CONDUENT Inc 10-Q

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis (MD&A) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in six sections: • Overview; • Financial Information and Analysis of Results of Operations; • Metrics; • Capital Resources and Liquidity; • Critical Accounting Estimates and Policies; and • Recent Accounting Changes. The MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes. Overview We are a leading provider of business process services with expertise in transaction-intensive processing, analytics and automation. 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 62,000 associates as of September 30, 2022, 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 solutions we offer our clients. We organize and manage our businesses through three reportable segments. • Commercial – Our Commercial segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial segment, we operate on our clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for our clients and their consumers and employees. • Government Services – Our Government Services segment provides government-centric business process services to U.S. federal, state and local and foreign governments for public assistance, health services, program administration, transaction processing and payment services. Our solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations. • Transportation – Our Transportation segment provides systems and support, as well as revenue-generating services, to government clients. On behalf of government agencies and authorities in the transportation industry, we deliver mission-critical mobility and payment solutions that improve automation, interoperability and decision-making to streamline operations, increase revenue and reduce congestion while creating safer communities and seamless travel experiences for consumers. Executive Summary 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 third quarter of 2022, 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 nine months ended September 30, 2022, our strategy is showing results, including the following: CNDT Q3 2022 Form 10-Q 24 Table of Contents • Net income of $151 million for the nine months ended September 30, 2022 as compared to net income of $12 million for the same period in the prior year. • Two of our three segments posting revenue growth for the quarter, including the first quarter of year-over-year revenue growth for the Commercial segment since the spin-off of Conduent as a separate public company. • New Business annual contract value (ACV) of $191 million in the third quarter increased for the fifth consecutive quarter, with proportional contributions from all segments. • Annual recurring revenue signings of $296 million for the nine months ended September 30, 2022 is substantially unchanged compared to the prior year. • Renewal TCV of $1,896 million for the nine months ended September 30, 2022 is 38% higher than the same period in the prior year. Macroeconomic and Geopolitical Uncertainty Given the nature of our business and our global operations, the effects of global macroeconomic and geopolitical uncertainty, including COVID-19 pandemic related factors (as discussed in more detail below) could have a materially adverse effect on our business, results of operations and financial condition. COVID-19 Pandemic Throughout the COVID-19 pandemic, we have continued to provide critical and best-in-class services to our customers and their end-users, while ensuring the health and safety of our greatest assets - our associates. To address the potential impact to our business over the near-term, our Business Continuity team established a proactive plan in the first quarter of 2020 that has continued throughout the pandemic, which includes: • Supporting our associates with a number of specific initiatives, including making improvements to our policies to extend short-term disability, providing extra supplemental sick leave coverage and introducing a hardship leave policy. • Increased sanitation and social distancing for on-site essential associates. At the end of the third quarter of 2022, we continued to have most of our workforce in either a work-from-home or hybrid environment. We will continue to assess when to bring associates back to our offices, as appropriate, based on the specific COVID-19 conditions in certain geographies, as well as business requirements. As the pandemic continues, we may revise our approach to these initiatives or take additional actions to meet the needs of our employees, customers and their end-users as well as the Company's needs and to continue to provide our mission-critical services and solutions. CNDT Q3 2022 Form 10-Q 25 Table of Contents Financial Review of Operations Three Months Ended September 30, 2022 vs. 2021 ($ in millions) 2022 2021 $ Change % Change Revenue $ 977 $ 1,038 $ (61) (6) % Operating Costs and Expenses Cost of services (excluding depreciation and amortization) 754 776 (22) (3) % Selling, general and administrative (excluding depreciation and amortization) 117 131 (14) (11) % Research and development (excluding depreciation and amortization) 2 2 — — % Depreciation and amortization 54 84 (30) (36) % Restructuring and related costs 4 10 (6) (60) % Interest expense 22 12 10 83 % (Gain) loss on divestitures and transaction costs 1 — 1 n/m Litigation settlements (recoveries), net — — — n/m Loss on extinguishment of debt — — — n/m Other (income) expenses, net — 4 (4) n/m Total Operating Costs and Expenses 954 1,019 (65) Income (Loss) Before Income Taxes 23 19 4 Income tax expense (benefit) 8 8 — Net Income (Loss) $ 15 $ 11 $ 4 Nine Months Ended September 30, 2022 vs. 2021 ($ in millions) 2022 2021 $ Change % Change Revenue $ 2,872 $ 3,092 $ (220) (7) % Operating Costs and Expenses Cost of services (excluding depreciation and amortization) 2,236 2,335 (99) (4) % Selling, general and administrative (excluding depreciation and amortization) 332 382 (50) (13) % Research and development (excluding depreciation and amortization) 5 3 2 67 % Depreciation and amortization 168 265 (97) (37) % Restructuring and related costs 24 31 (7) (23) % Interest expense 59 38 21 55 % (Gain) loss on divestitures and transaction costs (159) 1 (160) n/m Litigation settlements (recoveries), net (31) 2 (33) n/m Loss on extinguishment of debt — 2 (2) n/m Other (income) expenses, net — 4 (4) n/m Total Operating Costs and Expenses 2,634 3,063 (429) Income (Loss) Before Income Taxes 238 29 209 Income tax expense (benefit) 87 17 70 Net Income (Loss) $ 151 $ 12 $ 139 CNDT Q3 2022 Form 10-Q 26 Table of Contents Revenue Revenue for the three and nine months ended September 30, 2022 decreased, compared to the prior year periods, primarily due to lower federal stimulus revenue in the Government Services segment, lost business from prior years, as well as negative foreign exchange translation impact, particularly the Euro and British pound, partially offset by recognition of a $15 million revenue benefit associated with a minimum annual volume commitment contract with a large client, higher interest rates positively impacting our Benefit Wallet business and new business ramp across all segments. Cost of Services (excluding depreciation and amortization) Cost of services for the three and nine months ended September 30, 2022 decreased, compared to the prior year periods, driven by lost business from prior years, increased operational efficiency and favorable foreign exchange translation impact. Selling, General and Administrative (SG&A) (excluding depreciation and amortization) SG&A for the three months ended September 30, 2022 decreased, compared to the prior year period, driven by progress in our efficiency initiatives, most notably within shared technology infrastructure, as well as lower variable employee costs. SG&A for the nine months ended September 30, 2022 decreased, compared to the prior year period, primarily driven by the recovery of $14 million of defense costs as part of the settlement with insurance carriers relating to the previously disclosed State of Texas matter, progress in our efficiency initiatives, most notably within shared technology infrastructure, as well as lower variable employee costs. Depreciation and Amortization Depreciation and amortization for the three and nine months ended September 30, 2022 decreased, compared to the prior year periods, primarily due to portions of certain customer relationship intangible assets from acquisitions in years past being fully amortized. Restructuring and Related Costs We engage in a series of restructuring programs related to optimizing our employee base, reducing our real estate footprint, exiting certain activities, outsourcing certain internal functions, consolidating our data centers and engaging in other actions designed to reduce our cost structure and improve productivity. The following are the components of our Restructuring and related costs: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2022 2021 2022 2021 Severance and related costs $ 2 $ — $ 3 $ 2 Data center consolidation 2 4 9 19 Termination and asset impairment costs — 5 10 7 Total net current period charges 4 9 22 28 Consulting and other costs (1) — 1 2 3 Restructuring and related costs $ 4 $ 10 $ 24 $ 31 ___________ (1) Represents professional support costs associated with certain strategic transformation programs. Refer to Note 7 – Restructuring Programs and Related Costs to the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs. CNDT Q3 2022 Form 10-Q 27 Table of Contents Interest Expense Interest expense represents interest on long-term debt and the amortization of debt issuance costs. On October 15, 2021, we completed the refinancing of our previously outstanding debt, which extended the maturity profile of our debt. The increase in Interest expense for the three and nine months ended September 30, 2022, compared to the prior year periods, was driven by higher interest rates on our refinanced credit facilities, partially offset by a lower total outstanding debt balance. (Gain) Loss on Divestitures and Transaction Costs The divestiture of the Midas business in the first quarter of 2022 resulted in a gain of $166 million. Additionally, professional fees and other costs related to certain consummated and non-consummated transactions considered by the Company are included in this financial statement line item. Litigation Settlements (Recoveries), Net Litigation settlements (recoveries), net for the nine months ended September 30, 2022 primarily consist of $24 million of insurance recoveries recorded in the first quarter of 2022 related to the previously disclosed State of Texas matter. Refer to Note 13 – Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information. Income Taxes The effective tax rate for the three months ended September 30, 2022 was 33.8%, compared to 38.3% for the three months ended September 30, 2021. The September 30, 2022 rate was higher than the U.S. statutory rate of 21%, primarily due to charges related to return to provision adjustments for 2021 and charges of valuation allowances partially offset by changes in the geographic mix of income. The effective tax rate for the three months ended September 30, 2021 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 return to provision adjustment for 2020. 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, 2022 was 27.5%. The normalized effective tax rate for the three months ended September 30, 2021 was 30.4%, predominantly due to excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring costs. The normalized effective tax rate for the third quarter of 2022 was lower than the third quarter of 2021 rate primarily due to the geographic mix of income. The effective tax rate for the nine months ended September 30, 2022 was 36.7%, compared to 58.5% for the nine months ended September 30, 2021. The September 30, 2022 rate was higher than the U.S. statutory rate of 21%, primarily due to the geographic mix of income, state and local taxes and permanently non-deductible amounts related to the Midas divestiture transaction, partially offset by the tax benefit of valuation allowances released due to the gain from this divestiture and tax credits. The effective tax rate for the nine months ended September 30, 2021 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. Excluding the impact of the Midas divestiture, the litigation insurance recoveries, amortization of intangible assets, restructuring costs and certain discrete tax items, the normalized effective tax rate for the nine months ended September 30, 2022 was 32.4%. The normalized effective tax rate for the nine months ended September 30, 2021 was 26.8%, predominantly due to excluding the impact of discrete tax adjustments, charges for amortization of intangible assets and restructuring costs. The normalized effective tax rate for the year-to-date September 30, 2022 was higher than the year-to-date September 30, 2021 rate predominantly due to the geographic mix of income, increase in permanent tax differences and lower adjusted pre-tax income. We believe it is reasonably possible that unrecognized tax benefits of approximately $3 million will reverse within 12 months due to settlements. A payment of $8 million was made in June 2022 decreasing unrecognized tax benefits. CNDT Q3 2022 Form 10-Q 28 Table of Contents On August 16, 2022, the Inflation Reduction Act (IRA) was enacted. The law imposes two new taxes: (i) 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income of corporations with profits over $1 billion, which is effective for tax years beginning after December 31, 2022, and (ii) a 1% surcharge on corporate stock buybacks of public US companies, which applies to repurchases of stock after December 31, 2022. We do not expect any material impacts from this tax law change. Operations Review of Segment Revenue and Profit In the first quarter of 2022, we realigned certain clients between reportable segments to reflect how we currently manage our business. Certain clients were reclassified from the Government Services reportable segment to the Commercial reportable segment to align with a product view of the business. This change had an insignificant impact. Additionally, in the first quarter of 2022, in order to provide greater visibility into the profitability of our segments, certain real estate costs that were previously included in Unallocated Costs have been allocated to each of the reportable segments. As described in Note 5 – Assets/Liabilities Held for Sale and Divestiture, we sold our Midas Suite of patient safety, quality and advanced analytics solutions to a third party in the first quarter of 2022. Accordingly, the results of this disposed business, which had been reported in the Commercial segment have been reclassified to the Divestitures segment. All prior periods presented have been recast to reflect these changes. Our financial performance is based on Segment Profit/(Loss) and Segment Adjusted EBITDA for the following three segments: • Commercial; • Government Services; and • Transportation. Divestitures includes our Midas business which was sold in the first quarter of 2022. Unallocated Costs includes IT infrastructure costs that are shared by multiple reportable segments, enterprise application costs and certain corporate overhead expenses not directly attributable or allocated to our reportable segments. We continue to modernize a significant portion of our infrastructure with new systems and processes and consolidate our data centers as part of our quality and efficiency initiatives. There is a risk, however, that our modernization efforts and data center consolidations could materially and adversely disrupt our operations. See Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information. CNDT Q3 2022 Form 10-Q 29 Table of Contents Results of financial performance by segment were: Three Months Ended September 30, (in millions) Commercial Government Services Transportation Divestitures Unallocated Costs Total 2022 Revenue $ 504 $ 291 $ 182 $ — $ — $ 977 Segment profit (loss) $ 44 $ 79 $ 16 $ — $ (87) $ 52 Segment depreciation and amortization $ 24 $ 9 $ 9 $ — $ 11 $ 53 Adjusted EBITDA $ 68 $ 88 $ 25 $ — $ (76) $ 105 % of Total Revenue 51.6 % 29.8 % 18.6 % — % — % 100.0 % Adjusted EBITDA Margin 13.5 % 30.2 % 13.7 % — % — % 10.7 % 2021 Revenue $ 493 $ 346 $ 180 $ 19 $ — $ 1,038 Segment profit (loss) $ 16 $ 125 $ 13 $ 11 $ (89) $ 76 Segment depreciation and amortization $ 24 $ 8 $ 9 $ 1 $ 12 $ 54 Adjusted EBITDA $ 40 $ 133 $ 22 $ 12 $ (77) $ 130 % of Total Revenue 47.5 % 33.4 % 17.3 % 1.8 % — % 100.0 % Adjusted EBITDA Margin 8.1 % 38.4 % 12.2 % 47.1 % — % 12.5 % Nine Months Ended September 30, (in millions) Commercial Government Services Transportation Divestitures Unallocated Costs Total 2022 Revenue $ 1,486 $ 856 $ 523 $ 7 $ — $ 2,872 Segment profit (loss) $ 94 $ 224 $ 40 $ 2 $ (218) $ 142 Segment depreciation and amortization $ 74 $ 25 $ 26 $ — $ 34 $ 159 Adjusted EBITDA $ 168 $ 249 $ 66 $ 2 $ (184) $ 301 % of Total Revenue 51.8 % 29.8 % 18.2 % 0.2 % — % 100.0 % Adjusted EBITDA Margin 11.3 % 29.1 % 12.6 % 28.6 % — % 10.5 % 2021 Revenue $ 1,493 $ 996 $ 549 $ 54 $ — $ 3,092 Segment profit (loss) $ 59 $ 320 $ 51 $ 27 $ (247) $ 210 Segment depreciation and amortization $ 74 $ 21 $ 26 $ 3 $ 39 $ 163 Adjusted EBITDA $ 133 $ 341 $ 77 $ 30 $ (208) $ 373 % of Total Revenue 48.3 % 32.2 % 17.8 % 1.7 % — % 100.0 % Adjusted EBITDA Margin 8.9 % 34.2 % 14.0 % 51.4 % — % 12.1 % CNDT Q3 2022 Form 10-Q 30 Table of Contents (in millions) Three Months Ended September 30, Nine Months Ended September 30, Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2022 2021 2022 2021 Income (Loss) Before Income Taxes $ 23 $ 19 $ 238 $ 29 Reconciling items: Amortization of acquired intangible assets 2 31 11 103 Restructuring and related costs 4 10 24 31 Interest expense 22 12 59 38 (Gain) loss on divestitures and transaction costs 1 — (159) 1 Litigation settlements (recoveries) — — (31) 2 Loss on extinguishment of debt — — — 2 Other (income) expenses, net — 4 — 4 Segment Pre-tax Income (Loss) $ 52 $ 76 $ 142 $ 210 Segment depreciation and amortization (including contract inducements) $ 53 $ 54 $ 159 $ 163 Adjusted EBITDA $ 105 $ 130 $ 301 $ 373 Commercial Segment Revenue Commercial revenue for the three months ended September 30, 2022 was higher compared to the prior year period primarily due to recognition of the revenue benefit associated with a minimum annual volume commitment contract with a large client, as well as higher interest rates positively impacting our Benefit Wallet business, partially offset by unfavorable exchange rate movement. Commercial revenue for the nine months ended September 30, 2022 was lower compared to the prior year periods, primarily due to the merger of two of our clients resulting in lower volumes as well as unfavorable exchange rate movement and lost business from prior years, partially offset by recognition of the revenue benefit associated with a minimum annual volume commitment contract with a large client, higher interest rates positively impacting our Benefit Wallet business and strong new business ramp. Segment Profit and Adjusted EBITDA Increases in the Commercial segment profit and adjusted EBITDA margin for the three and nine months ended September 30, 2022, compared to the prior year periods, were mainly driven by increased operational efficiency and expense reductions resulting from progress in our efficiency initiatives, higher interest rates positively impacting our Benefit Wallet business and recognition of the revenue benefit associated with a minimum annual volume commitment contract with a large client more than offsetting the dynamics of a challenging labor market in both North America and Europe. Government Services Segment Revenue Government Services revenue for the three and nine months ended September 30, 2022 decreased, compared to the prior year periods. This decrease was primarily driven by significantly lower Federal stimulus revenue, while increases in volume, price and new business offset lost business from prior years. Segment Profit and Adjusted EBITDA Decreases in the Government Services segment profit and adjusted EBITDA margin for the three and nine months ended September 30, 2022, compared to the prior year periods, were mainly driven by lower Federal stimulus revenue. CNDT Q3 2022 Form 10-Q 31 Table of Contents Transportation Segment Revenue Transportation revenue for the three months ended September 30, 2022 increased slightly, compared to the prior year period, primarily driven by increased volumes offsetting the unfavorable exchange rate movement, particularly the Euro. Transportation revenue for the nine months ended September 30, 2022 decreased, compared to the prior year period, primarily driven by unfavorable exchange rate movement, particularly the Euro, and a one-time revenue benefit in the prior year period. Segment Profit and Adjusted EBITDA Transportation segment profit and adjusted EBITDA margin for the three months ended September 30, 2022 increased primarily due to progress in our efficiency initiatives. Transportation segment profit and adjusted EBITDA margin decreased for the nine months ended September 30, 2022, compared to the prior year period, mainly driven by the impact of lost business, a one-time item benefiting the prior year period and the impact of unfavorable exchange rate movement, partially offset by new business. Divestitures Revenue, Segment Profit (Loss) and Adjusted EBITDA The decline in revenue, segment profit and Adjusted EBITDA for the three and nine months ended September 30, 2022 was primarily due to the sale of the Midas Suite of products. The current year includes slightly more than one month of activity versus the prior year, which includes a full nine months of activity. Unallocated Costs Unallocated Costs for the three months ended September 30, 2022 were substantially unchanged compared to the prior year period. Unallocated Costs for the nine months ended September 30, 2022 decreased, compared to the prior year period, primarily due to a portion of the recovery of defense costs as part of the settlement with insurance carriers relating to the previously disclosed State of Texas matter that settled in February 2019 that was allocated to SG&A, progress with our efficiency initiatives and lower variable employee costs. Metrics Signings Signings are defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. TCV is the estimated total contractual revenue related to signed contracts. TCV signings is defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. Due to the inconsistency of when existing contracts end, quarterly and yearly comparisons are not a good measure of renewal performance. New business ACV is calculated as TCV divided by the contract term, in months, multiplied by 12 for an annual measure. For the three months ended September 30, 2022, the Company signed $191 million of new business ACV, an increase for the fifth consecutive quarter, with proportional contributions from all segments. For the nine months ended September 30, 2022, the Company signed $538 million of new business ACV, down 13% from the prior year, primarily due to $158 million of federal stimulus signings and volume from a large client we no longer include in the sales metrics. Signing information for the three and nine months ended September 30, 2022 and 2021 is as follows: CNDT Q3 2022 Form 10-Q 32 Table of Contents Three Months Ended September 30, 2022 vs. 2021 ($ in millions) 2022 (3) 2021 (3) $ Change % Change New business ACV $ 191 $ 150 $ 41 27 % New business TCV $ 348 $ 339 $ 9 3 % Renewals TCV 658 276 382 138 % Total Signings $ 1,006 $ 615 $ 391 64 % Annual recurring revenue signings (1) $ 89 $ 86 $ 3 3 % Non-recurring revenue signings (2) $ 107 $ 68 $ 39 57 % Nine Months Ended September 30, 2022 vs. 2021 ($ in millions) 2022 (3) 2021 (3) $ Change % Change New business ACV $ 538 $ 617 $ (79) (13) % New business TCV $ 1,208 $ 1,462 $ (254) (17) % Renewals TCV 1,896 1,374 522 38 % Total Signings $ 3,104 $ 2,836 $ 268 9 % Annual recurring revenue signings (1) $ 296 $ 294 $ 2 1 % Non-recurring revenue signings (2) $ 251 $ 344 $ (93) (27) % ___________ (1) Recurring revenue signings