What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-01 · 126 added, 181 removed, 154 unchanged (67% of the section changed)

2 unchanged sentences

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:

Our MD&A is presented in seven sections:

• Financial Information and Analysis of Results of Operations;

2 unchanged sentences

• Recent Accounting Changes;

• Non-GAAP Financial Measures.

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.

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

We leverage cloud computing, artificial intelligence, machine learning, automation and advanced analytics to deliver mission-critical services.

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

We add momentum to our clients’ missions in many ways including delivering 43% of nutrition assistance payments in the U.S., enabling 1.3 billion customer service interactions annually, empowering millions of employees through HR services every year and processing nearly 12 million tolling transactions every day.

Headquartered in Florham Park, New Jersey, we have a team of approximately 59,000 associates as of September 30, 2023, servicing customers from service centers in 26 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.

We deliver digital business solutions and services to streamline and manage enterprise processes on behalf of commercial, government and transportation organizations – creating valuable outcomes for our clients and the millions of people who count on them.

Our 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, our solutions span customer service, business administration and operations, healthcare administration and payment management.

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

Headquartered in Florham Park, New Jersey, we have operations in 25 countries.

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

These three segments are:

• Commercial – Our Commercial segment provides business process solutions and services 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 enhance performance for our clients and deliver better experiences for their consumers and employees.

• Government – Our 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.

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.

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

We deliver 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 and reducing impact on the environment.

CNDT Q1 2024 Form 10-Q

1 unchanged sentence

During the first quarter of 2023, we held an investor briefing to communicate the next chapter in the Conduent journey.

Our intense emphasis on growth, quality, and efficiency, beginning in the first quarter of 2020, resulted in a strengthened foundation and we remain focused on accelerating growth and enhancing value for our stakeholders.

We intend to achieve this by doubling down on key themes outlined in the briefing, as well as through a process of portfolio rationalization, divesting certain solutions which have either scarcity value outside of Conduent or are capital intensive relative to their growth opportunity, enabling management bandwidth and capital investments to be focused on solutions where we believe we have competitive advantages or higher growth expectations.

This renewed portfolio focus will result in a more nimble and faster growing Conduent with modest levels of net leverage, enhanced valuation, and significant excess capital to be deployed over time.

During the first three quarters of 2023 we achieved the following:

• Continued to make progress in our portfolio rationalization strategy;

• Entered into an agreement to transfer our BenefitWallet portfolio.

We anticipate completing the transfer of this portfolio in the first half of 2024, with an estimated pre-tax gain of approximately $425 million;

• The Board of Directors authorized a share repurchase program, granting approval for us to repurchase up to $75 million of our common stock over the next three years (see additional information included in Part II, Item 2);

• Signed our largest TCV deal in the history of Conduent within our Transportation segment, growing our international presence in Australia;

• Positioned our digital payments offering, in partnership with BNY Mellon, to leverage the newly released FedNow SM capability and provide enhanced real-time payment coverage to our clients.

Macroeconomic and Geopolitical Uncertainty

Given the nature of our business and our global operations, the effects of global macroeconomic and geopolitical uncertainty could have a materially adverse effect on our business, results of operations and financial condition.

Our intense emphasis on growth, quality, and efficiency, beginning in the first quarter of 2020, resulted in a strengthened foundation.

We remain focused on accelerating growth and enhancing value for our stakeholders and intend to achieve this by doubling down on key themes outlined in the March 2023 investor briefing.

We also intend to continue our portfolio rationalization strategy, divesting certain solutions which have either scarcity value outside of Conduent or are capital intensive relative to their growth opportunity, and thereby allowing management the bandwidth and increased capital to focus on solutions where we believe we have competitive advantages or higher growth expectations.

We believe this focus on our portfolio rationalization strategy will result in a more nimble and faster growing Conduent with modest levels of net leverage, enhanced valuation, and significant excess capital to be deployed over time.

During 2024 we have achieved the following:

• We continue to make progress with our portfolio rationalization strategy.

During the first quarter we closed the first tranche of the BenefitWallet portfolio transfer, representing approximately 40% of the total assets, receiving $164 million as the pro-rata share of the Purchase Price.

The second tranche closed in April representing approximately 20% of the total assets, receiving $85 million as the pro-rata share of the Purchase Price.

We anticipate the remainder of the portfolio to transfer later in the second quarter.

