Key Quarterly Highlights
• Revenue of $1,387 million
• GAAP diluted EPS from continuing operations of $0.04, up $0.07; adjusted diluted EPS from continuing operations of $0.29, up $0.13
• Net Income from continuing operations of $11 million; Adjusted net income of $64 million
• Adjusted EBITDA of $166 million
• Cash flow from operations of $98 million and adjusted free cash flow of $60 million
• Renewal rate of 99.0% and $1,575 million of renewal TCV; $1,947 million of TCV signings
• Signed $1 billion TCV contract renewal and expansion with Fortune 50 Company
• Continued progress on divestiture plan resulting in meaningful strengthening of balance sheet
• Launched Tender Offer for 10.5% Senior Notes (~$476 million tendered; closed on July 27, 2018)
FLORHAM PARK, NJ, August 8, 2018 - Conduent (NYSE: CNDT), the world's largest provider of diversified business services, today announced its second quarter 2018 financial results.
"We delivered another strong quarter with continued growth in operating margin and adjusted EBITDA, while investing in our digital interactions and platform-based offerings. We expanded our new business pipeline and have achieved a consistent revenue baseline that was flat year-over-year excluding strategic actions for the second quarter in a row. Our core remains on track to realize organic top-line growth by year-end,” said Ashok Vemuri, CEO of Conduent. “We completed the sale of our Commercial Vehicle Operations business and continue to make progress in streamlining our portfolio and strengthening our balance sheet. All of these actions position us well to achieve our financial and strategic long-term goals."
Second Quarter 2018 Results
Second quarter 2018 revenues were $1,387 million, down 7.3% compared to Q2 2017. Adjusting for the impact of the 606 accounting standard and excluding divestitures completed in Q3 2017, revenues were down 3.3% compared with Q2 2017.
Pre-tax income was $54 million compared to $(11) million in Q2 2017. GAAP operating margin as reported was 3.9% compared to (0.7)% in Q2 2017. The company reported Q2 2018 GAAP net income of $11 million compared with $(4) million in Q2 2017. Diluted EPS from continuing operations was $0.04 versus ($0.03) in the same period last year, driven primarily by gains on divestitures and lower restructuring costs.
Second quarter adjusted operating income was $109 million, with an adjusted operating margin of 7.9% as compared to adjusted operating income of $88 million, with an adjusted operating margin of 5.9% in Q2 2017. Adjusted EBITDA improved 5.7% to $166 million, with an adjusted EBITDA margin of 12.0%, as compared to $157 million, with an adjusted EBITDA margin of 10.5% in Q2 2017. Adjusting for the impact of the 606 accounting standard and excluding divestitures completed in Q3 2017, Adjusted EBITDA improved 8.5% compared with Q2 2017. The company reported adjusted diluted EPS from continuing operations of $0.29 compared to $0.16 in Q2 2017.
Conduent generated $98 million in cash flow from operations during the second quarter 2018 and ended the quarter with a cash balance of $993 million. Total debt was $2,044 million as of June 30, 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 $903 million.
The Company repriced its Term Loans and Revolving Credit Facility during the quarter.
In addition, on June 24, 2018, the Company announced a tender offer for its 10.5% Senior Notes due 2024. On July 27, 2018, the Company closed the tender offer for ~$476 million or 93.3% of the Senior Notes.
Headcount of approximately 84,000 as of June 30, 2018 compared with approximately 90,000 as of December 31, 2017.
Total contract value (TCV) signings of $1,947 million for the quarter were up 56.5% compared with Q2 2017, impacted by greater renewal signings primarily with technology, government and transportation clients.
Financial and Strategic Outlook
Conduent reaffirmed the following guidance ranges for FY 2018:
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FY 2018E |
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Revenue (constant currency)(1) |
$5.41 |
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$5.61B |
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Guidance remains unchanged since Analyst Day |
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Adj. EBITDA(2) |
$662 |
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$688M |
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Adj. EBITDA Margin(2) |
11.8 |
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12.7% |
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Adj. Free Cash Flow(2) |
$166 |
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$241M |
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% of Adj. EBITDA |
25 |
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35% |
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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) Refer to Appendix for Non-GAAP reconciliations of adjusted EBITDA/margin and adjusted FCF and for impact from ASC 606 accounting change and divestitures
"For the sixth consecutive quarter, our financial performance improved year-on-year as we continued to achieve Adjusted EBITDA growth and margin expansion. We repriced our Term Loans and tendered for our high-cost debt, which will lead to a meaningful reduction in interest expense," said Brian Webb-Walsh, CFO of Conduent. "We continued to invest in the business with capex of 3.7% of revenue in the quarter, while our balance sheet and cash generation remain strong and provides us with the flexibility to take advantage of market opportunities."
Conference Call
Management will present the results during a conference call and webcast on August 8, 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. The entry number for this call is 6126916.
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 August 8, 2018. The replay ID is 10122677.
For international calls, please select a dial-in number from:
https://services.choruscall.com/ccforms/replay.html
About Conduent
Conduent creates digital platforms and services for businesses and governments to manage millions of interactions every day for those they serve. We are leveraging the power of cloud, mobile and IoT, combined with technologies such as automation, cognitive and blockchain to elevate every constituent interaction, driving modern digital experiences that are more efficient, helpful and satisfying.
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 serves a majority of the Fortune 100 companies and more than 500 government entities. 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 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 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 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 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, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-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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