Key Highlights
- Revenue and Adjusted EBITDA results well-above expectations
- Strong New Business signings
- Total Contract Value of signings: $468M, up 100% year-over-year
- Annual Recurring Revenue of signings: $96M, up 35% year-over-year
- On track to exceed high end of previous FY 2020 cost reduction target range of $120M-$140M
- Improvements in operational and technology platform performance
FLORHAM PARK, N.J., Nov. 05, 2020 -- Conduent (NASDAQ: CNDT), a business process services and solutions company, today announced its third quarter 2020 financial results. Cliff Skelton, Conduent CEO, stated “We've made progress on all three pillars of our strategy: growth, quality and efficiency. Our results were driven by the team's hard work in this difficult environment. The revenue trajectory continued to improve this quarter and we executed well on our cost reduction program, putting us on track to deliver at or above the top end of our updated full year cost targets. New business signings were very strong for the third consecutive quarter, doubling our Q3 2019 signings. Importantly, we continue to meet client expectations around service delivery and operational performance. Overall, while we still have work to do, we are pleased with our progress and continue to gain confidence that Conduent is on the right track and making progress on our transformation objectives."
Q3 2020 Performance Commentary
Revenue for the quarter beat expectations due to better than expected results in the Government and Transportation segments. Revenue compared with Q3 2019 was lower primarily due to prior year lost business. Continued strong activity in our Government business was primarily driven by increased volumes in our Supplemental Nutrition Assistance Program and Pandemic Supplemental Nutrition Assistance Program (SNAP and P-SNAP) and Unemployment Insurance pre-paid cards offerings. Government segment revenues were higher than prior expectations due to higher than expected volumes in our SNAP and P-SNAP programs and higher than expected excess funds remaining on Unemployment Insurance pre-paid cards. The tolling business continued to recover with volumes trending closer to preCOVID-19 levels in many of the locations where we operate electronic tolling systems. The remainder of the Transportation segment performed generally as expected. The Commercial segment continued to see volume pressure as a result of COVID-19.
Additional highlights from Q3 2020 include strong sales performance with $468M in new business signings, a 100% increase over Q3 2019. Overall, signings included a diverse mix of new business wins and renewals spanning our offerings across the Commercial, Government, and Transportation segments.
The company is also on track to exceed the high end of the cost savings target range of $140 million. This program includes both temporary actions, such as furloughs, reduced vendor and travel spend, reduced temporary facility operating spend, as well as permanent actions, such as optimizing spans and layers, reducing real estate spend and leveraging shared services capabilities.
The company continues to focus on its strategy of "Growth," "Quality," and "Efficiency" as key pillars of its transformation program, which is expected to result in improved client service delivery, client retention, and enhanced service level agreement (SLA) performance.
Key Financial Third Quarter 2020 Results
- Revenue of $1,041 million, down (5.2)% year-over-year, or (5.4)% in constant currency.
- Q3 2020 GAAP net loss of $(7) million compared to $(16) million in Q3 2019.
- Adjusted EBITDA of $141 million, up 11.0% year-over-year. Adjusted EBITDA margin was 13.5%, up 190 bps year-over-year.
- Pre-tax income was ($13) million compared to ($14) million in Q3 2019.
- Diluted EPS from continuing operations was ($0.04) versus ($0.09) in the same period last year.
- Adjusted diluted EPS from continuing operations was $0.26 compared to $0.16 in Q3 2019.
- Cash inflow from operations was $107 million during Q3 2020 compared to cash inflows of $18 million in Q3 2019.
- Adjusted Free Cash Flow, was an inflow of $72 million during Q3 2020 compared to Adjusted Free Cash Flow outflows of $(27) million in Q3 2019.
Brian Webb-Walsh, CFO, stated "The continued strong performance that we achieved this quarter is the result of hard work, disciplined execution and a diverse portfolio. Given current trends, we now anticipate FY 2020 revenue to be down between 6.4% and 7.4% with an Adjusted EBITDA margin between 11.25% and 11.75%, and an Adjusted Free Cash Flow conversion of approximately 20%. We are pleased that the midpoints of these ranges are in line to slightly above the initial, pre-COVID-19 guidance ranges that we provided earlier in the year."
Conference Call
Management will present the results during a conference call and webcast on November 5, 2020 at 5:00 p.m. ET.
The call will be available by live audio webcast along with the news release and online presentation slides at https://investor.conduent.com/.
The conference call will also be available by calling 1-877-883-0383 (international dial-in 1-412-902-6506) at approximately 4:45 p.m. ET. The entry number for this call is 7428394.
A recording of the conference call will be available by calling 1-877-344-7529 or 1-412-317-0088 one hour after the conference call concludes on November 5, 2020. The replay ID is 10147983.
For international calls, please select a dial-in number from:
https://services.choruscall.com/ccforms/replay.html.
The telephone recording will be available until 11:59 p.m. ET. on November 12, 2020.
About Conduent
Conduent delivers mission-critical services and solutions on behalf of businesses and governments – creating exceptional outcomes for its clients and the millions of people who count on them. Through our dedicated people, process and technology, Conduent solutions and services automate workflows, improve efficiencies, reduce costs and enable revenue growth. It’s why most Fortune 100 companies and over 500 government entities depend on Conduent every day to manage their essential interactions and move their operations forward.
Conduent’s differentiated services and solutions improve experiences for millions of people every day, including two-thirds of all insured patients in the U.S., 10 million employees who use its HR Services, and nearly 18 million benefit recipients. Conduent’s solutions deliver exceptional outcomes for its clients, including $17 billion in savings from medical bill review, up to 40% efficiency increase in HR operations, up to 27% reduction in government benefits costs, up to 40% improvement in finance, accounting and procurement expense, and improved customer service interaction times by up to 20% with higher end-user satisfaction. Learn more at www.conduent.com.
Non-GAAP Measures
We have reported our financial results in accordance with U.S. generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using non-GAAP measures. 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 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. These non-GAAP financial measures should be viewed in addition to, and not as a substitute for, our reported results prepared in accordance with U.S. GAAP. 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. GAAP. Our management regularly uses supplemental 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 non-GAAP measures. Refer to the "Non-GAAP Financial Measures" section attached to this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.
Forward-Looking Statements
This release and any attachments to this release may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend,” “will,” "aim," “should,” “could”, “may,” “continue to,” “if,” “growing,” “projected,” “potential,” “likely,” and similar expressions, as they relate to us, are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. All statements other than statements of historical fact included in this press release are forward-looking statements, including, but not limited to, statements regarding our financial results, condition and outlook; changes in our operating results; general market and economic conditions; our transformation progress continuing; expectations that we are on track to deliver at or above the top end of our updated full year targets and to exceed the high end of the previous cost savings target range of $140 million; our belief that Conduent is on the right track and making progress on our transformation initiative; our focus on "Growth," "Quality," and "Efficiency" projects as key pillars of our strategic transformation program, which is expected to result in improved client service delivery, client retention and enhanced Service Level Agreement (SLA) performance; and our projected financial performance for the full year 2020 and the strength of our position for the remainder of the year. In addition, all statements regarding the anticipated effects of the novel coronavirus ("COVID-19") pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, and markets, results of operations and financial condition and anticipated actions to be taken by management to sustain our business during the economic uncertainty caused by the pandemic and related governmental and business actions, as well as other statements that are not strictly historical in nature, are forward looking. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. These forward-looking statements are also subject to the significant continuing impact of the COVID-19 pandemic on our business, operations, financial results and financial condition, which is dependent on developments which are highly uncertain and cannot be predicted.
Important factors and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements include, but are not limited to: the impact of the ongoing COVID-19 pandemic; government appropriations and termination rights contained in our government contracts; risk and impact of potential goodwill and other asset impairments; our ability to renew commercial and government contracts, including contracts awarded through competitive bidding processes; our ability to recover capital and other investments in connection with our contracts; our ability to attract and retain necessary technical personnel and qualified subcontractors; our ability to deliver on our contractual obligations properly and on time; competitive pressures; our significant indebtedness; changes in interest in outsourced business process services; our ability to obtain adequate pricing for our services and to improve our cost structure; risk and impact of geographical events, natural disasters and other factors (such as pandemics, including COVID-19) in a particular country or region on our workforce, customers, vendors, partners and the global economy; claims of infringement of third-party intellectual property rights; the failure to comply with laws relating to individually identifiable information and personal health information and laws relating to processing certain financial transactions, including payment card transactions and debit or credit card transactions; breaches of our information systems or security systems or any service interruptions; our ability to estimate the scope of work or the costs of performance in our contracts; our continuing emphasis on and shift toward technology-led digital transactions; customer decision-making cycles and lead time for customer commitments; our ability to collect our receivables, including those for unbilled services; a decline in revenues from, or a loss of, or a reduction in business from, or failure of significant clients; fluctuations in our non-recurring revenue; our failure to maintain a satisfactory credit rating; our ability to attract and retain key employees; increases in the cost of telephone and data services or significant interruptions in such services; our failure to develop new service offerings; our ability to modernize our information technology infrastructure and consolidate data centers; our ability to comply with data security standards; our ability to receive dividends or other payments from our subsidiaries; changes in tax and other laws and regulations; changes in government regulation and economic, strategic, political and social conditions; the outcome of litigation to which we are a party from time to time; changes in the volatility of our stock price and the risk of litigation following a decline in the price of our stock; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and other sections in our Annual Reports on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with or furnished to the Securities and Exchange Commission. Any forward-looking statements made by us in this release speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forwardlooking statements, whether as a result of new information, subsequent events or otherwise.