Key Quarterly Highlights
• Revenue of $1,420 million
• Net income from continuing operations of $(50) million, GAAP diluted EPS from continuing operations of $(0.26)
• Adjusted net income of $47 million and adjusted diluted EPS from continuing operations of $0.22
• Adjusted EBITDA of $161 million
• Cash flow from operations of $(38) million and adjusted free cash flow of $(69) million
• Renewal rate of 94% and $1,022 million of renewal TCV
• Cash Balance of $553 million; Adjusted Cash Balance of $461 million
Portfolio Highlights
• Update on $250 - $500 million of targeted divestitures:
◦ Signed divestitures(1) representing ~$321 million in 2017 revenue
◦ ~$175 million of revenue from Public Sector in progress
• Targeting divesting an additional ~$500 million of revenue from select Customer Care contracts
(1) Signed deals are subject to regulatory approvals and customary closing conditions
FLORHAM PARK, NJ, May 9, 2018 - Conduent (NYSE: CNDT), the world's largest provider of diversified business services, today announced its first quarter 2018 financial results.
"We had a strong start to the year and continued to show improvement in our trajectory from both a financial and operational perspective. We have announced the signing of definitive agreements for two divestitures so far in 2018. We are also divesting approximately $500 million of additional revenue from certain Customer Care contracts. These are important steps in strengthening our balance sheet, solidifying the core of our business and positioning the company for long-term, profitable growth," said Ashok Vemuri, CEO of Conduent. "In the first quarter, our Commercial revenues, excluding one-time items and strategic actions, grew three percent as investment in our core is starting to yield results. Profitability improved across key segments with higher service line penetration, better pricing and deployment of platforms and software."
First Quarter 2018 Results
First quarter 2018 revenues were $1,420 million, down 8.6% compared to Q1 2017. Adjusting for the impact of the 606 accounting standard and excluding divestitures completed in Q3 2017, revenues were down 4.3% compared with Q1 2017.
Pre-tax income was $(54) million compared to $(22) million in Q1 2017. GAAP operating margin as reported was (3.8)% compared to (1.4)% in Q1 2017. The company reported Q1 2018 GAAP net income of $(50) million compared with $(6) million in Q1 2017. Diluted EPS from continuing operations was ($0.26) versus ($0.06) in the same period last year, driven primarily by non-recurring, non-cash items related to expenses associated with transaction expenses and accruals for a contract termination related to litigation.
First quarter adjusted operating income was $105 million, with an adjusted operating margin of 7.4% as compared to adjusted operating income of $89 million, with an adjusted operating margin of 5.7% in Q1 2017. Adjusted EBITDA improved 5% to $161 million, with an adjusted EBITDA margin of 11.3%, as compared to $153 million, with an adjusted EBITDA margin of 9.9% in Q1 2017. Adjusting for the impact of the 606 accounting standard and excluding divestitures completed in Q3 2017, Adjusted EBITDA improved 9.5% compared with Q1 2017. The company reported adjusted diluted EPS from continuing operations of $0.22 compared to $0.16 in Q1 2017.
Conduent had a use of $(38) million in cash flow from operations during the first quarter 2018 and ended the quarter with a cash balance of $553 million. Total debt was $2,053 million as of March 31, 2018.
Excluding funds that are associated with the termination of the deferred compensation plan that are expected to be disbursed to participants in 2018, Conduent ended the quarter with an adjusted cash balance of $461 million.
Headcount of approximately 85,000 as of March 31, 2018 compared with approximately 90,000 as of December 31, 2017.
Total contract value (TCV) signings of $1,428 million for the quarter were up 53% compared with Q1 2017, impacted by greater renewal signings primarily with travel, government, telecom and industrial clients.