Proceeds from the first and second tranches, plus cash on hand, were used to voluntarily prepay $259 million of the Term Loan B.

• The Curbside Parking and Public Safety Solutions divestiture announced on December 28, 2023 closed on April 30, 2024.

We also continue to pursue other divestiture opportunities, each at different stages of the divestiture process.

• Continued our share repurchase program, repurchasing 4.8 million shares of common stock during the quarter.

CNDT Q1 2024 Form 10-Q

Financial Information and Analysis of Results of Operations

Three Months Ended

September 30, 2023 vs.

(in millions) 2023 2022 $ Change % Change

Revenue $ 932 $ 977 $ (45) (5) %

Operating Costs and Expenses

Cost of services (excluding depreciation and amortization) 724 754 (30) (4) %

Selling, general and administrative (excluding depreciation and amortization) 115 117 (2) (2) %

Research and development (excluding depreciation and amortization) 2 2 — — %

Depreciation and amortization 81 54 27 50 %

Restructuring and related costs 7 4 3 75 %

Interest expense 28 22 6 27 %

Goodwill impairment 287 — 287 n/m

(Gain) loss on divestitures and transaction costs, net 3 1 2 200 %

Litigation settlements (recoveries), net — — — n/m

Other (income) expenses, net (2) — (2) n/m

Total Operating Costs and Expenses 1,245 954 291

Income (Loss) Before Income Taxes (313) 23 (336)

Income tax expense (benefit) (24) 8 (32)

Net Income (Loss) $ (289) $ 15 $ (304)

CNDT Q3 2023 Form 10-Q

Nine Months Ended

September 30, 2023 vs.

March 31, 2024 vs.

(in millions) 2024 2023 $ Change % Change

7 unchanged sentences

Interest expense 27 27 — — %

Goodwill impairment 287 — 287 n/m

(Gain) loss on divestitures and transaction costs, net (161) 2 (163) n/m

Litigation settlements (recoveries), net 4 (21) 25 (119) %

Loss on extinguishment of debt 2 — 2 n/m

Other (income) expenses, net (2) (1) (1) n/m

3 unchanged sentences

Net Income (Loss) $ 99 $ (6) $ 105

Revenue for the three months ended September 30, 2023 decreased, compared to the prior year period, primarily due to lost business from prior periods and non-repeating items in the prior year including recognition of the revenue benefit associated with an annual minimum volume commitment contract with a large client in our Commercial segment and federal stimulus revenue in our Government segment.

These were partially offset by higher interest rates positively impacting our BenefitWallet business and new business ramp in our Government segment.

Revenue for the nine months ended September 30, 2023 decreased, compared to the prior year period, primarily due to lost business from prior periods, lower volumes in our Commercial segment, extended completion timelines to meet client requirements in our Transportation segment and the impact of an out of period adjustment in our Government segment in the first quarter of 2023 and non-repeating items in the prior year including recognition of the revenue benefit associated with a minimum annual volume commitment contract with a large client in our Commercial segment and federal stimulus revenue in our Government segment.

These were partially offset by higher interest rates positively impacting our BenefitWallet business and new business ramp.

Revenue for the three months ended March 31, 2024 was substantially unchanged, compared to the prior year period, with new business ramp including the State of Victoria contract, stronger volumes and operational execution in our Transportation segment, offsetting lost business, lower volumes in our Commercial and Government segments, and the impact of the completion of the first tranche of the BenefitWallet Transfer.

Cost of Services (excluding depreciation and amortization)

Cost of services for the three months ended September 30, 2023 decreased, in line with the decline in revenue.

Cost of services for the nine months ended September 30, 2023 decreased, compared to the prior year period, primarily driven by the impact of reduced revenue and a $17 million reversal of liabilities due to the settlement of the Cognizant matter described in Note 14 – Contingencies and Litigation to the Condensed Consolidated Financial Statements.

Cost of services for the three months ended March 31, 2024 increased, compared to the prior year period, primarily driven by the absence of a $17 million reversal of liabilities due to the settlement of the Cognizant matter in the prior year described in Note 16 – Contingencies and Litigation to the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K.

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

SG&A for the three months ended September 30, 2023 decreased, compared to the prior year period, driven by cost efficiencies.

SG&A for the nine months ended September 30, 2023 increased, compared to the prior year period, driven by the absence of 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 that occurred in 2022.

CNDT Q3 2023 Form 10-Q

SG&A for the three months ended March 31, 2024 increased, compared to the prior year period, driven by costs to transition away from a technology vendor.

Depreciation and Amortization

Depreciation and amortization for the three and nine months ended September 30, 2023 increased compared to the prior year periods.

This increase was driven by the write-off of capitalized software costs totaling $25 million, stemming from management’s decision to abandon an internal use software product and a decision by a customer to not implement a product software solution.

Depreciation and amortization for the three months ended March 31, 2024 was substantially unchanged compared to the prior year period.

CNDT Q1 2024 Form 10-Q

Restructuring and Related Costs

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023

6 unchanged sentences

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

Severance and related costs for the nine months ended September 30, 2023 include costs related to the closure of one of our Commercial segment operations in Europe.

Restructuring and related costs for the three months ended March 31, 2024 decreased compared to the prior year period.

The decrease is primarily driven by severance and related costs related to the closure of one of our Commercial segment operations in Europe in the prior year period.

Refer to Note 6 – Restructuring Programs and Related Costs to the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

1 unchanged sentence

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

The increase in Interest expense for the three and nine months ended September 30, 2023, compared to the prior year periods, was driven by higher interest rates on our variable rate debt, including finance leases and other debt, partially offset by a lower total outstanding debt balance.

Goodwill Impairment

The goodwill impairment for the three and nine months ended September 30, 2023 is related to the write-down of the carrying value of the Commercial reporting unit.

This resulted from the evaluation of goodwill triggered by entering into the Custodial Transfer and Asset Purchase Agreement to transfer our BenefitWallet health savings account and medical savings account portfolio.

Refer to Note 5 – Divestiture and Note 7 – Goodwill for additional information.

Interest expense for the three months ended March 31, 2024, compared to the prior year period, was substantially unchanged.

(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.

The completion of the first tranche of the BenefitWallet Transfer in the first quarter of 2024 resulted in a gain of $164 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 for both years.

Litigation Settlements (Recoveries), Net

Litigation settlements (recoveries), net for the nine months ended September 30, 2023 primarily consist of a $26 million reversal of reserves due to the settlement of the Cognizant matter.

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.

Litigation settlements (recoveries), net for the three months ended March 31, 2023 primarily consisted of a $26 million reversal of reserves due to the settlement of the Cognizant matter.

The effective tax rate for the three months ended March 31, 2024 was 21.9%, compared to 20.8% for the three months ended March 31, 2023.

The March 31, 2024 rate approximates the U.S.

statutory rate of 21% as incremental tax from geographic mix of income and state taxes was offset by tax benefit from valuation and audit settlement reserve releases.

The effective tax rate for the three months ended March 31, 2023 also approximated the U.S.

statutory rate.

Excluding the impact of the Benefit Wallet Transfer, restructuring costs, amortization of intangible assets, litigation reserve, audit settlement reserve release, valuation allowance and other discrete tax items, the normalized effective tax rate for the three months ended March 31, 2024 was 22.2%.

The normalized effective tax rate for the three months ended March 31, 2023 was 35.0%, primarily due to excluding the impact of restructuring costs, litigation reserve releases, valuation allowance and certain discrete tax items.

The normalized effective tax rate for the three months ended March 31, 2024 was lower than the three months ended March 31, 2023 rate due to the geographic mix of income.

CNDT Q1 2024 Form 10-Q

Refer to Note 14 – Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information.

The effective tax rate for the three months ended September 30, 2023 was 7.8%, compared to 33.8% for the three months ended September 30, 2022.

The September 30, 2023 rate was lower than the U.S.

statutory rate of 21% primarily due to permanently non-deductible amounts related to the book goodwill impairment and changes in the geographic mix of income.

The effective tax rate for the three months ended September 30, 2022 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 allowance, partially offset by changes in the geographic mix of income.

Excluding the impact of discrete tax adjustments, amortization of intangible assets, restructuring costs and goodwill impairment, the normalized effective tax rate for the three months ended September 30, 2023 was (6.1)%.

The rate is lower than the US statutory rate of 21% as a result of an adjusted pre-tax loss and higher tax expense on pre-tax income in certain jurisdictions.

The normalized effective tax rate for the three months ended September 30, 2022 was 27.5%, predominantly due to 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, 2023 was lower than the three months ended September 30, 2022 rate, primarily due to the geographic mix of income and lower adjusted pre-tax income.

The effective tax rate for the nine months ended September 30, 2023 was 7.8%, compared to 36.7% for the nine months ended September 30, 2022.

The September 30, 2023 rate was lower than the U.S.

statutory rate of 21%, primarily due to permanently non-deductible amounts related to the book goodwill impairment, the geographic mix of income and the charge for valuation allowances.

The effective tax rate for the nine months ended September 30, 2022 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.

Excluding the impact of the goodwill impairment, amortization of intangible assets, restructuring costs, litigation reserve releases and certain discrete tax items, the normalized effective tax rate for the nine months ended September 30, 2023 was (158.4)%.

The rate is anomalous due to small adjusted pre-tax loss and tax, which is a result of geographic mix of income and valuation allowances against losses in certain jurisdictions resulting in no tax benefit.

The normalized effective tax rate for the nine months ended September 30, 2022 was 32.4%, predominantly due to 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, 2023 was lower than the nine months ended September 30, 2022 rate predominantly due to change in the geographic mix of income, valuation allowance and lower adjusted pre-tax income.

In recent months, government agencies and global organizations have had an increased focus on the issues of taxation of multinational corporations.

At both the European Union and Organization for Economic Co-operation and Development level, significant developments are anticipated regarding global tax initiatives in the remainder of 2023 and into 2024.

The Company is monitoring such developments and assessing any potential impact and disclosure requirement.

We do not anticipate a material impact based on current guidance.

In 2021, the Organization for Economic Cooperation and Development ("OECD") released model rules for a 15% global minimum tax, known as Pillar Two.

Pillar Two has now been enacted by approximately 30 countries.

This alternative minimum tax is treated as a period cost beginning in 2024 and does not have a material impact on the Company's financial results of operations for the current period.

The Company is monitoring legislative developments, as well as additional guidance from countries that have enacted legislation.

We anticipate further legislative activity and administrative guidance in 2024.

Operations Review of Segment Revenue and Profit

Our financial performance is based on Segment Profit/(Loss) and Segment Adjusted EBITDA for the following three segments:

Our financial performance is based on Segment Profit/(Loss) and Segment Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") for the following three segments:

• Commercial;

1 unchanged sentence

• Transportation.

Divestitures includes our Midas business which was sold in the first quarter of 2022.

CNDT Q3 2023 Form 10-Q

The BenefitWallet and the Curbside Management and Public Safety Solutions businesses are expected to be reclassified to Divestitures from our Commercial and Transportation segments, respectively, beginning in the second quarter of 2024.

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.

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

Segment depreciation and amortization $ 51 $ 11 $ 11 $ — $ 8 $ 81

Adjusted EBITDA $ 57 $ 95 $ 7 $ — $ (67) $ 92

% of Total Revenue 49.9 % 31.1 % 19.0 % — % — % 100.0 %

Adjusted EBITDA Margin 12.3 % 32.8 % 4.0 % — % — % 9.9 %

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 %

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

12 unchanged sentences

(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 (161) 2

Litigation settlements (recoveries) 4 (21)

Loss on extinguishment of debt 2 —

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

3 unchanged sentences

Commercial Segment

Commercial revenue for the three and nine months ended September 30, 2023 declined compared to the prior year periods, driven by lower volumes in certain industries of our client base and non-repeating items in the prior year period, including recognition of the revenue benefit associated with a minimum annual volume commitment contract with a large client, partially offset by higher interest rates positively impacting our BenefitWallet business.

Commercial revenue for the three months ended March 31, 2024 declined compared to the prior year period, driven by lost business across the segment, the impact of the completion of the first tranche of the BenefitWallet portfolio transfer and lower volumes in certain industries of our client base, partially offset by new business ramp.

Segment Profit and Adjusted EBITDA

Commercial segment profit for the three and nine months ended September 30, 2023 decreased compared to the prior year periods and were impacted by the EBITDA drivers mentioned below as well as by a write-off of capitalized software totaling $25 million stemming from management’s decision to abandon an internal use software product and a decision by a customer to not implement a product software solution.

Commercial segment adjusted EBITDA and adjusted EBITDA margin for the three months ended September 30, 2023, decreased compared to the prior year period, driven by non-repeating items in the prior year period, including recognition of the revenue benefit associated with a minimum annual volume commitment contract with a large client.

These were partially offset by higher interest rates positively impacting our BenefitWallet business and cost efficiency.

Increases in the Commercial segment adjusted EBITDA and adjusted EBITDA margin for the nine months ended September 30, 2023, compared to the prior year periods were mainly driven by higher interest rates positively impacting our BenefitWallet business, partially offset by non-repeating items in the prior year period, including recognition of the revenue benefit associated with a minimum annual volume commitment contract with a large client.

Commercial segment profit, adjusted EBITDA and adjusted EBITDA margin for the three months ended March 31, 2024 increased compared to the prior year period primarily driven by cost efficiencies, partially offset by the completion of the first tranche of the BenefitWallet Transfer.

Government Segment

Government revenue for the three months ended September 30, 2023 was substantially unchanged compared to the prior year period, with a contractual change to a client implementation positively impacting revenue recognition, higher volumes in Government services solutions and new business ramp being offset by lost business from prior periods.

Government revenue for the nine months ended September 30, 2023 decreased, compared to the prior year period, primarily driven by lost business from prior years, non-repeating federal stimulus revenue in the prior year and the impact of an out of period adjustment in our Government segment in the first quarter of 2023.

These were partially offset by the ramping of new business in Government Healthcare solutions and higher volumes in Government services solutions.

CNDT Q3 2023 Form 10-Q

Government revenue for the three months ended March 31, 2024 decreased, compared to the prior year period, primarily driven by lost business and lower volumes, partially offset by the ramping of new business and a non-repeating item in the prior year.

Segment Profit and Adjusted EBITDA

Government segment profit, adjusted EBITDA and adjusted EBITDA margin for the three months ended September 30, 2023 increased compared to the prior year period due to a contractual change to a client implementation positively impacting revenue recognition.

Government segment profit for the nine months ended September 30, 2023 was substantially unchanged with the EBITDA variances described below being offset with higher depreciation driven by the deployment of our new modularized CMdS platform in our Government Heathcare Solutions business.

Government segment adjusted EBITDA and adjusted EBITDA margin for the nine months ended September 30, 2023 increased compared to the prior year period due primarily due to the $17 million reversal of reserves due to the settlement of the Cognizant matter, margin on higher volumes, a contractual change to a client implementation positively impacting revenue recognition and cost efficiency.

These were partially offset by lost business, the high margin non-repeating federal stimulus revenue in the prior year and the out of period adjustment in the first quarter of 2023.

Government segment profit, adjusted EBITDA and adjusted EBITDA margin for the three months ended March 31, 2024 decreased compared to the prior year period primarily due to the absence of a $17 million reversal of liabilities due to the settlement of the Cognizant matter in the prior year and revenue mix.

Transportation Segment

Transportation revenue for the three months ended September 30, 2023 decreased compared to the prior year period, primarily driven by extended completion timelines to meet client requirements, which affected the recognition timeframe for revenue.

Transportation revenue for the nine months ended September 30, 2023 decreased compared to the prior year period, primarily driven by extended completion timelines to meet client requirements, which affected the recognition timeframe for revenue, the completion of smaller projects in our Transit solutions service offering and lost business from prior years, partially offset by new business.

Transportation revenue for the three months ended March 31, 2024 increased compared to the prior year period, primarily driven by the ramping of new business, including the State of Victoria contract, higher volumes and less impact from extended implementation timelines compared to the prior year.

Segment Profit and Adjusted EBITDA

Transportation segment profit, adjusted EBITDA and adjusted EBITDA margin for the three and nine months ended September 30, 2023 decreased primarily due to extended completion timelines on our larger implementations to meet client requirements, which affected the recognition timeframe for revenue and the completion of smaller projects in our Transit solutions service offering.

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, 2023 was due to the sale of the Midas Suite of products.

The prior year included activity through the date of disposition whereas there was no activity in the current year.

Unallocated Costs

Unallocated Costs for the three months ended September 30, 2023 decreased compared to the prior year period primarily due to lower variable compensation, healthcare and insurance costs as well as progress with our efficiency initiatives.

Unallocated Costs for the nine months ended September 30, 2023 increased compared to the prior year period primarily due to the prior year reflecting the recovery of defense costs as part of the settlement with insurance carriers relating to the previously disclosed State of Texas matter.

Transportation segment profit, adjusted EBITDA and adjusted EBITDA margin for the three months ended March 31, 2024 increased primarily due to the impact of increased revenue and less impact from extended implementation timelines compared to the prior year, partially offset with costs to transition the non-retained portion of a Transit contract.

