Conduent Incorporated · NASDAQ:CNDT
Conduent — Q4 2017 Earnings Presentation
37 slides from Conduent's earnings presentation, Feb 21, 2018
Slide 1: Conduent Q4 & FY 2017 Earnings Results
February 21, 2018 Conduent Q4 & FY 2017 Earnings Results Audit Committee Draft (2) CONFIDENTIAL
Slide 2: Forward-Looking Statements
Forward-Looking Statements This report contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and
Slide 3: FY 2017 Overview
FY 2017 Overview • Meaningfully improved profitability of Commercial business (FY 2017 segment margin up ~110 bps YoY; Q4 segment margin at 7.7%) • Remediated 5 out of 6 large customer experience contracts (two incremental since last earnings call) • Achieved adjusted EBITDA3 growth of ~6% • Rolling
Slide 4: Strategic Transformation Progress and Outlook
Strategic Transformation Progress and Outlook • Over-achieved cumulative 2017 target ◦ Overperformance in real estate and overhead costs • Continued progress on large Customer Care contract remediation ◦ 5/6 contracts remediated to win-win solutions ◦ 1/6 contracts still progressing • IT transformat
Slide 5: Pivoting in 2018
Pivoting in 2018 5 2017 2018 Outlook Financial Plan Revenue Manage decline Improved trajectory of core Adj EBITDA1 Led by transformation Expanded through continued transformation and delivery efficiency Free Cash Flow Focus on cash conversion Continued strong cash conversion and DSO focus Portfolio
Slide 6: Segment Summary - FY 2017
6 Public Sector • Revenue down 6% yr/yr as expected, driven by contract losses and strategic decisions • Margin decline yr/yr driven by prior year contract losses and revenue pressure as well as dis-synergies • Revenue productivity ~$222K per employee, up 6% vs. FY 2016 Segment Summary - FY 2017 Com
Slide 7: Q4 2017 Signings, Pipeline and Renewal Rate
Q4 2017 Signings, Pipeline and Renewal Rate New Business TCV • New Business: $683M, improved 75% qtr/qtr and declined 6% yr/yr • New business wins driven by expansion and increased cross-sell with existing Healthcare Payer, State & Local and Pharma clients • Continued focus on strategic wins with ac
Slide 8: Financials
Financials 8
Slide 9: Q4 2017 Earnings
Q4 2017 Earnings 1Please refer to Appendix for Non-GAAP reconciliations of adjusted operating income/margin, adjusted EBITDA/margin, adjusted tax rate, adjusted net income and adjusted EPS 2Q4 2016 Interest expense includes $4M Related-party interest benefit Adjusted Operating margin 5.4%, up 60 bps
Slide 10: FY 2017 Earnings
FY 2017 Earnings 1Please refer to Appendix for Non-GAAP reconciliations of adjusted operating income/margin, adjusted EBITDA/margin, adjusted tax rate, adjusted net income and adjusted EPS 2FY 2016 Interest expense includes $26M in Related-party interest Adjusted Operating margin 5.4%, up 60 bps fro
Slide 11: Commercial Segment
Commercial Segment Q4 2017 Segment Highlights • Revenue grew 2% sequentially and declined 5% yr/yr, impacted by strategic decisions and lost business • Segment profit grew 42% yr/yr, driven by strategic transformation / contract remediation / delivery efficiency • Segment adjusted EBITDA1 grew 31% y
Slide 12: Public Sector Segment
Q4 Revenue By Business (% of segment total) Public Sector Segment Q4 2017 Segment Highlights • Revenue down 7% yr/yr and 1% sequentially, impacted by strategic actions and contract losses • Transportation down 4% yr/yr and flat sequentially • Segment profit improved sequentially driven by strategic