are for new business contracts longer than one year. (2) Non-recurring revenue signings are for contracts shorter than one year. (3) Adjusted to remove Midas new business signings. The total new business pipeline at the end of September 30, 2022 and 2021 was $24.0 billion and $21.0 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 five quarters was as follows: (in millions) Net ARR Activity metric September 30, 2022 $ 70 June 30, 2022 104 March 31, 2022 102 December 31, 2021 128 September 30, 2021 132 CNDT Q3 2022 Form 10-Q 33 Table of Contents Capital Resources and Liquidity As of September 30, 2022 and December 31, 2021, total cash and cash equivalents were $577 million and $415 million, respectively. We also have a $550 million revolving line of credit for our various cash needs, of which $2 million was used for letters of credit. In the first quarter of 2022, we repaid $100 million that was outstanding as of December 31, 2021 under our revolving line of credit. The net amount available to be drawn upon under our revolving line of credit as of September 30, 2022, was $548 million. As of September 30, 2022, our total debt outstanding was $1,272 million of which $33 million was due within one year. Refer to Note 7 – 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 our revolving line of credit 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: Nine Months Ended September 30, (in millions) 2022 2021 Better (Worse) Net cash provided by (used in) operating activities $ 93 $ 158 $ (65) Net cash provided by (used in) investing activities $ 216 $ (97) 313 Net cash provided by (used in) financing activities $ (132) $ (112) (20) Operating activities The net decrease in cash generated from operating activities of $65 million, compared to the prior year period, was primarily related to lower Adjusted EBITDA, higher cash tax payments, which are mainly related to the Midas gain, and higher cash interest paid. These items were partially offset by the $38 million of insurance recoveries related to the previously disclosed State of Texas matter. Investing activities The increase in cash provided by investing activities of $313 million was primarily due to the proceeds from the divestiture of the Midas business, partially offset by slightly increased spending related to modernizing our infrastructure and productivity tools. Financing activities The increase in cash used in financing activities was primarily related to the repayment of the $100 million borrowed under the revolver partially offset by lower Term loan and Senior note principal payments. CNDT Q3 2022 Form 10-Q 34 Table of Contents Sales of Accounts Receivable We enter into factoring agreements in the normal course of business as part of our cash and liquidity management, to sell certain accounts receivable without recourse to third-party financial institutions. During the third quarter of 2022, we replaced our previously outstanding factoring agreements with an agreement with a new third-party financial institution with substantially equivalent terms. The transactions under this agreement are treated as a sale and are accounted for as a reduction in accounts receivable because the agreement transfers effective control over, and risk related to, the receivables to the buyer. Cash proceeds from this arrangement are included in cash flow from operating activities in the Consolidated Statements of Cash Flows. The net impact from the sales of accounts receivable on net cash provided by (used in) operating activities for the nine months ended September 30, 2022 and 2021 was $35 million and $(21) million, respectively. Material Cash Requirements from Contractual Obligations The Company believes its balances of cash and cash equivalents, which totaled $577 million as of September 30, 2022, along with cash generated by operations and amounts available for borrowing under its 2021 Revolving Credit Facility, will be sufficient to satisfy its cash requirements over the next 12 months and beyond. At September 30, 2022, the Company’s material cash requirements include debt, leases and estimated purchase commitments. See Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information on our material cash requirements. Critical Accounting Estimates and Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying Condensed Consolidated Financial Statements and notes thereto. There have been no significant changes during the nine months ended September 30, 2022 to our critical accounting estimates and policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. Recent Accounting Changes See Note 2 – Recent Accounting Pronouncements for information on accounting standards adopted during the current year, as well as recently issued accounting standards not yet required to be adopted and the expected impact of the adoption of these accounting standards.