CNDT Q1 2024 Form 10-Q

Unallocated Costs

Unallocated Costs for the three months ended March 31, 2024 increased slightly compared to the prior year period primarily due to costs to transition away from a technology vendor.

We use metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies and evaluate forward-looking projections and trends affecting our business.

We disclose these metrics to provide transparency in our performance trends.

We discuss certain key metrics, including Signings and Net ARR Activity below.

We present certain key metrics, including Signings and Net ARR Activity below.

Signings are defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts.

3 unchanged sentences

New business Annual Contract Value ("ACV") is calculated as TCV divided by the contract term, in months, multiplied by 12 for an annual measure.

For the three and nine months ended September 30, 2023, the Company signed $154 million and $487 million of new business ACV, respectively.

Included in these amounts is ACV related to the May 2023 award of a significant contract in the Transportation segment.

Signing information for the three and nine months ended September 30, 2023 and 2022 is as follows:

For the three months ended March 31, 2024, the Company signed $99 million of new business ACV.

Signing information for the three months ended March 31, 2024 and 2023 is as follows:

Three Months Ended

September 30, 2023 vs.

($ in millions) 2023 (3)

$ Change % Change

New business ACV $ 154 $ 191 $ (37) (19) %

New business TCV $ 316 $ 347 $ (31) (9) %

Renewals TCV 454 658 (204) (31) %

Total Signings $ 770 $ 1,005 $ (235) (23) %

Annual recurring revenue signings (1)

$ 66 $ 89 $ (23) (26) %

Non-recurring revenue signings (2)

$ 96 $ 107 $ (11) (10) %

Nine Months Ended

September 30, 2023 vs.

March 31, 2024 vs.

($ in millions) 2024 (3)

12 unchanged sentences

CNDT Q1 2024 Form 10-Q

The total new business pipeline at the end of September 30, 2023 and 2022 was $23.4 billion and $24.0 billion, respectively.

The total new business pipeline at the end of March 31, 2024 and 2023 was $24.0 billion and $23.2 billion, respectively.

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

5 unchanged sentences

The metric is for indicative purposes only.

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

This metric excludes non-recurring revenue signings.

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

1 unchanged sentence

(in millions) Net ARR Activity metric

September 30, 2023 $ 103

June 30, 2023 137

March 31, 2024 $ 17

1 unchanged sentence

September 30, 2023 103

June 30, 2023 137

March 31, 2023 108

Capital Resources and Liquidity

As of September 30, 2023 and December 31, 2022, total cash and cash equivalents were $451 million and $582 million, respectively.

As of March 31, 2024 and December 31, 2023, total cash and cash equivalents were $415 million and $498 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.

The net amount available to be drawn upon under our revolving line of credit as of September 30, 2023, was $548 million.

As of September 30, 2023, our total principal debt outstanding was $1,326 million, of which $40 million was due within one year.

The net amount available to be drawn upon under our revolving line of credit as of March 31, 2024, was $548 million.

As of March 31, 2024, our total principal debt outstanding was $1,131 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.

3 unchanged sentences

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,

Three Months Ended March 31,

(in millions) 2024 2023 Better (Worse)

3 unchanged sentences

Operating activities

The net increase in cash used in operating activities of $126 million, compared to the prior year period, was primarily related to the negative impact of the sales of accounts receivable of $49 million, the absence of the $38 million of insurance recoveries related to the State of Texas matter, higher net cash interest payments, lower days payable outstanding and higher restructuring payments, all partially offset by lower cash income taxes.

The net increase in cash used in operating activities of $25 million, compared to the prior year period, was primarily related to lower adjusted EBITDA, slightly higher accounts receivable days sales outstanding and lower days payable outstanding.

These were partially offset by lower cash income tax payments.

In the first quarter of 2024, we had net cash tax refunds of $22 million, primarily due to the receipt of the U.S.

federal income tax refund related to tax year 2018.

CNDT Q1 2024 Form 10-Q

Investing activities

Investing cash flow decreased by $280 million mainly due to the proceeds from the divestiture of the Midas business in the prior year.

This was partially offset by decreased capital spending in the current year.

Investing cash flow increased by $165 million mainly due to $164 million of proceeds received for the first tranche of the BenefitWallet Transfer.

Financing activities

The decrease in cash used in financing activities was mainly driven by the repayment of the $100 million borrowed under the revolver in the prior year.