Financial and Strategic Outlook
Conduent updated the following guidance ranges for FY 2018:
|
(in millions) |
|
FY 2017 |
Impact from Adjustments to FY 2017 |
Adjusted FY 2017 |
Prior FY 2018 Guidance |
Signed Q2 2018 Divestiture Impact (assumes close date of 6/30/2018)(4) |
Updated FY 2018 Guidance |
|
Revenue(1) |
|
$6,022 |
$(225) |
$5,797 |
$5,625 - $5,799 |
~$160 |
$5,440 - $5,640 |
|
Adjusted EBITDA |
|
$672 |
$(17) |
$655 |
$707 - $733 |
~$35 |
$672 - $698 |
|
Adjusted Free Cash Flow(2) |
|
$204 |
($1) |
$203 |
25 - 35% of Adj. EBITDA |
|
25 - 35% of Adj. EBITDA |
|
Adjustments impacting FY 2017(3) |
Revenue |
Adj. EBITDA |
Free Cash Flow |
|
Divestitures (completed in Q3 2017) |
$(59) |
$(6) |
($1) |
|
Estimated impact from adoption of new accounting standard for revenue recognition |
$(166) |
$(11) |
$0 |
|
Total |
$(225) |
($17) |
($1) |
Note: Please refer to the "Non-GAAP Outlook" in the non-GAAP section below for certain non-GAAP information concerning outlook
(1) Year-over-year revenue comparison at constant currency.
(2) FY17 Adjusted Free Cash Flow. Please refer to the "Adjusted Free Cash Flow Reconciliation" in the non GAAP section below.
(3) Divestitures include the five businesses which were sold in Q3 2017. Prior to the transactions, these businesses earned $59 million of revenue, $6 million in Adjusted EBITDA and $1 million of Free Cash Flow in 2017. Please see Report on Form 8-K filed October 4, 2017 and the Q3 2017 Quarterly Earnings presentation, available in the Investor Relations section of www.conduent.com, for additional details.
Estimated impact from the adoption of the new accounting standard for revenue recognition, had it been applicable in FY 2017, it would have had an estimated impact to Conduent FY 2017 revenues of $166 million and Adjusted EBITDA of $11 million. There is no impact to Free Cash Flow from this accounting standard adoption.
(4) Signed deals are subject to regulatory approvals and customary closing conditions
"The progress we are making on executing on targeted divestitures and improving our margin profile within our core business has been encouraging," said Brian Webb-Walsh, CFO of Conduent. "We updated our guidance for the impact of the recently signed divestitures, but excluding these factors, we would have been in-line with our previous guidance."
Conference Call
Management will present the results during a conference call and webcast on May 9, 2018 at 10 a.m. ET.
The call will be available by live audio webcast with the news release and online presentation slides at https://investor.conduent.com/.
The conference call will also be available by calling 877-883-0383 (international dial-in 412-902-6506) at approximately 9:45 a.m. ET.
A recording of the conference call will be available by calling 877-344-7529, or 412-317-0088 one hour after the conference call concludes on May 9, 2018. The replay ID is 10119737.
About Conduent
Conduent (NYSE: CNDT) is the world’s largest provider of diversified business services with leading capabilities in transaction processing, automation and analytics. The company’s global workforce is dedicated to helping its large and diverse client base deliver quality services to the people they serve. These clients include 76 of the Fortune 100 companies and over 500 government entities.
Conduent’s differentiated offerings touch millions of lives every day, including two-thirds of all insured patients in the U.S. and nearly nine million people who travel through toll systems daily. Whether it’s digital payments, claims processing, benefit administration, automated tolling, customer care or distributed learning - Conduent manages and modernizes these interactions to create value for both its clients and their constituents. 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 current periods' results against the corresponding prior periods' results. 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. 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 Condensed 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 these 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 Report and any exhibits to this Report may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. 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. Such factors include, but are not limited to: termination rights contained in our government contracts; our ability to renew commercial and government 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; 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 security systems and service interruptions; our ability to estimate the scope of work or the costs of performance in our contracts; our ability to collect our receivables for unbilled services; a decline in revenues from or a loss 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 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; changes in U.S. GAAP or other applicable accounting policies; 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Any forward-looking statements made by us in this report 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 forward-looking statements, whether as a result of new information, subsequent events or otherwise.
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Media Contacts:
Sean Collins, Conduent, +1-310-497-9205, sean.collins2@conduent.com
Investor Contacts:
Alan Katz, Conduent, +1-973-526-7173, alan.katz@conduent.com
Monk Inyang, Conduent, +1-973-261-7182, monk.inyang@conduent.com