q3 2021 Form 10-Q

Operating activities

The net improvement in cash used in operating activities of $221 million, compared to the prior year period, was primarily related to the absence of the 2020 Texas Litigation payment of $118 million, improved collections of Accounts receivable and other working capital timing of $126 million, partly offset by higher cash used on product software and deferred contract costs for new business activities of $9 million and higher income tax net payments of $14 million.

The net improvement in cash used in operating activities of $169 million, compared to the prior year period, was primarily related to the absence of the 2020 Texas Litigation payment and improved Adjusted EBITDA, partly offset by higher cash used related to product software and deferred contract costs for new business activities and higher net income tax payments.

Investing activities

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Financing activities

The increase in cash used in financing activities was primarily related to the absence of the March 2020 $150 million draw down from our $750 million revolving credit facility, which was subsequently repaid in December 2020.

Additionally, we repaid the previously outstanding $34 million of Senior Notes on May 1, 2021 and made higher scheduled payments on Term loans of $18 million in 2021.

CNDT Q2 2021 Form 10-Q

The increase in cash used in financing activities was primarily related to the absence of the March 2020 $150 million draw down from our Prior Revolver, which was subsequently repaid in December 2020.

Additionally, we repaid the previously outstanding $34 million of Senior Notes due 2024 on May 1, 2021 and made higher scheduled payments on Term loans of $27 million in 2021.

Market Risk Management

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis