What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-02 compared with 2023-11-01 · 130 added, 244 removed, 420 unchanged (47% of the section changed)

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data) 2024 2023

7 unchanged sentences

Interest expense 27 27

Goodwill impairment 287 — 287 —

(Gain) loss on divestitures and transaction costs, net ( 161 ) 2

Litigation settlements (recoveries), net 4 ( 21 )

Loss on extinguishment of debt 2 —

Other (income) expenses, net ( 2 ) ( 1 )

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023

11 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share data in thousands) September 30, 2023 December 31, 2022

(in millions, except share data in thousands) March 31, 2024 December 31, 2023

Cash and cash equivalents $ 415 $ 498

Accounts receivable, net 600 559

Assets held for sale 192 180

Contract assets 166 178

12 unchanged sentences

Unearned income 94 91

Liabilities held for sale 56 58

Other current liabilities 324 328

24 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 30,

Three Months Ended

(in millions) 2024 2023

5 unchanged sentences

Deferred income taxes 13 ( 8 )

Goodwill impairment 287 —

Amortization of debt financing costs 1 1

Loss on extinguishment of debt 2 —

(Gain) loss on divestitures and sales of fixed assets, net ( 164 ) —

13 unchanged sentences

Cash Flows from Financing Activities:

Payments on revolving credit facility — ( 100 )

Payments on debt ( 175 ) ( 10 )

2 unchanged sentences

Dividends paid on preferred stock ( 2 ) ( 2 )

Contribution from noncontrolling interest 3 —

Net cash provided by (used in) financing activities ( 199 ) ( 19 )

3 unchanged sentences

Cash, Cash Equivalents and Restricted Cash at End of period (1)

(1) Includes $ 4 million and $ 10 million of restricted cash as of September 30, 2023 and 2022, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

(1) Includes $ 9 million and $ 21 million of restricted cash as of March 31, 2024 and 2023, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

Three Months Ended September 30, 2023

(in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

Non-controlling Interest Shareholders' Equity

Balance at June 30, 2023 $ 2 $ ( 1 ) $ 3,931 $ ( 2,561 ) $ ( 444 ) $ — $ 927

Dividends - preferred stock, $ 20 /share

— — — ( 2 ) — — ( 2 )

Stock incentive plans, net — — 6 — — — 6

Treasury stock purchases — ( 6 ) — — — — ( 6 )

Contribution from noncontrolling interest — — — — — 3 3

Comprehensive Income (Loss):

Net Income (Loss) — — — ( 289 ) — — ( 289 )

Other comprehensive income (loss), net — — — — ( 19 ) — ( 19 )

Total Comprehensive Income (Loss), Net — — — ( 289 ) ( 19 ) — ( 308 )

Balance at September 30, 2023 $ 2 $ ( 7 ) $ 3,937 $ ( 2,852 ) $ ( 463 ) $ 3 $ 620

Three Months Ended September 30, 2022

(in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

Non-controlling Interest Shareholders'

Balance at June 30, 2022 $ 2 $ — $ 3,918 $ ( 2,220 ) $ ( 475 ) $ — $ 1,225

Dividends - preferred stock, $ 20 /share

— — — ( 2 ) — — ( 2 )

Stock incentive plans, net — — 6 — — — 6

Treasury stock purchases — — — — — — —

Contribution from noncontrolling interest — — — — — — —

Comprehensive Income (Loss):

Net Income (Loss) — — — 15 — — 15

Other comprehensive income (loss), net — — — — ( 38 ) — ( 38 )

Total Comprehensive Income (Loss), Net — — — 15 ( 38 ) — ( 23 )

Balance at September 30, 2022 $ 2 $ — $ 3,924 $ ( 2,207 ) $ ( 513 ) $ — $ 1,206

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

(in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

5 unchanged sentences

Treasury stock purchases — ( 17 ) — — — — ( 17 )

Contribution from noncontrolling interest — — — — — 3 3

Comprehensive Income (Loss):

2 unchanged sentences

Total Comprehensive Income (Loss), Net — — — 99 ( 11 ) — 88

Balance at September 30, 2023 $ 2 $ ( 7 ) $ 3,937 $ ( 2,852 ) $ ( 463 ) $ 3 $ 620

Nine Months Ended September 30, 2022

Balance at March 31, 2024 $ 2 $ ( 44 ) $ 3,941 $ ( 2,752 ) $ ( 446 ) $ 4 $ 705

Three Months Ended March 31, 2023

(in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1)

5 unchanged sentences

Treasury stock purchases — — — — — — —

Contribution from noncontrolling interest — — — — — — —

Comprehensive Income (Loss):

2 unchanged sentences

Total Comprehensive Income (Loss), Net — — — ( 6 ) 18 — 12

Balance at September 30, 2022 $ 2 $ — $ 3,924 $ ( 2,207 ) $ ( 513 ) $ — $ 1,206

Balance at March 31, 2023 $ 2 $ — $ 3,926 $ ( 2,551 ) $ ( 448 ) $ — $ 929

(1) AOCL - Accumulated other comprehensive loss.

6 unchanged sentences

Conduent Incorporated is a New York corporation, organized in 2016.

As a global technology-led business process solutions company, Conduent delivers digital business solutions and services spanning the commercial, government and transportation spectrum – creating exceptional outcomes for its clients and the millions of people who count on them.

The Company leverages cloud computing, artificial intelligence, machine learning, automation and advanced analytics to deliver mission-critical solutions.

