CONDUENT Inc 10-Q

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED) CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, (in millions, except per share data) 2024 2023 2024 2023 Revenue $ 828 $ 915 $ 1,749 $ 1,837 Operating Costs and Expenses Cost of services (excluding depreciation and amortization) 677 704 1,412 1,424 Selling, general and administrative (excluding depreciation and amortization) 115 118 231 229 Research and development (excluding depreciation and amortization) 1 1 3 3 Depreciation and amortization 51 57 113 118 Restructuring and related costs 8 13 17 42 Interest expense 19 27 46 54 (Gain) loss on divestitures and transaction costs, net ( 347 ) 3 ( 508 ) 5 Litigation settlements (recoveries), net 1 ( 1 ) 5 ( 22 ) Loss on extinguishment of debt 3 — 5 — Other (income) expenses, net — — ( 2 ) ( 1 ) Total Operating Costs and Expenses 528 922 1,322 1,852 Income (Loss) Before Income Taxes 300 ( 7 ) 427 ( 15 ) Income tax expense (benefit) 84 — 112 ( 2 ) Net Income (Loss) $ 216 $ ( 7 ) $ 315 $ ( 13 ) Net Income (Loss) per Share: Basic $ 1.10 $ ( 0.04 ) $ 1.54 $ ( 0.08 ) Diluted $ 1.07 $ ( 0.04 ) $ 1.51 $ ( 0.08 ) The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q2 2024 Form 10-Q 3 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Net Income (Loss) $ 216 $ ( 7 ) $ 315 $ ( 13 ) Other Comprehensive Income (Loss), Net (1) Currency translation adjustments, net ( 16 ) 4 ( 27 ) 21 Unrecognized gains (losses), net ( 1 ) — ( 1 ) 1 Other Comprehensive Income (Loss), Net ( 17 ) 4 ( 28 ) 22 Comprehensive Income (Loss), Net $ 199 $ ( 3 ) $ 287 $ 9 __________ (1) All amounts are net of tax. Tax effects were immaterial. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q2 2024 Form 10-Q 4 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in millions, except share data in thousands) June 30, 2024 December 31, 2023 Assets Cash and cash equivalents $ 300 $ 498 Accounts receivable, net 518 559 Assets held for sale 43 180 Contract assets 149 178 Other current assets 342 240 Total current assets 1,352 1,655 Land, buildings and equipment, net 179 197 Operating lease right-of-use assets 175 191 Intangible assets, net 15 32 Goodwill 637 651 Other long-term assets 422 436 Total Assets $ 2,780 $ 3,162 Liabilities and Equity Current portion of long-term debt $ 33 $ 34 Accounts payable 136 174 Accrued compensation and benefits costs 171 183 Unearned income 95 91 Liabilities held for sale 22 58 Other current liabilities 362 328 Total current liabilities 819 868 Long-term debt 789 1,248 Deferred taxes 48 30 Operating lease liabilities 144 157 Other long-term liabilities 83 84 Total Liabilities 1,883 2,387 Contingencies (See Note 12) Series A convertible preferred stock 142 142 Common stock 2 2 Treasury stock, at cost ( 196 ) ( 27 ) Additional paid-in capital 3,947 3,938 Retained earnings (deficit) ( 2,539 ) ( 2,849 ) Accumulated other comprehensive loss ( 463 ) ( 435 ) Total Conduent Inc. Equity 751 629 Noncontrolling Interest 4 4 Total Equity 755 633 Total Liabilities and Equity $ 2,780 $ 3,162 Shares of common stock issued and outstanding 163,779 211,509 Shares of series A convertible preferred stock issued and outstanding 120 120 Shares of common stock held in treasury 56,942 8,841 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q2 2024 Form 10-Q 5 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, (in millions) 2024 2023 Cash Flows from Operating Activities: Net income (loss) $ 315 $ ( 13 ) Adjustments required to reconcile net income (loss) to cash flows from operating activities: Depreciation and amortization 113 118 Contract inducement amortization 1 2 Deferred income taxes 18 ( 14 ) Amortization of debt financing costs 2 2 Loss on extinguishment of debt 5 — (Gain) loss on divestitures and sales of fixed assets, net ( 533 ) — Stock-based compensation 8 8 Changes in operating assets and liabilities: Accounts receivable 7 50 Other current and long-term assets ( 53 ) ( 60 ) Accounts payable and accrued compensation and benefits costs ( 28 ) ( 68 ) Other current and long-term liabilities ( 29 ) ( 41 ) Net change in income tax assets and liabilities 96 ( 6 ) Net cash provided by (used in) operating activities ( 78 ) ( 22 ) Cash Flows from Investing Activities: Cost of additions to land, buildings and equipment ( 31 ) ( 20 ) Cost of additions to internal use software ( 15 ) ( 22 ) Proceeds from divestitures 599 — Net cash provided by (used in) investing activities 553 ( 42 ) Cash Flows from Financing Activities: Proceeds from revolving credit facility 30 — Payments on revolving credit facility ( 30 ) — Payments on debt ( 503 ) ( 20 ) Treasury stock purchases ( 168 ) ( 1 ) Taxes paid for settlement of stock-based compensation ( 5 ) ( 6 ) Dividends paid on preferred stock ( 5 ) ( 5 ) Net cash provided by (used in) financing activities ( 681 ) ( 32 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 6 ) 3 Increase (decrease) in cash, cash equivalents and restricted cash ( 212 ) ( 93 ) Cash, Cash Equivalents and Restricted Cash at Beginning of Period 519 598 Cash, Cash Equivalents and Restricted Cash at End of period (1) $ 307 $ 505 ___________ (1) Includes $ 7 million and $ 5 million of restricted cash as of June 30, 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. CNDT Q2 2024 Form 10-Q 6 Table of Contents CONDUENT INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) Three Months Ended June 30, 2024 (in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Non-controlling Interest Shareholders' Equity Balance at March 31, 2024 $ 2 $ ( 44 ) $ 3,941 $ ( 2,752 ) $ ( 446 ) $ 4 $ 705 Dividends - preferred stock, $ 20 /share — — — ( 3 ) — — ( 3 ) Stock incentive plans, net — — 6 — — — 6 Treasury stock purchases — ( 152 ) — — — ( 152 ) Comprehensive Income (Loss): Net Income (Loss) — — — 216 — — 216 Other comprehensive income (loss), net — — — — ( 17 ) — ( 17 ) Total Comprehensive Income (Loss), Net — — — 216 ( 17 ) — 199 Balance at June 30, 2024 $ 2 $ ( 196 ) $ 3,947 $ ( 2,539 ) $ ( 463 ) $ 4 $ 755 Three Months Ended June 30, 2023 (in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Non-controlling Interest Shareholders' Equity Balance at March 31, 2023 $ 2 $ — $ 3,926 $ ( 2,551 ) $ ( 448 ) $ — $ 929 Dividends - preferred stock, $ 20 /share — — — ( 3 ) — — ( 3 ) Stock incentive plans, net — — 5 — — — 5 Treasury stock purchases — ( 1 ) — — — — ( 1 ) Comprehensive Income (Loss): Net Income (Loss) — — — ( 7 ) — — ( 7 ) Other comprehensive income (loss), net — — — — 4 — 4 Total Comprehensive Income (Loss), Net — — — ( 7 ) 4 — ( 3 ) Balance at June 30, 2023 $ 2 $ ( 1 ) $ 3,931 $ ( 2,561 ) $ ( 444 ) $ — $ 927 Six Months Ended June 30, 2024 (in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Non-controlling Interest Shareholders' Equity Balance at December 31, 2023 $ 2 $ ( 27 ) $ 3,938 $ ( 2,849 ) $ ( 435 ) $ 4 $ 633 Dividends - preferred stock, $ 40 /share — — — ( 5 ) — — ( 5 ) Stock incentive plans, net — — 9 — — — 9 Treasury stock purchases — ( 169 ) — — — — ( 169 ) Comprehensive Income (Loss): Net Income (Loss) — — — 315 — — 315 Other comprehensive income (loss), net — — — — ( 28 ) — ( 28 ) Total Comprehensive Income (Loss), Net — — — 315 ( 28 ) — 287 Balance at June 30, 2024 $ 2 $ ( 196 ) $ 3,947 $ ( 2,539 ) $ ( 463 ) $ 4 $ 755 Six Months Ended June 30, 2023 (in millions) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Deficit) AOCL (1) Non-controlling Interest Shareholders' Equity Balance at December 31, 2022 $ 2 $ — $ 3,924 $ ( 2,543 ) $ ( 466 ) $ — $ 917 Dividends - preferred stock, $ 40 /share — — — ( 5 ) — — ( 5 ) Stock incentive plans, net — — 7 — — — 7 Treasury stock purchases — ( 1 ) — — — — ( 1 ) Comprehensive Income (Loss): Net Income (Loss) — — — ( 13 ) — — ( 13 ) Other comprehensive income (loss), net — — — — 22 — 22 Total Comprehensive Income (Loss), Net — — — ( 13 ) 22 — 9 Balance at June 30, 2023 $ 2 $ ( 1 ) $ 3,931 $ ( 2,561 ) $ ( 444 ) $ — $ 927 ___________ (1) AOCL - Accumulated other comprehensive loss. Refer to Note 11 – Accumulated Other Comprehensive Loss for the components of AOCL. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. CNDT Q2 2024 Form 10-Q 7 Table of Contents Note 1 – Basis of Presentation References herein to “we,” “us,” “our,” the “Company” and “Conduent” refer to Conduent Incorporated and its consolidated subsidiaries unless the context suggests otherwise. Description of Business Conduent Incorporated is a New York corporation, organized in 2016. 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 55,000 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 The unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. 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. Intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows have been made. These adjustments consist of normal recurring items. The interim results of operations are not necessarily indicative of the results of the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In the first quarter of 2023, the Company identified an error and recorded an out-of-period adjustment to correct the recognition of revenue on a Government segment contract that originated in 2020 and impacted all quarterly periods through December 31, 2022. 