Slide 13: Other Segment
Other Segment Revenue in $M 13 1Please refer to Appendix for Non-GAAP reconciliations of adjusted revenue, adjusted EBITDA/margin and adjusted operating income/margin Q4 Revenue By Vertical (% of segment total) GAAP Revenue: $4 Adjusted Revenue: $871 Adjusted Segment Loss1 ($12) ($1) ($3) ($1) ($4)
Slide 14: Cash Flow
· 2017 Commentary: • Free cash flow3 of $204M • Divestiture proceeds generated ~$56M • Termination of Deferred Compensation Plan added $116M (Investing Cash Flow), most of which will be used to pay participants in 2018 • Full-year adjusted free cash flow of ~30% AEBITDA • Capex ~2.2% of Revenue in F
Slide 15: Debt Structure and Adjusted Cash
12/31/2016 9/30/2017 12/31/2017 Total Cash $390 $468 $658 Deferred Comp Cash 0 (116) (99) Adjusted Cash1 390 352 559 Total Debt2 1,941 2,062 2,061 Term Loan A3, 6 due 2021 694 727 732* Term Loan B3 due 2023 750 844 842 10.5% Senior Notes due 2024 510 510 510 Capital Leases 43 39 33 Current net lever
Slide 16: FY 2018 Guidance
(in millions) FY 2017 Impact from Adjustments to FY 2017 Adjusted FY 2017 FY 2018E (vs Adjusted FY 2017) Revenue (constant currency) $6,022 ~($225) $5,797 Down 3% - flat (CC1) Adjusted EBITDA2 $672 ~($20) $652 Up 8% - 12% Adjusted Free Cash Flow $204 ~($1) $203 25 - 35% of Adj. EBITDA 2 Adjustments
Slide 17: CEO Closing Remarks
CEO Closing Remarks 17
Slide 18: Conduent: A Digital Interactions Company
Conduent: A Digital Interactions Company 18 18
Slide 19: 2017 - Recap of Performance
2017 - Recap of Performance 19 19 ◦ Financial Performance: Met or over-achieved guidance ◦ Strengthened Balance Sheet: Improved cash generation provides flexibility ◦ Transformation: Over-performance on 2017 program and on track for 2018 ◦ Established our Brand: Solidified go-to-market and client en
Slide 20: Q&A
Q&A 20
Slide 21: Appendix
Appendix 21
Slide 22: Signings & Renewal Rate
Signings & Renewal Rate 22 ($ in millions) Q1' 16 Q2' 16 Q3' 16 Q4' 16 Q1' 17 Q2' 17 Q3' 17 Q4' 17 FY ' 16 FY' 17 Total Contract Value $1,488 $2,158 $1,546 $1,660 $931 $1,244 $1,047 $1,730 $6,852 $4,952 New Business $643 $527 $633 $724 $530 $657 $390 $683 $2,527 $2,260 Renewals $845 $1,631 $913 $936
Slide 23: 2018 Modeling Considerations
2018 Modeling Considerations 23 Outlook Commentary Profitability Typical seasonality tends to be weighted toward 2H (as seen in FY 2017) Restructuring costs Expected to be $50M - $75M for the full year Interest Expense Expected to be ~$135M for the full year, given TLB repricings and interest rate e
Slide 24: Definitions
Definitions 24 TCV = Total contract value Annual Recurring Revenue Signings = Only includes new business TCV New Business TCV = Annual recurring revenue signings multiplied by the contract term plus non-recurring revenue signings Renewal Rate = Annual recurring revenue (ARR) on contracts that are re
Slide 25: Non-GAAP Financial Measures
Non-GAAP Financial 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 the non-GAAP measures. We believe these non-GAAP measures allow investors to better understand the tr
Slide 26: Adjusted Revenue, Adjusted Operating Income and Adjusted Operating Margin
Adjusted Revenue, Adjusted Operating Income and Adjusted Operating Margin. We make adjustments to Revenue, Costs and Expenses and Margin for the following items (as defined above), for the purpose of calculating Adjusted Operating Income and Adjusted Operating Margin: Goodwill Impairment. • Goodwill