Through a dedicated global team of associates, process expertise, and advanced technologies, Conduent’s solutions and services digitally transform its clients’ operations to enhance customer experiences, improve performance, increase efficiencies and reduce costs.

As a global technology-led company, Conduent delivers digital business solutions and services to streamline and manage enterprise processes on behalf of commercial, government and transportation organizations – creating valuable outcomes for its clients and the millions of people who count on them.

Conduent’s solutions combine innovative technology platforms with automation, artificial intelligence, process expertise and services that improve quality, efficiency and productivity.

With a dedicated global team of approximately 57,000 associates, Conduent solutions span customer service, business administration and operations, healthcare administration and payment management.

Across many industries and government agencies, Conduent reduces costs, improves end-user experiences and enables digital transformation for its global clients.

Basis of Presentation

4 unchanged sentences

The year-end Condensed Consolidated Balance Sheet was derived from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Certain reclassifications have been made to prior year information to conform to current year presentation.

Intercompany balances and transactions have been eliminated.

5 unchanged sentences

This adjustment resulted in a reduction to revenue and income (loss) before income taxes of $ 7 million and a corresponding decrease to accounts receivable of $ 1 million and an increase to other current liabilities of $ 6 million in the first quarter of 2023.

The Company evaluated the impact of the out-of-period adjustment and concluded it was not material to any previously issued interim or annual consolidated financial statements and the adjustment is not expected to be material to the year ending December 31, 2023.

The Company has evaluated subsequent events through November 1, 2023, and no material subsequent events were identified.

The Company has evaluated subsequent events through May 2, 2024, and apart from the matters disclosed in Note 5 – Assets/Liabilities Held for Sale and Divestitures, Note 7 – Debt and Note 16 - Subsequent Event, no material subsequent events were identified.

Use of Estimates

4 unchanged sentences

The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

As of September 30, 2023, the effects of global macroeconomic and geopolitical uncertainty on the Company's business, results of operations and financial condition continue to evolve.

As a result, many of the Company's estimates and assumptions continue to require increased judgment and carry a higher degree of variability and volatility.

As events continue to evolve and additional information becomes available, the Company's estimates may change materially in the future.

CNDT Q3 2023 Form 10-Q

Summary of Significant Accounting Policies

There have been no changes to the Company's Significant Accounting Policies as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 other than the addition of policies related to a share repurchase program and Noncontrolling interest as described below.

Share Repurchase Program

On May 16, 2023, the Board of Directors authorized a share repurchase program, granting approval for the Company to repurchase up to $ 75 million of its common stock over the next three years .

The Company has the discretion to repurchase shares periodically through open market transactions and may include Rule 10b5-1 trading plans.

This share repurchase program does not obligate the Company to acquire a specific number of shares and the program may be modified, suspended or discontinued at any time at the Company’s discretion without prior notice.

The Company holds repurchased shares of common stock as treasury stock.

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders' equity.

The Company accrues the cost of repurchased shares and excludes such shares from the calculation of basic and diluted earnings per share, as of the trade date.

The Company recognizes a liability for share repurchases which have not settled and for which cash has not been paid in Other current liabilities on the Company's Condensed Consolidated Balance Sheets.

Noncontrolling Interest

The Company's Consolidated Financial Statements include the historical basis of assets, liabilities, revenues and expenses of the individual businesses of the Company, including joint ventures over which the Company has a controlling financial interest.

Control is based on ownership interest.

The ownership interest held by an owner other than the Company in a less than wholly owned subsidiary is classified as a non-controlling interest.

Net income (loss) is allocated to the noncontrolling interest based on ownership interest.

In May 2023, the Company signed a new customer contract with the State of Victoria, Australia to provide the next generation of the state's public transport ticketing system.

As a result, the Company and Convergint Australia Pty Ltd (“Convergint”) entered into a shareholder agreement to form Conduent Victoria Ticketing System Pty Ltd (“Conduent Victoria”).

The Company holds an 80 % equity investment in Conduent Victoria, while the remaining 20 % is owned by Convergint.

For the three and nine months ended September 30, 2023, noncontrolling interest in Conduent Victoria was not material to the Company's Condensed Consolidated Statements of Income (Loss) or Condensed Consolidated Statements of Comprehensive Income (Loss) and, therefore, the Company did not present any separate disclosures for such noncontrolling interest in those statements.

There have been no changes to the Company's significant accounting policies as described in the Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

CNDT Q1 2024 Form 10-Q

Note 2 – Recent Accounting Pronouncements

3 unchanged sentences

New Accounting Standards To Be Adopted

The Company has considered all recent accounting standards issued, but not yet effective, and does not expect any to have a material impact on its Consolidated Financial Statements.

CNDT Q3 2023 Form 10-Q

Segment Reporting:

In November 2023, the Financial Accounting Standards Board ("FASB") issued final guidance that expands reportable segment disclosures, particularly incremental segment expense disclosures.

This guidance is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Company is not early adopting this guidance.

The Company is currently in the process of gathering the data required to be disclosed upon adoption.

As the guidance is disclosure related, adoption will not have any impact on the Company's Condensed Consolidated Financial Statements.

Income Taxes:

In December 2023, the FASB issued final guidance designed to improve income tax disclosures, particularly disclosures around business entities' income tax rate reconciliation and income taxes paid.

The guidance requires consistent categories and greater disaggregation of information in the reconciliation of an entity's statutory tax rate to its effective tax rate and information about income taxes paid disaggregated by jurisdiction.

This guidance is effective for fiscal years beginning after December 15, 2024.

The Company is not early adopting this guidance.

The Company is currently in the process of gathering the data required to be disclosed upon adoption.

As the guidance is disclosure related, adoption will not have any impact on the Company's Condensed Consolidated Financial Statements.

Note 3 – Revenue

2 unchanged sentences

Refer to Note 4 – Segment Reporting for additional information on the Company's reportable segments.

CNDT Q1 2024 Form 10-Q

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023

14 unchanged sentences

Total Transportation 180 150

Divestitures — — — 7

Total Consolidated Revenue $ 921 $ 922

9 unchanged sentences

Unearned income includes payments received in advance of performance under the contract, which are realized when the associated revenue is recognized under the contract.

CNDT Q3 2023 Form 10-Q

The following table provides information about the balances of the Company's contract assets, unearned income and receivables from contracts with customers:

(in millions) September 30, 2023 December 31, 2022

(in millions) March 31, 2024 December 31, 2023

Contract Assets (Unearned Income)

8 unchanged sentences

(2) Presented in Other long-term liabilities in the Condensed Consolidated Balance Sheets.

Revenues of $ 8 million and $ 50 million were recognized during the three and nine months ended September 30, 2023, respectively, related to the Company's unearned income at December 31, 2022.

Revenues of $ 14 million and $ 67 million were recognized during the three and nine months ended September 30, 2022, respectively, related to the Company's unearned income at December 31, 2021.

The Company had no material asset impairment charges related to contract assets for the three and nine months ended September 30, 2023 or 2022.

Revenues of $ 44 million were recognized during the three months ended March 31, 2024 related to the Company's unearned income at December 31, 2023.

Revenues of $ 29 million were recognized during the three months ended March 31, 2023 related to the Company's unearned income at December 31, 2022.

CNDT Q1 2024 Form 10-Q

The Company had no material asset impairment charges related to contract assets for the three months ended March 31, 2024 or 2023.

Transaction Price Allocated to the Remaining Performance Obligations

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at September 30, 2023 was approximately $ 1.6 billion.

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at March 31, 2024 was approximately $ 1.5 billion.

The Company expects to recognize approximately 63 % of this revenue over the next two years and the remainder thereafter.

1 unchanged sentence

The Company's reportable segments correspond to how it organizes and manages the business, as defined by the Company's Chief Executive Officer, who is also the Company's Chief Operating Decision Maker (the "CODM").

The Company's segments involve the delivery of business process services and include service arrangements where it manages a customer's business activity or process.

The Company's segments involve the delivery of business process solutions on behalf of its clients to improve cost, performance, and end-user experiences.

The Company's financial performance is based on Segment Profit (Loss) for its three reportable segments (Commercial, Government and Transportation), Divestitures and Unallocated Costs.

The Company's CODM does not evaluate operating segments using discrete asset information.

The Commercial segment provides business process services and customized solutions to clients in a variety of industries.

Across the Commercial segment, the Company operates on its clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for the Company's clients and their consumers and employees.

The Commercial segment provides business process services and customized solutions and services to clients in a variety of industries.

Across the Commercial segment, the Company operates on its clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enhance performance for the Company's clients and deliver better experiences for their consumers and employees.

The Government 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.

The solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations.

federal, state and local government agencies and foreign governments for public assistance, healthcare programs and administration, transaction processing and payment services.

The solutions in this segment help governments provide constituents access and delivery of benefits, respond to changing rules for eligibility and keep pace with increasing citizen expectations.

Transportation:

The Transportation segment provides systems, support, and revenue-generating solutions, to government transportation agency clients.

The Company delivers mission-critical public safety, mobility and digital payment solutions that streamline operations, have a positive impact on the environment and increase revenue and reduce congestion while creating safe, seamless travel experiences for consumers.

Divestitures includes the Company's Midas Suite of patient safety, quality and advanced analytics solutions which it sold to a third party in the first quarter of 2022.

CNDT Q3 2023 Form 10-Q

The Transportation segment provides systems, support, and revenue-generating solutions, to government transportation agencies.

The Company delivers mission-critical public safety, mobility and digital payment solutions that streamline operations, increase revenue and reduce congestion while creating safe, seamless travel experiences for consumers while reducing impact on the environment.

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 the reportable segments.

1 unchanged sentence

Three Months Ended

September 30,

(in millions) Commercial Government Transportation Divestitures Unallocated Costs Total

Revenue $ 465 $ 290 $ 177 $ — $ — $ 932

Segment profit (loss) $ 6 $ 84 $ ( 4 ) $ — $ ( 75 ) $ 11

Revenue $ 504 $ 291 $ 182 $ — $ — $ 977

Segment profit (loss) $ 44 $ 79 $ 16 $ — $ ( 87 ) $ 52

Nine Months Ended

September 30,

(in millions) Commercial Government Transportation Divestitures Unallocated Costs Total

(in millions) Commercial Government Transportation Unallocated Costs Total

Revenue $ 483 $ 258 $ 180 $ — $ 921

2 unchanged sentences

Segment profit (loss) $ 35 $ 73 $ ( 8 ) $ ( 70 ) $ 30

CNDT Q1 2024 Form 10-Q

(in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2024 2023

4 unchanged sentences

Interest expense 27 27

Goodwill impairment 287 — 287 —

(Gain) loss on divestitures and transaction costs, net ( 161 ) 2

Litigation settlements (recoveries), net 4 ( 21 )

Loss on extinguishment of debt 2 —

Other (income) expenses, net ( 2 ) ( 1 )

1 unchanged sentence

Refer to Note 3 – Revenue for additional information on disaggregated revenues of the reportable segments.

Note 5 – Divestitures

Announced Transfer of BenefitWallet Portfolio

Note 5 – Assets/Liabilities Held for Sale and Divestitures

Transfer of BenefitWallet Portfolio

In September 2023, the Company entered into a Custodial Transfer and Asset Purchase Agreement to transfer its BenefitWallet health savings account and medical savings account portfolio (collectively, the "Portfolio") to HealthEquity, Inc.

("HealthEquity").

The transfer is expected to close in multiple tranches during the first half of 2024 and is subject to the satisfaction of certain customary closing conditions.

As of September 30, 2023, there were no asset or liability balances related to the Portfolio that would require disclosure as assets and liabilities held for sale on the Company's Condensed Consolidated Balance Sheet.

The Portfolio generated revenue of $ 32 million and $ 95 million in the three and nine months ended September 30, 2023, respectively and $ 20 million and $ 46 million in the three and nine months ended September 30, 2022, respectively.

CNDT Q3 2023 Form 10-Q

Completed Divestiture

On February 8, 2022, the Company completed the sale of its Midas business to Symplr Software, Inc.

The Company received $ 322 million of cash consideration for this divestiture ($ 321 million in the first quarter of 2022 and $ 1 million in the second quarter of 2022).

The divestiture generated a pre-tax gain of $ 166 million ($ 165 million in the first quarter of 2022 and $ 1 million in the second quarter of 2022), which is included in (Gain) loss on divestitures and transaction costs, net.

The Company recorded approximately $ 62 million of income taxes in connection with the divestiture.

The revenue generated by this business was $ 7 million for the nine months ended September 30, 2022.

Note 6 – Software, Net

Internal Use and Product Software

Internal use and Product software are included in Other long-term assets on the Company's Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, with their respective balances as follows:

(in millions) September 30, 2023 December 31, 2022

Internal use software, at cost $ 636 $ 621

Accumulated amortization and impairment ( 476 ) ( 432 )

Internal use software, net

Product software, at cost $ 221 $ 207

Accumulated amortization and impairment ( 126 ) ( 97 )

Product software, net

During the third quarter of 2023, the Company made a strategic decision to abandon an Internal use software project and a customer decided not to implement a Product software solution.

Consequently, the Company recorded an impairment charge of $ 19 million and $ 6 million in the third quarter of 2023, respectively, for the previously capitalized software costs associated with these projects.

The total impairment charge of $ 25 million related to these software projects are included in Depreciation and amortization line item on the Condensed Consolidated Statements of Income (Loss).

Note 7 – Goodwill

The following table presents the changes in the carrying amount of goodwill, by reportable segment:

(in millions) Commercial Government Transportation Total

Balance at December 31, 2022 $ 287 $ 611 $ 57 $ 955

Foreign currency translation — — — —

Impairment ( 287 ) — — ( 287 )

Balance at September 30, 2023 $ — $ 611 $ 57 $ 668

Gross goodwill $ 2,198 $ 1,365 $ 637 $ 4,200

Accumulated impairment ( 2,198 ) ( 754 ) ( 580 ) ( 3,532 )

Balance at September 30, 2023 $ — $ 611 $ 57 $ 668

Impairment Charge

In September 2023, the Company entered into a Custodial Transfer and Asset Purchase Agreement (the "Purchase Agreement") to transfer its BenefitWallet health savings account and medical savings account portfolio, which is reported within the Company’s Commercial segment.

Since the Purchase Agreement does not represent a disposition of a business, no goodwill was allocated to the Portfolio related to this transaction.

("HealthEquity") for an aggregate purchase price of $ 425 million (the "Purchase Price"), subject to customary purchase price adjustments.

As of March 31, 2024, there were no asset or liability balances related to the Portfolio that would require disclosure as assets and liabilities held for sale on the Company's Condensed Consolidated Balance Sheet.

The transfer is closing in multiple tranches.

The first tranche closed on March 7, 2024 with the Company receiving $ 164 million as the pro-rata share of the Purchase Price.

As there were no assets or liabilities associated with the Portfolio, the Company recorded $ 164 million of pre-tax gain on this first tranche.

During the three months ended March 31, 2024 and 2023, the Portfolio related to this first tranche generated revenue of $ 8 million and $ 10 million, respectively.

The pre-tax profit, related to this first tranche, excluding unallocated costs, was $ 6 million and $ 9 million for the same periods, respectively.

On April 11, 2024, the second tranche closed and the Company received $ 85 million as the pro-rata share of the Purchase Price.

The Company anticipates the third and final tranche will be completed in the second quarter of 2024.

During the three months ended March 31, 2024 and 2023, the Portfolio related to the second and third tranches generated revenue of $ 18 million and $ 19 million for the same periods, respectively.

The pre-tax profit, related to these two tranches, excluding unallocated costs, was $ 14 million and $ 16 million for the three months ended March 31, 2024 and 2023, respectively.

Divestiture of Curbside Management and Public Safety Solutions Businesses

In December 2023, the Company signed a definitive agreement to sell its Curbside Management and Public Safety Solutions businesses for $ 230 million (plus the assumption of certain indebtedness), subject to customary purchase price adjustments.

The assets and liabilities of these businesses (collectively referred to as the "Disposal Group") have been reclassified as held for sale and measured at the lower of carrying value or fair value less costs to sell.

The Disposal Group is currently reported in the Transportation segment.

The Disposal Group generated revenue of $ 36 million and $ 33 million for the three months ended March 31, 2024 and 2023, respectively.

The pre-tax profit of the Disposal Group, excluding unallocated costs, was $ 8 million and $ 5 million for the three months ended March 31, 2024 and 2023, respectively.

On April 30, 2024, Conduent completed the sale.

See Note 16 - Subsequent Event for additional information regarding the sale.

The following is a summary of the major categories of assets and liabilities that have been reclassified as held for sale:

CNDT Q1 2024 Form 10-Q

Consequently, the Purchase Agreement was identified as a triggering event for the Commercial reporting unit that required the Company to evaluate goodwill for impairment.

This evaluation resulted in a full impairment of the Commercial reporting unit's goodwill, totaling $ 287 million.

The impairment charge was primarily driven by the Purchase Agreement, and was recognized during the quarter ended September 30, 2023.

The fair values of the goodwill impairment charge were estimated based on a determination of the implied fair value of goodwill, leveraging the results from the Income Approach and Market Approach, and are designated as level 3 of the fair value hierarchy.

In connection with the Commercial reporting unit impairment assessment, the Company first performed a recoverability assessment of long-lived assets and concluded that such assets were not impaired.

(in millions) March 31, 2024 December 31, 2023

Accounts Receivable, net $ 58 $ 49

Other current assets 3 3

Land, building and equipment, net 56 52

Operating lease right-of-use assets 6 6

Goodwill 35 35

Other long-term assets 34 35

Total Assets held for sale $ 192 $ 180

Current portion of long-term debt $ 6 $ 5

Accounts payable 9 11

Accrued compensation and benefits costs 2 2

Unearned income 4 4

Other current liabilities 10 9

Long-term debt 16 19

Operating lease liabilities 4 4

Other long-term liabilities 5 4

Total Liabilities held for sale $ 56 $ 58

Note 6 – Restructuring Programs and Related Costs

1 unchanged sentence

The implementation of the Company's operational efficiency improvement initiatives has reduced the Company's real estate footprint across all geographies and segments resulting in lease right-of-use asset ("ROU") impairments and other related costs.

Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $ 3 million and $ 2 million for the three months ended September 30, 2023 and 2022, respectively, and $ 7 million and $ 9 million for the nine months ended September 30, 2023 and 2022, respectively.

Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, and bringing certain technology functions in-house, which totaled $ 2 million and $ 6 million for the three months ended March 31, 2024 and 2023, respectively.

Management continues to evaluate the Company's businesses and, in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed.

2 unchanged sentences

Asset impairment costs related to the reduction of the Company's real estate footprint include impairment of operating lease ROU assets and associated leasehold improvements.

A summary of the Company's restructuring program activity during the nine months ended September 30, 2023 and 2022 is as follows:

A summary of the Company's restructuring program activity during the three months ended March 31, 2024 and 2023 is as follows:

(in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total

4 unchanged sentences

Charges against reserve and currency ( 7 ) ( 3 ) ( 1 ) ( 11 )

Accrued Balance at September 30, 2023 $ 10 $ 1 $ — $ 11

Accrued Balance at March 31, 2024 $ 6 $ 2 $ — $ 8

CNDT Q1 2024 Form 10-Q

(in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total

4 unchanged sentences

Charges against reserve and currency ( 8 ) ( 3 ) ( 2 ) ( 13 )

Accrued Balance at September 30, 2022 $ 1 $ — $ — $ 1

Accrued Balance at March 31, 2023 $ 22 $ 4 $ — $ 26

(1) Represents amounts recognized within the Consolidated Statements of Income (Loss) for the years shown.

During the three and nine months ended September 30, 2023, the Company incurred $ 0 million and $ 6 million, respectively, of professional support costs associated with bringing certain technology functions in-house.

CNDT Q3 2023 Form 10-Q

The following table summarizes the total amount of costs incurred in connection with these restructuring programs by reportable and non-reportable segment:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023

2 unchanged sentences

Transportation 1 —

Divestitures — — — —

Unallocated Costs (1)

3 unchanged sentences

Long-term debt was as follows:

(in millions) September 30, 2023 December 31, 2022

(in millions) March 31, 2024 December 31, 2023

Term loan A due 2026 $ 235 $ 238

7 unchanged sentences

Total Long-term Debt $ 1,083 $ 1,248

As of September 30, 2023, the Company had no outstanding borrowings under its Revolver.

However, the Company utilized $ 2 million of the Revolver to issue letters of credit as of September 30, 2023.

The net Revolver available to be drawn upon as of September 30, 2023 was $ 548 million.

At September 30, 2023, the Company was in compliance with all debt covenants related to the borrowings in the table above.

As of March 31, 2024, the Company had no outstanding borrowings under its revolving credit facility (the "Revolver").

However, the Company utilized $ 2 million of the Revolver to issue letters of credit as of March 31, 2024.

The net Revolver available to be drawn upon as of March 31, 2024 was $ 548 million.

In March 2024, the Company utilized the proceeds from the closing of the first tranche of the BenefitWallet Transfer to voluntarily prepay $ 164 million of principal of the Senior Secured Term Loan B due 2028 ("Term Loan B") and wrote-off related debt issuance costs of $ 2 million which is included in Loss on extinguishment of debt in the Condensed Consolidated Statements of Income (Loss) for the three months ended March 31, 2024.

In April 2024, the Company voluntarily prepaid $ 95 million of principal of the Term Loan B and wrote-off related debt issuance costs of $ 1 million.

At March 31, 2024, the Company was in compliance with all debt covenants related to the borrowings in the table above.

CNDT Q1 2024 Form 10-Q

Note 8 – Financial Instruments

1 unchanged sentence

As a part of the Company's foreign exchange risk management strategy, the Company uses derivative instruments, primarily forward contracts, to hedge the funding of foreign entities which have a non-dollar functional currency, thereby reducing volatility of earnings or protecting fair values of assets and liabilities.

At September 30, 2023 and December 31, 2022, the Company had outstanding forward exchange contracts with gross notional values of $ 143 million and $ 104 million, respectively.

At September 30, 2023, approximately 68 % of these contracts mature within three months, 12 % in three to six months, 14 % in six to twelve months and 6 % in greater than twelve months.

At March 31, 2024 and December 31, 2023, the Company had outstanding forward exchange contracts with gross notional values of $ 135 million and $ 148 million, respectively.

At March 31, 2024, approximately 68 % of these contracts mature within three months, 12 % in three to six months, 15 % in six to twelve months and 5 % in greater than twelve months.

Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on the Company's balance sheet, income statement or cash flows for the periods presented.

Refer to Note 9 – Fair Value of Financial Assets and Liabilities for additional information regarding the fair value of the Company's foreign exchange forward contracts.

CNDT Q3 2023 Form 10-Q

Note 9 – Fair Value of Financial Assets and Liabilities

8 unchanged sentences

The basis for the measurement at fair value in all cases was Level 2.

(in millions) September 30, 2023 December 31, 2022

Foreign exchange contract - forward $ 1 $ —

(in millions) March 31, 2024 December 31, 2023

Foreign exchange contracts - forward $ — $ 1

Total Assets $ — $ 1

3 unchanged sentences

The estimated fair values of other financial assets and liabilities were as follows:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(in millions) Carrying

1 unchanged sentence

Long-term debt $ 1,083 $ 1,030 $ 1,248 $ 1,191

Liabilities held for sale $ 56 $ 56 $ 58 $ 58

The fair value amounts for Cash and cash equivalents, Restricted cash, Accounts receivable, net and Short-term debt approximate carrying amounts due to the short-term maturities of these instruments.

CNDT Q1 2024 Form 10-Q

The fair value of Long-term debt was estimated using quoted market prices for identical or similar instruments (Level 2 inputs).

Note 10 – Employee Benefit Plans

The Company has post-retirement savings and investment plans in several countries, including the U.S., India and the Philippines.

The Company has post-retirement pension, savings and investment plans in several countries, including the U.S., India and the Philippines.

In many instances, employees participating in defined benefit pension plans that have been amended to freeze future service accruals were transitioned to an enhanced defined contribution plan.

1 unchanged sentence

The Company, at its discretion, matches a portion of employee contributions.

The Company recognized an expense related to its defined contribution plans of $ 2 million and $ 4 million for the three months ended September 30, 2023 and 2022, respectively, and $ 8 million and $ 12 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company recognized an expense related to its defined contribution plans of $ 4 million and $ 3 million for the three months ended March 31, 2024 and 2023, respectively.

The balance sheet and income statement impacts of any remaining defined benefit plans are immaterial for all periods presented in these Condensed Consolidated Financial Statements.

CNDT Q3 2023 Form 10-Q

Note 11 – Accumulated Other Comprehensive Loss (AOCL)

3 unchanged sentences

Other comprehensive income (loss) ( 11 ) — — ( 11 )

Balance at September 30, 2023 $ ( 469 ) $ 1 $ 5 $ ( 463 )

Balance at March 31, 2024 $ ( 452 ) $ 2 $ 4 $ ( 446 )

(in millions) Currency Translation Adjustments Gains (Losses) on Cash Flow Hedges Defined Benefit Pension Items Total

1 unchanged sentence

Other comprehensive income (loss) 17 1 — 18

Balance at September 30, 2022 $ ( 513 ) $ — $ — $ ( 513 )

Balance at March 31, 2023 $ ( 455 ) $ 2 $ 5 $ ( 448 )

(1) All amounts are net of tax.

12 unchanged sentences

Should developments in any of these matters cause a change in the Company's determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts in excess of any accrual for such matter or matters, this could have a material adverse effect on the Company's results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs.

The Company believes it has recorded adequate provisions for any such matters as of September 30, 2023.

The Company believes it has recorded adequate provisions for any such matters as of March 31, 2024.

Litigation is inherently unpredictable, and it is not possible to predict the ultimate outcome of these matters and such outcome in any such matters could be more than any amounts accrued and could be material to the Company's results of operations, cash flows or financial position in any reporting period.

CNDT Q1 2024 Form 10-Q

Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates when the Company undertakes an obligation to guarantee the performance of others if specified triggering events occur.

3 unchanged sentences

However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Company's consolidated financial position or liquidity.

As of September 30, 2023, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

CNDT Q3 2023 Form 10-Q

As of March 31, 2024, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

Litigation Against the Company

Employees’ Retirement System of the Puerto Rico Electric Power Authority et al v.

Conduent Inc.

On March 8, 2019, a putative class action lawsuit alleging violations of certain federal securities laws in connection with our statements and alleged omissions regarding the Company's financial guidance and business and operations was filed against the Company, its former Chief Executive Officer, and its former Chief Financial Officer in the United States District Court for the District of New Jersey (the "Court").

The complaint sought certification of a class of all persons who purchased or otherwise acquired the Company's securities from February 21, 2018 through November 6, 2018, and also sought unspecified monetary damages, costs, and attorneys’ fees.

The Company moved to dismiss the class action complaint in its entirety.

In June 2020, the Court denied the motion to dismiss and allowed the claims to proceed.

The Court granted Class Certification on February 28, 2022.

Upon the substantial completion of document discovery, the parties agreed to engage in mediation, and the Court administratively terminated the litigation to permit those efforts to proceed.

Without any admission of liability or damages, in the third quarter of 2022, the parties settled this matter following that mediation, and filed the necessary documentation for preliminary approval by the court, class notice, and the claims administration process.

The Court granted preliminary approval of the settlement terms and related documentation on January 27, 2023, and conducted the final Settlement Hearing on May 24, 2023, at which time the settlement received final approval as did plaintiffs' fee request.

The Court's preliminary order had previously noted that it "will likely be able to approve the proposed Settlement as fair, reasonable and adequate under Federal Rule of Civil Procedure 23(e)(2)." The Company maintains insurance that covers the costs arising out of this litigation and resulting settlement having met the deductible and other terms and conditions thereof.

As a result, during the fourth quarter of 2022, the Company reversed the reserve pertaining to this matter.

Skyview Capital LLC and Continuum Global Solutions, LLC v.

7 unchanged sentences

Plaintiffs allege that their obligation to mitigate damages and their contractual right of set-off permits them to withhold and deduct from any amounts that are owed to CBS under the Notes, and plaintiffs seek a judgement that they have no obligation to pay the Notes.

On August 20, 2020, Conduent filed a counterclaim against Skyview seeking the outstanding balance on the Notes, the amounts owed for the Jamaica deferred closing, and other transition services agreement and late rent payment obligations.

Conduent also moved to dismiss Skyview’s claims in 2020.

On August 20, 2020, CBS filed a counterclaim against Skyview seeking the outstanding balance on the Notes, the amounts owed for the Jamaica deferred closing, and other transition services agreement and late rent payment obligations.

CBS also moved to dismiss Skyview’s claims in 2020.

In May 2021, the court denied the motion and allowed the claims to proceed.

Fact and expert discovery has been concluded and the parties filed summary judgment motions on July 24, 2023.

Briefings on the motions were completed as of September 29, 2023, and oral argument has been scheduled for December 5, 2023.

Conduent denies all the plaintiffs' allegations, believes that it has strong defenses to all of plaintiffs’ claims and will continue to defend the litigation vigorously.

On December 5, 2023, the court heard oral argument on the parties’ cross-motions for summary judgment and rendered its decision on December 8, 2023, finding there are certain material issues of fact that require trial, and also entering partial summary judgment for each side.

On January 5, 2024, CBS filed its notice of appeal of the portion of the ruling that did not grant its motion for summary judgment in its entirety and that granted certain limited relief in favor of plaintiffs.

On January 23, 2024, Skyview filed its own notice of appeal, challenging the decision granting a portion of CBS’s counterclaims.

CBS continues to deny all the plaintiffs' allegations, believes that it has strong defenses to all of plaintiffs’ claims and will continue to defend the litigation vigorously.

The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves.

CNDT Q3 2023 Form 10-Q

Conduent Business Services, LLC v.

Cognizant Business Services Corporation:

On April 12, 2017, CBS filed a lawsuit against Cognizant Business Services Corporation ("Cognizant") in the Supreme Court of New York County, New York.

The lawsuit relates to the Amended and Restated Master Outsourcing Services Agreement effective as of October 24, 2012, and the service delivery contracts and work orders thereunder, between CBS and Cognizant, as amended and supplemented (the "Contract").

The Contract contains certain minimum purchase obligations by CBS through the date of expiration.

The lawsuit alleged that Cognizant committed multiple breaches of the Contract, including Cognizant’s failure to properly perform its obligations as subcontractor to CBS under CBS’s contract with the New York Department of Health to provide Medicaid Management Information Systems.

In the lawsuit, CBS sought damages in excess of $ 150 million.

During the first quarter of 2018, CBS provided notice to Cognizant that it was terminating the Contract for cause and recorded in the same period certain charges associated with the termination.

CBS also alleged that it terminated the Contract for cause, because, among other things, Cognizant violated the Foreign Corrupt Practices Act.

In its answer, Cognizant asserted two counterclaims for breach of contract seeking recovery of damages in excess of $ 47 million, which included amounts alleged not paid to Cognizant under the Contract and an alleged $ 25 million termination fee.

Cognizant's second amended counterclaim increased Cognizant's damages to $ 89 million.

The parties participated in a mediation in late February 2023, and this matter settled, following negotiations that continued thereafter.

The parties executed the Settlement Agreement and Mutual Release on March 30, 2023, with no admission of liability or wrongdoing by either party.

In April 2023, each side made reciprocal payments of $ 6 million to the other, with Conduent’s payment made toward the termination fee payable under the applicable service delivery contract.

As a result of the settlement, during the first quarter of 2023, the Company adjusted the balance sheet amounts recorded pertaining to this matter.