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 material to the year ending December 31, 2023. The Company has evaluated subsequent events through August 7, 2024, and no material subsequent events were identified. Use of Estimates Preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to fair values of financial instruments, goodwill and intangible assets, income taxes and contingent liabilities, among others. 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. Summary of Significant Accounting Policies 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 Q2 2024 Form 10-Q 8 Table of Contents Note 2 – Recent Accounting Pronouncements The Company's significant accounting policies are described in 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. New Accounting Standards Adopted The Company has not adopted any new accounting standards in 2024 that had a material impact on its Consolidated Financial Statements. New Accounting Standards To Be Adopted 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 Disaggregation of Revenue During the second quarter of 2024, revenue for the BenefitWallet Portfolio (as defined in Note 5 – Divestitures and Assets/Liabilities Held for Sale) and the Curbside Management and Public Safety businesses were reclassified to the Divestitures segment from the Commercial and Transportation segments, respectively. All prior periods presented have been recast to reflect these changes. The following table provides information about disaggregated revenue by major service offering, the timing of revenue recognition and a reconciliation of the disaggregated revenue by reportable segment. Refer to Note 4 – Segment Reporting for additional information on the Company's reportable segments. CNDT Q2 2024 Form 10-Q 9 Table of Contents Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Commercial: Customer experience management $ 128 $ 142 $ 279 $ 319 Business operations solutions 130 127 268 262 Healthcare claims and administration solutions 91 89 184 179 Human capital solutions 76 84 150 161 Total Commercial 425 442 881 921 Government: Government healthcare solutions 137 151 290 294 Government services solutions 108 119 213 240 Total Government 245 270 503 534 Transportation: Road usage charging & management solutions 60 81 127 156 Transit solutions 81 56 157 96 Commercial vehicles — 2 1 4 Total Transportation 141 139 285 256 Divestitures 17 64 80 126 Total Consolidated Revenue $ 828 $ 915 $ 1,749 $ 1,837 Timing of Revenue Recognition: Point in time $ 25 $ 24 $ 56 $ 51 Over time 803 891 1,693 1,786 Total Revenue $ 828 $ 915 $ 1,749 $ 1,837 Contract Balances The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets are the Company’s rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Contract assets are transferred to Accounts receivable, net when the rights to consideration become unconditional. Unearned income includes payments received in advance of performance under the contract, which are realized when the associated revenue is recognized under the contract. The following table provides information about the balances of the Company's contract assets, unearned income and receivables from contracts with customers: (in millions) June 30, 2024 December 31, 2023 Contract Assets (Unearned Income) Current contract assets $ 149 $ 178 Long-term contract assets (1) 7 12 Current unearned income ( 95 ) ( 91 ) Long-term unearned income (2) ( 57 ) ( 55 ) Net Contract Assets $ 4 $ 44 Accounts receivable, net $ 518 $ 559 __________ (1) Presented in Other long-term assets in the Condensed Consolidated Balance Sheets. (2) Presented in Other long-term liabilities in the Condensed Consolidated Balance Sheets. Revenues of $ 25 million and $ 69 million were recognized during the three and six months ended June 30, 2024, respectively, related to the Company's unearned income at December 31, 2023. Revenues of $ 13 million and $ 42 million were recognized during the three and six months ended June 30, 2023, respectively, related to the Company's unearned income at December 31, 2022. CNDT Q2 2024 Form 10-Q 10 Table of Contents The Company had no material asset impairment charges related to contract assets for the three and six months ended June 30, 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 June 30, 2024 was approximately $ 1.5 billion. The Company expects to recognize approximately 65 % of this revenue over the next two years and the remainder thereafter. Note 4 – Segment Reporting 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 solutions on behalf of its clients to improve cost, performance, and end-user experiences. As described in Note 5 – Divestitures and Assets/Liabilities Held for Sale, the Company transferred or sold certain businesses including (i) its BenefitWallet Portfolio and (ii) its Curbside Management and Public Safety Solutions businesses to third parties in the first half of 2024. Accordingly, the results of these disposed businesses, which had previously been reported in the Commercial segment and the Transportation segment, respectively, have been reclassified to the Divestitures segment. All prior periods presented have been recast to reflect these changes. 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. Commercial: 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. Government: The Government segment provides government-centric business process services to U.S. 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 agencies. The Company delivers mission-critical mobility and digital payment solutions for public transit and road usage charging that streamline operations, increase revenue and reduce congestion while creating safe, seamless travel experiences for consumers while reducing impact on the environment. Divestitures includes the Company's BenefitWallet Portfolio for which the Company completed the transfer to a third party in the second quarter of 2024 and its Curbside Management and Public Safety Solutions businesses which it sold to a third party in the second quarter of 2024. Refer to Note 5 – Divestitures and Assets/Liabilities Held for Sale for additional information. 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. CNDT Q2 2024 Form 10-Q 11 Table of Contents Selected financial information for the Company's reportable segments was as follows: Three Months Ended June 30, (in millions) Commercial Government Transportation Divestitures Unallocated Costs Total 2024 Revenue $ 425 $ 245 $ 141 $ 17 $ — $ 828 Segment profit (loss) $ 17 $ 38 $ ( 3 ) $ 5 $ ( 71 ) $ ( 14 ) 2023 Revenue $ 442 $ 270 $ 139 $ 64 $ — $ 915 Segment profit (loss) $ 22 $ 67 $ 3 $ 24 $ ( 79 ) $ 37 Six Months Ended June 30, (in millions) Commercial Government Transportation Divestitures Unallocated Costs Total 2024 Revenue $ 881 $ 503 $ 285 $ 80 $ — $ 1,749 Segment profit (loss) $ 39 $ 80 $ ( 9 ) $ 26 $ ( 143 ) $ ( 7 ) 2023 Revenue $ 921 $ 534 $ 256 $ 126 $ — $ 1,837 Segment profit (loss) $ 37 $ 140 $ ( 6 ) $ 45 $ ( 149 ) $ 67 (in millions) Three Months Ended June 30, Six Months Ended June 30, Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss) 2024 2023 2024 2023 Income (Loss) Before Income Taxes $ 300 $ ( 7 ) $ 427 $ ( 15 ) Reconciling items: Amortization of acquired intangible assets 2 2 3 4 Restructuring and related costs 8 13 17 42 Interest expense 19 27 46 54 (Gain) loss on divestitures and transaction costs, net ( 347 ) 3 ( 508 ) 5 Litigation settlements (recoveries), net 1 ( 1 ) 5 ( 22 ) Loss on extinguishment of debt 3 — 5 — Other (income) expenses, net — — ( 2 ) ( 1 ) Segment Profit (Loss) $ ( 14 ) $ 37 $ ( 7 ) $ 67 Refer to Note 3 – Revenue for additional information on disaggregated revenues of the reportable segments. Note 5 – Divestitures and Assets/Liabilities Held for Sale The Company entered into various agreements to transfer or sell certain portfolios and businesses in 2023 and 2024. Each of these transactions is described below. As applicable, the assets and liabilities held for sale for each transaction are also presented below. 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 "BenefitWallet Portfolio") to HealthEquity, Inc. ("HealthEquity") for an aggregate purchase price of $ 425 million (the "Purchase Price"), subject to customary purchase price adjustments. As of December 31, 2023, there were no asset or liability balances related to the BenefitWallet Portfolio that would require disclosure as assets and liabilities held for sale on the Company's Condensed Consolidated Balance Sheet. CNDT Q2 2024 Form 10-Q 12 Table of Contents The BenefitWallet transfer closed 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. On April 11, 2024, the second tranche closed and the Company received $ 85 million as the pro-rata share of the Purchase Price. The third and final tranche closed on May 14, 2024 and the Company received $ 176 million comprising the balance of the aggregate purchase price of $ 425 million. The Company recorded a gain on the transfer of $ 