Slide 27: Segment and Consolidated Adjusted EBITDA and EBITDA Margin
Segment and Consolidated Adjusted EBITDA and EBITDA Margin We use Adjusted EBITDA as an additional way of assessing certain aspects of our operations that, when viewed with the U.S. GAAP results and the accompanying reconciliations to corresponding U.S. GAAP financial measures, provide a more comple
Slide 28: Non-GAAP Reconciliation: Net Income (Loss) & EPS
Non-GAAP Reconciliation: Net Income (Loss) & EPS Three Months Ended December 31, Years Ended December 31, 2017 2016 2017 2016 (in millions, except EPS) Net Income (Loss) Diluted EPS Net Income (Loss) Diluted EPS Net Income (Loss) Diluted EPS Net Income (Loss) Diluted EPS GAAP as Reported From Contin
Slide 29: Non-GAAP Reconciliation: Effective Tax Rate
Non-GAAP Reconciliation: Effective Tax Rate Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 (in millions) Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate GAAP as Reported From Contin
Slide 30: Adjusted Revenue and Operating Margin Reconciliation
(in millions) Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Full Year 2016 Full Year 2017 GAAP Revenue From Continuing Operations $ 1,514 $ 1,553 $ 1,496 $ 1,480 $ 1,493 $ 6,408 $ 6,022 GAAP Pre-tax (Loss) Income From Continuing Operations (1,141 ) (22 ) (11 ) 13 4 (1,227 ) (16 ) GAAP Operating Margin As
Slide 31: Non-GAAP Reconciliation: Adjusted EBITDA
Non-GAAP Reconciliation: Adjusted EBITDA (in millions) Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Full Year 2016 Full Year 2017 Reconciliation to Adjusted Revenue GAAP Revenue From Continuing Operations $ 1,514 $ 1,553 $ 1,496 $ 1,480 $ 1,493 $ 6,408 $ 6,022 NY MMIS adjustment 83 — — — — 83 — Adjusted
Slide 32: Non-GAAP Reconciliation: Segment Adjusted EBITDA
Non-GAAP Reconciliation: Segment Adjusted EBITDA (in millions) Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 FY 2016 FY 2017 Commercial Industries Segment GAAP revenue $ 936 $ 923 $ 876 $ 864 $ 885 $ 3,805 $ 3,548 Segment profit $ 48 $ 29 $ 32 $ 53 $ 68 $ 151 $ 182 Depreciation & amortization 33 41 43 40
Slide 33: Non-GAAP Reconciliation: Other Segment Revenue and Profit (Loss)
Non-GAAP Reconciliation: Other Segment Revenue and Profit (Loss) 33 Q4 Q1 Q2 Q3 Q4 FY FY (in millions) 2016 2017 2017 2017 2017 2016 2017 Reconciliation to Other Segment Adjusted Revenue Segment revenue as reported $ 4 $ 81 $ 80 $ 76 $ 74 $ 295 $ 311 Adjustments: NY MMIS 83 — — — — 83 — Adjusted Oth
Slide 34: Non-GAAP Reconciliation: Adjusted Free Cash Flow
Non-GAAP Reconciliation: Adjusted Free Cash Flow 34 Three Months Ended December 31, Years Ended December 31, (in millions) 2017 2016 2017 2016 Operating Cash Flow $ 237 $ 146 $ 302 $ 108 Cost of additions to land, buildings & equipment (39 ) (63 ) (96 ) (149 ) Cost of additions to internal use softw
Slide 35: Non-GAAP Reconciliation: Adjusted Cash
35 Non-GAAP Reconciliation: Adjusted Cash (in millions) As of September 30, 2017 As of December 31, 2017 As of December 31, 2016 Cash and cash equivalents $ 468 $ 658 $ 390 Deferred compensation paid in 2017 — 17 — Deferred compensation payable (116 ) (116 ) — Adjusted cash and cash equivalents $ 35
Slide 36: All rights reserved. Conduent and Conduent Agile Star are trademarks of Conduent Inc. in
© 2017 Conduent Inc. All rights reserved. Conduent and Conduent Agile Star are trademarks of Conduent Inc. in the United States and/or other countries.
Slide 37: Conduent
CONDUENT