As such, the Company recognized a $ 17 million benefit in Cost of services (excluding depreciation and amortization) and a $ 26 million benefit in Litigation settlements (recoveries), net.

Other Matters

During the first quarter of 2022, the Company entered into settlement agreements with six of its insurers under its 2012–2013 errors and omission insurance policy in which the Company agreed to resolve its claims for insurance coverage in connection with the previously disclosed State of Texas matter that settled in February 2019, as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

As a result of the settlement agreements entered with the insurers, in the three months ended March 31, 2022, the Company received an aggregate sum of $ 38 million, of which $ 14 million was recognized as defense costs recovery in Selling, general and administrative and $ 24 million was recognized in Litigation settlements (recoveries), net.

Since 2014, Conduent Education Services, LLC, formerly Xerox Education Services LLC ("CES"), has cooperated with several federal and state agencies regarding a variety of matters, including CES' self-disclosure to the U.S.

Department of Education (the "Department") and the Consumer Financial Protection Bureau (the "CFPB") that some third-party student loans under outsourcing arrangements for various financial institutions required adjustments.

Except for one remaining state attorney general inquiry, the Company has resolved all investigations by the CFPB, several state agencies, the Department and the U.S.

Department of Justice.

There have been three consecutive quarters with no material activity.

The Company is also nearing completion of the return of loan documentation to the pertinent lenders from the former business portfolio.

The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which CES serviced third-party student loans, or another party will not ultimately commence a legal action against CES in which fines, penalties or other liabilities are sought from CES.

Nor is the Company able to predict the likely outcome of these matters, should any such matter be commenced, or reasonably provide an estimate or range of estimates of any loss in excess of currently recorded reserves.

The Company could, in future periods, incur judgments or enter into settlements to resolve these potential matters for amounts in excess of current reserves and there could be a material adverse effect on the Company's results of operations, cash flows and financial position in the period in which such change in judgment or settlement occurs.

CNDT Q3 2023 Form 10-Q

Other Contingencies

Certain contracts, primarily in the Company's Government and Transportation segments, require the Company to provide a surety bond or a letter of credit as a guarantee of performance.

As of September 30, 2023, the Company had $ 637 million of outstanding surety bonds issued to secure its performance of contractual obligations with its clients and $ 184 million of outstanding letters of credit issued to secure the Company's performance of contractual obligations to its clients as well as other corporate obligations.

As of March 31, 2024, the Company had $ 636 million of outstanding surety bonds issued to secure its performance of contractual obligations with its clients and $ 180 million of outstanding letters of credit issued to secure the Company's performance of contractual obligations to its clients as well as other corporate obligations.

In general, the Company would only be liable for these guarantees in the event of default in the Company's performance of its obligations under each contract.

5 unchanged sentences

Each share of convertible preferred stock is convertible at any time, at the option of the holder, into 44.9438 shares of common stock for a total of 5,393,000 shares (reflecting an initial conversion price of approximately $ 22.25 per share of common stock), subject to customary anti-dilution adjustments.

CNDT Q1 2024 Form 10-Q

Note 14 – Earnings (Loss) per Share

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions, except per share data in whole dollars and shares in thousands) 2024 2023

22 unchanged sentences

The components of Other assets and Other liabilities were as follows:

(in millions) September 30, 2023 December 31, 2022

(in millions) March 31, 2024 December 31, 2023

Other Current Assets

3 unchanged sentences

Restricted cash 9 21

Other 100 103

Total Other Current Assets $ 216 $ 240

18 unchanged sentences

Total Other Long-term Liabilities $ 81 $ 84

Note 18 – Related Party Transactions

In the normal course of business, the Company provides services to, and purchases from, certain related parties with the same shareholders.

The services provided to these entities included those related to human resources, end-user support and other services and solutions.

The purchases from these entities included office equipment and related services and supplies.

Revenue and purchases from these entities were included in Revenue and Costs of services or Selling, general and administrative, respectively, on the Company's Condensed Consolidated Statements of Income (Loss).

Xerox Corporation ("Xerox") has historically been classified as a related party due to significant shares of both Xerox and the Company being held by entities controlled by one individual.

As of September 28, 2023, Xerox is no longer considered a related party due to the disposition of all Xerox stock by these entities and, therefore, the Company will not consider transactions with Xerox after that date to be transactions with related parties.

CNDT Q3 2023 Form 10-Q

Transactions with related parties were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2023 2022 2023 2022

Revenue from related parties $ 1 $ 2 $ 6 $ 8

Purchases from related parties $ 6 $ 7 $ 18 $ 20

The Company's receivable and payable balances with related party entities were not material as of September 30, 2023 and December 31, 2022.

Note 16 – Subsequent Event

Certain subsequent event matters have been disclosed in Note 5 – Assets/Liabilities Held for Sale and Divestitures and Note 7 – Debt.

On April 30, 2024, Conduent completed the sale of its Curbside Management and Public Safety Solutions Businesses.

The Company received $ 174 million of cash consideration, a $ 50 million note receivable payable in one year, and other amounts receivable of $ 50 million (primarily related to the reimbursement for finance lease liability payoffs and the purchase of certain equipment on the buyer's behalf), which are payable in the fourth quarter of 2024.

The sale is subject to customary purchase price adjustments expected to be settled in the fourth quarter of 2024.

CNDT Q1 2024 Form 10-Q

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 1. Financial Statements