425 million less costs to sell of $ 13 million, which is recorded in Gain (loss) on divestitures and transaction costs, net. The Company recorded $ 101 million of income tax expense in connection with the BenefitWallet transfer. The BenefitWallet Portfolio generated revenue and pre-tax profit, excluding unallocated costs as follows: Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Revenue $ 3 $ 30 $ 30 $ 59 Pre-tax profit, excluding unallocated costs 2 23 20 44 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 to Modaxo, a division of Constellation Software Inc., 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 "Curbside Disposal Group") were reclassified as held for sale and measured at the lower of carrying value or fair value less costs to sell. On April 30, 2024, Conduent completed the sale of this business. The Company received $ 174 million of cash consideration, a $ 50 million non-interest bearing note payable to the Company on April 30, 2025, and other amounts receivable of $ 56 million related to: (i) the reimbursement for payments made by the Company related to finance lease liabilities and related costs; (ii) the reimbursement for the purchase of certain equipment made by the Company on the buyer's behalf; and (iii) customary closing date purchase price holdbacks related to net asset targets, all of 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. In the second quarter of 2024, the Company recorded a gain on the sale of $ 108 million less costs to sell of $ 4 million, which is recorded in Gain (loss) on divestitures and transaction costs. The Company recorded $ 30 million of income tax expense in connection with the divestiture. The Curbside Disposal Group generated revenue and pre-tax profit, excluding unallocated costs as follows: Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Revenue $ 14 $ 34 $ 50 $ 67 Pre-tax profit, excluding unallocated costs 3 1 6 1 Divestiture of Casualty Claims Solutions Business On May 3, 2024, the Company entered into a definitive agreement to sell the Company’s Casualty Claims Solutions business to MedRisk. The sale is for $ 240 million in cash and is subject to certain purchase price adjustments. The consummation of the transaction is subject to regulatory approval and the satisfaction or waiver of customary closing conditions and is expected to close during the third quarter of 2024. The assets and liabilities of these businesses (collectively referred to as the "Casualty 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 Casualty Disposal Group generated revenue and pre-tax profit, excluding unallocated costs as follows: Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Revenue $ 37 $ 36 $ 74 $ 74 Pre-tax profit, excluding unallocated costs 7 7 14 13 CNDT Q2 2024 Form 10-Q 13 Table of Contents Assets/Liabilities Held for Sale As noted above, the BenefitWallet Portfolio did not have any associated assets and liabilities to disclose as held for sale in the Company's Condensed Consolidated Balance Sheet at December 31, 2023. The divestiture of the Company's Curbside Management and Public Safety Solutions businesses was announced in December 2023 and completed in the second quarter of 2024. Accordingly, the assets and liabilities of these businesses were disclosed as held for sale as of December 31, 2023 and removed as of June 30, 2024. The assets and liabilities of the Casualty Disposal Group are disclosed as held for sale as of June 30, 2024. The following is a summary of the major categories of assets and liabilities that have been reclassified as held for sale for each of these transactions: Casualty Disposal Group Curbside Disposal Group (in millions) June 30, 2024 December 31, 2023 Accounts Receivable, net $ 27 $ 49 Other current assets 1 3 Land, building and equipment, net — 52 Operating lease right-of-use assets — 6 Intangible assets, net 14 — Goodwill — 35 Other long-term assets 1 35 Total Assets held for sale $ 43 $ 180 Current portion of long-term debt $ — $ 5 Accounts payable 14 11 Accrued compensation and benefits costs 3 2 Unearned income — 4 Other current liabilities 4 9 Long-term debt — 19 Operating lease liabilities — 4 Other long-term liabilities 1 4 Total Liabilities held for sale $ 22 $ 58 Note 6 – Restructuring Programs and Related Costs The Company engages in a series of restructuring programs related to exiting certain activities, downsizing its employee base, outsourcing certain internal functions and engaging in other actions designed to reduce its cost structure and improve productivity. 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 ("ROU") asset 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, and bringing certain technology functions in-house, which totaled $ 2 million and $ 2 million for the three months ended June 30, 2024 and 2023, respectively, and $ 3 million and $ 4 million for the six months ended June 30, 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. Costs associated with restructuring, including employee severance and lease termination costs, are generally recognized when it has been determined that a liability has been incurred, which is generally upon communication to the affected employees or exit from the leased facility. In those geographies where the Company has either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, it recognizes employee severance costs when they are both probable and reasonably estimable. 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. CNDT Q2 2024 Form 10-Q 14 Table of Contents A summary of the Company's restructuring program activity during the six months ended June 30, 2024 and 2023 is as follows: (in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total Accrued Balance at December 31, 2023 $ 9 $ 1 $ — $ 10 Provision 7 8 2 17 Changes in estimates — — — — Total Net Current Period Charges (1) 7 8 2 17 Charges against reserve and currency ( 11 ) ( 7 ) ( 2 ) ( 20 ) Accrued Balance at June 30, 2024 $ 5 $ 2 $ — $ 7 (in millions) Severance and Related Costs Termination and Other Costs Asset Impairments Total Accrued Balance at December 31, 2022 $ 10 $ — $ — $ 10 Provision 23 13 6 42 Changes in estimates — — — — Total Net Current Period Charges (1) 23 13 6 42 Charges against reserve and currency ( 14 ) ( 13 ) ( 6 ) ( 33 ) Accrued Balance at June 30, 2023 $ 19 $ — $ — $ 19 __________ (1) Represents amounts recognized within the Consolidated Statements of Income (Loss) for the years shown. 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 June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Commercial $ 2 $ 3 $ 3 $ 23 Government — — — — Transportation — — 1 — Divestitures — — — — Unallocated Costs (1) 6 10 13 19 Total Net Restructuring Charges $ 8 $ 13 $ 17 $ 42 __________ (1) Represents costs related to the consolidation of the Company's data centers, operating lease ROU assets impairment, termination and other costs not allocated to the segments. Note 7 – Debt Long-term debt was as follows: (in millions) June 30, 2024 December 31, 2023 Term loan A due 2026 $ 232 $ 238 Term loan B due 2028 38 505 Senior notes due 2029 520 520 Revolving credit facility maturing 2026 — — Finance lease obligations 29 22 Other 14 15 Principal debt balance 833 1,300 Debt issuance costs and unamortized discounts ( 11 ) ( 18 ) Less: current maturities ( 33 ) ( 34 ) Total Long-term Debt $ 789 $ 1,248 As of June 30, 2024, the Company had no outstanding borrowings under its revolving credit facility (the "Revolver"). Additionally, the Company utilized $ 3 million of the Revolver to issue letters of credit as of June 30, 2024. The net Revolver available to be drawn upon as of June 30, 2024 was $ 547 million. CNDT Q2 2024 Form 10-Q 15 Table of Contents 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 six months ended June 30, 2024. In April and May 2024, the Company voluntarily prepaid $ 300 million of principal of the Term Loan B and wrote-off related debt issuance costs of $ 3 million for the three months ended June 30, 2024, which is included in Loss on extinguishment of debt in the Condensed Consolidated Statements of Income (Loss). At June 30, 2024, the Company was in compliance with all debt covenants related to the borrowings in the table above. Note 8 – Financial Instruments The Company is a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of its business. 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 June 30, 2024 and December 31, 2023, the Company had outstanding forward exchange contracts with gross notional values of $ 189 million and $ 148 million, respectively. At June 30, 2024, approximately 77 % of these contracts mature within three months, 9 % in three to six months, 11 % in six to twelve months and 3 % 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. Note 9 – Fair Value of Financial Assets and Liabilities Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP established a hierarchy framework to classify the fair value based on the observability of significant inputs to the measurement. The levels of the fair value hierarchy are as follows: Level 1: Fair value is