This was partially offset by higher taxes paid for settlement of stock-based compensation.

The increase in cash used in financing activities was mainly driven by the voluntary prepayment of $164 million of debt using the proceeds received for the first tranche of the BenefitWallet Transfer along, with the repurchase of $17 million of treasury stock.

Sales of Accounts Receivable

2 unchanged sentences

Cash proceeds from this arrangement are included in cash flow from operating activities in the Condensed 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, 2023 and 2022 was $(14) million and $35 million, respectively.

The net impact from the sales of accounts receivable on net cash provided by (used in) operating activities for the three months ended March 31, 2024 and 2023 was $(8) million and $(13) million, respectively.

Material Cash Requirements from Contractual Obligations

The Company believes its balances of cash and cash equivalents, which totaled $451 million as of September 30, 2023, 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, 2023, the Company’s material cash requirements include debt, leases and estimated purchase commitments.

The Company believes its balances of cash and cash equivalents, which totaled $415 million as of March 31, 2024, 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 March 31, 2024, 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, 2023 for additional information on our material cash requirements.

3 unchanged sentences

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.

Except as set forth below, there have been no significant changes during the nine months ended September 30, 2023 to our critical accounting estimates and policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Impairment of Goodwill

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 (collectively, the "Portfolio"), which is reported within the Company’s Commercial segment.

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

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.

CNDT Q3 2023 Form 10-Q

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.

There have been no significant changes during the three months ended March 31, 2024 to our critical accounting estimates and policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

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.

Non-GAAP Financial Measures

We reported our financial results in accordance with accounting principles generally accepted in the U.S.

In addition, within this Form 10-Q Part I Item 2 we have discussed our financial results using non-GAAP measures.

CNDT Q1 2024 Form 10-Q

We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results.

Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with U.S.

GAAP, to exclude the effects of certain items as well as their related tax effects.

Management believes that these non-GAAP financial measures provide an additional means of analyzing the results of the current period against the corresponding prior period.

However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with U.S.

Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable U.S.

GAAP measures and should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with U.S.

Our management regularly uses our non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions, and providing such non-GAAP financial measures to investors allows for a further level of transparency as to how management reviews and evaluates our business results and trends.

These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods.

Compensation of our executives is based in part on the performance of our business based on certain of these non-GAAP measures.

A reconciliation of the non-GAAP financial measures Adjusted EBITDA and EBITDA Margin to the most directly comparable financial measures calculated and presented in accordance with U.S.

GAAP are provided in the Segment Performance Review above.

Adjusted EBITDA and Adjusted EBITDA Margin

We use adjusted EBITDA and adjusted EBITDA Margin as an additional way of assessing certain aspects of our operations that, when viewed with the U.S.

GAAP results and the accompanying reconciliations to corresponding U.S.

GAAP financial measures, provide a more complete understanding of our on-going business.

Adjusted EBITDA Margin is adjusted EBITDA divided by revenue.

Adjusted EBITDA represents income (loss) before interest, income taxes, depreciation and amortization and contract inducement amortization adjusted for the following items:

• Amortization of acquired intangible assets.

The amortization of acquired intangible assets is driven by acquisition activity, which can vary in size, nature and timing as compared to other companies within our industry and from period to period.

• Restructuring and related costs.

Restructuring and related costs include restructuring and asset impairment charges as well as costs associated with our strategic transformation program.

• Goodwill impairment.

This represents goodwill impairment charges related to entering the agreement to transfer the BenefitWallet portfolio.

• (Gain) loss on divestitures and transaction costs.

Represents (gain) loss on divested businesses and transaction costs.

• Litigation settlements (recoveries), net represents settlements or recoveries for various matters subject to litigation.

• Loss on extinguishment of debt.

This represents write-off of debt issuance costs related to prepayments of debt.

• Other charges (credits).

This includes Other (income) expenses, net on the Consolidated Statements of Income (loss) and other insignificant (income) expenses and other adjustments.

Adjusted EBITDA is not intended to represent cash flows from operations, operating income (loss) or net income (loss) as defined by U.S.

GAAP as indicators of operating performance.

Management cautions that amounts presented in accordance with Conduent's definition of adjusted EBITDA and adjusted EBITDA Margin may not be comparable to similar measures disclosed by other companies because not all companies calculate adjusted EBITDA and adjusted EBITDA Margin in the same manner.

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