determined using an unadjusted quoted price in an active market for identical assets or liabilities. Level 2: Fair value is estimated using inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. Level 3: Fair value is estimated using unobservable inputs that are significant to the fair value of the assets or liabilities. CNDT Q2 2024 Form 10-Q 16 Table of Contents Summary of Financial Assets and Liabilities Accounted for at Fair Value on a Recurring Basis The following table represents assets and liabilities measured at fair value on a recurring basis. The basis for the measurement at fair value in all cases was Level 2. (in millions) June 30, 2024 December 31, 2023 Assets: Foreign exchange contracts - forward $ — $ 1 Total Assets $ — $ 1 Liabilities: Foreign exchange contracts - forward $ 2 $ — Total Liabilities $ 2 $ — Summary of Other Financial Assets and Liabilities The estimated fair values of other financial assets and liabilities were as follows: June 30, 2024 December 31, 2023 (in millions) Carrying Amount Fair Value Carrying Amount Fair Value Liabilities: Long-term debt $ 789 $ 758 $ 1,248 $ 1,191 Liabilities held for sale $ 22 $ 22 $ 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. 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 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. In these plans, employees are permitted to contribute a portion of their salaries and bonuses to the plans. 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 $ 3 million for the three months ended June 30, 2024 and 2023, respectively, and $ 6 million and $ 6 million for the six months ended June 30, 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 Q2 2024 Form 10-Q 17 Table of Contents Note 11 – Accumulated Other Comprehensive Loss ("AOCL") Below are the balances and changes in AOCL (1) : (in millions) Currency Translation Adjustments Gains (Losses) on Cash Flow Hedges Defined Benefit Pension Items Total Balance at December 31, 2023 $ ( 441 ) $ 2 $ 4 $ ( 435 ) Other comprehensive income (loss) ( 27 ) ( 1 ) — ( 28 ) Balance at June 30, 2024 $ ( 468 ) $ 1 $ 4 $ ( 463 ) (in millions) Currency Translation Adjustments Gains (Losses) on Cash Flow Hedges Defined Benefit Pension Items Total Balance at December 31, 2022 $ ( 472 ) $ 1 $ 5 $ ( 466 ) Other comprehensive income (loss) 21 1 — 22 Balance at June 30, 2023 $ ( 451 ) $ 2 $ 5 $ ( 444 ) __________ (1) All amounts are net of tax. Tax effects were immaterial. Note 12 – Contingencies and Litigation As more fully discussed below, the Company is involved in a variety of claims, lawsuits, investigations and proceedings concerning a variety of matters, including: governmental entity contracting, servicing and procurement law; intellectual property law; employment law; commercial and contracts law; the Employee Retirement Income Security Act ("ERISA"); and other laws and regulations. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing its litigation and regulatory matters using available information. The Company develops its view on estimated losses in consultation with outside counsel handling its defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. 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 June 30, 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. 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. Nonperformance under a contract could trigger an obligation of the Company. These potential claims include actions based upon alleged exposures to products, real estate, intellectual property (such as patents), environmental matters and other indemnifications. The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the outcome of these claims. 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 June 30, 2024, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees. CNDT Q2 2024 Form 10-Q 18 Table of Contents Litigation Against the Company Skyview Capital LLC and Continuum Global Solutions, LLC v. Conduent Business Services, LLC: On February 3, 2020, plaintiffs Skyview LLC ("Skyview") filed a lawsuit in the Superior Court of New York County, New York. The lawsuit relates to the sale of a portion of Conduent Business Service, LLC's ("CBS") select standalone customer care call center business to plaintiffs, which sale closed in February 2019. Under the terms of the sale agreement, CBS received approximately $ 23 million of notes from plaintiffs (the "Notes"). The lawsuit alleges various causes of action in connection with the acquisition, including: indemnification for breach of representation and warranty; indemnification for breach of contract and fraud. 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, 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. 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. 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 June 30, 2024, the Company had $ 620 million of outstanding surety bonds issued to secure its performance of contractual obligations with its clients, and $ 166 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. The Company believes it has sufficient capacity in the surety markets and liquidity from its cash flow and its various credit arrangements to allow it to respond to future requests for proposals that require such credit support. Note 13 – Common Stock and Preferred Stock Icahn Share Repurchase On June 8, 2024, the Company entered into a purchase agreement (the "Purchase Agreement") with Carl C. Icahn and certain of his affiliates ("Icahn Parties") pursuant to which the Company agreed to purchase an aggregate of approximately 38 million shares of the Company’s common stock, at a price of $ 3.47 per share, the closing price on June 7, 2024, the last full trading day prior to the execution of the Purchase Agreement, for an aggregate purchase price of approximately $ 132 million. The purchase was completed and settled on June 10, 2024 and was funded through a combination of cash on hand and a drawdown under the Company’s Revolver. Series A Preferred Stock In December 2016, the Company issued 120,000 shares of Series A convertible perpetual preferred stock with an aggregate liquidation preference of $ 120 million and an initial fair value of $ 142 million. The convertible preferred stock earns quarterly cash dividends at a rate of 8 % per year ($ 9.6 million per year). 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 Q2 2024 Form 10-Q 19 Table of Contents Note 14 – Earnings (Loss) per Share The Company did not declare any common stock dividends in the periods presented. The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock: Three Months Ended June 30, Six Months Ended June 30, (in millions, except per share data in whole dollars and shares in thousands) 2024 2023 2024 2023 Basic Net Earnings (Loss) per Share: Net Income (Loss) $ 216 $ ( 7 ) $ 315 $ ( 13 ) Dividend - Preferred Stock ( 3 ) ( 3 ) ( 5 ) ( 5 ) Adjusted Net Income (Loss) Available to Common Shareholders - Basic $ 213 $ ( 10 ) $ 310 $ ( 18 ) Diluted Net Earnings (Loss) per Share: Net Income (Loss) $ 216 $ ( 7 ) $ 315 $ ( 13 ) Dividend - Preferred Stock — ( 3 ) — ( 5 ) Adjusted Net Income (Loss) Available to Common Shareholders - Diluted $ 216 $ ( 10 ) $ 315 $ ( 18 ) Weighted Average Common Shares Outstanding - Basic 194,539 218,394 201,159 218,396 Common Shares Issuable With Respect To: Restricted Stock And Performance Units / Shares 2,149 — 1,672 — 8% Convertible Preferred Stock 5,393 — 5,393 — Weighted Average Common Shares Outstanding - Diluted 202,081 218,394 208,224 218,396 Net Earnings (Loss) per Share: Basic $ 1.10 $ ( 0.04 ) $ 1.54 $ ( 0.08 ) Diluted $ 1.07 $ ( 0.04 ) $ 1.51 $ ( 0.08 ) The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive (shares in thousands): Restricted stock and performance shares/units 11,916 12,985 11,277 12,985 Convertible preferred stock — 5,393 — 5,393 Total Anti-Dilutive and Contingently Issuable Securities 11,916 18,378 11,277 18,378 CNDT Q2 2024 Form 10-Q 20 Table of Contents Note 15 – Supplementary Financial Information The components of Other assets and Other liabilities were as follows: (in millions) June 30, 2024 December 31, 2023 Other Current Assets Prepaid expenses $ 109 $ 70 Income taxes receivable 10 38 Value-added tax (VAT) receivable 8 8 Restricted cash 7 21 Net receivable from buyer of Curbside Management and Public Safety Solutions business 104 — Other 104 103 Total Other Current Assets $ 342 $ 240 Other Current Liabilities Accrued liabilities to vendors $ 159 $ 188 Litigation related accruals 9 6 Current operating lease liabilities 51 54 Restructuring liabilities 7 10 Income tax payable 74 1 Other taxes payable 18 19 Accrued interest 6 6 Other 38 44 Total Other Current Liabilities $ 362 $ 328 Other Long-term Assets Internal use software, net $ 131 $ 143 Deferred contract costs, net 105 91 Product software, net 81 92 Deferred tax assets 22 21 Other 83 89 Total Other Long-term Assets $ 422 $ 436 Other Long-term Liabilities Income tax liabilities 1 6 Unearned income 57 55 Other 25 23 Total Other Long-term Liabilities $ 83 $ 84 CNDT Q2 2024 Form 10-Q 21 Table of Contents