Slide 1: Conduent Q4 & FY 2017 Earnings Results
February 21, 2018 Conduent Q4 & FY 2017 Earnings Results
Slide 2: Cautionary Statements
Cautionary 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, estim
Slide 3: FY 2017 Overview
FY 2017 Overview Key Highlights • 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 o
Slide 4: Strategic Transformation
Strategic Transformation Progress and Outlook Real Estate Locations • Over-achieved cumulative 2017 target ◦ Overperformance in real estate and overhead costs 462 442 • Continued progress on large Customer Care contract 379 355 339 remediation ◦ 5/6 contracts remediated to win-win solutions ◦ 1/6 co
Slide 5: Pivoting in 2018
Pivoting in 2018 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 De
Slide 6: Segment Summary - FY 2017
Segment Summary - FY 2017 Commercial • Revenue down 7% yr/yr as expected, largely driven by strategic decisions • Margin improved significantly versus prior year as better technology deployment, revenue mix and transformation savings • Revenue productivity ~$50K per employee1, down ~2% vs. FY 2016 P
Slide 7: Q4 2017 Signings, Pipeline and Renewal Rate
Q4 2017 Signings, Pipeline and Renewal Rate $1,730M 96% Total Contract Value (TCV) Signings Renewal Rate • TCV improved 65% qtr/qtr and 4% yr/yr, impacted by • Reflects opportunities with acceptable margin and risk, greater renewal activity and sequential new business in-line with business model gro
Slide 8: Financials
Financials CONDUENT ss
Slide 9: Q4 2017 Earnings
Q4 2017 Earnings (in millions) Q4 2016 Q4 2017 B/(W) Comments Yr/Yr Strategic actions, lost business, divestitures, Revenue $1,514 $1,493 ($21) partially offset by Q4 2016 impact of NY MMIS Gross margin 8.1% 18.9% 1,080 bps NY MMIS charge in Q4 2016. Continued SG&A 169 149 20 progress on transformat
Slide 10: FY 2017 Earnings
FY 2017 Earnings (in millions) B/(W) FY 2016 FY 2017 Comments Yr/Yr Revenue $6,408 $6,022 ($386) Strategic actions, lost business, and divestitures Gross margin 14.2% 17.4% 320 bps Improvement from transformation savings and SG&A 686 615 $71 impact of NY MMIS charge in 2016 Adjusted operating income
Slide 11: Commercial Segment
Commercial Segment Q4 2017 Segment Highlights Q4 Revenue By Vertical (% of segment total) • Revenue grew 2% sequentially and declined 5% yr/yr, impacted by strategic decisions and lost business Hi-Tech, Industrial & Banking, Insurance & • Segment profit grew 42% yr/yr, driven by strategic transforma
Slide 12: Public Sector Segment
Public Sector Segment Q4 2017 Segment Highlights • Revenue down 7% yr/yr and 1% sequentially, impacted by strategic Q4 Revenue By Business (% of segment total) actions and contract losses • Transportation down 4% yr/yr and flat sequentially Payment Services: State & Local: 21% • Segment profit impro
Slide 13: Other Segment
Other Segment Q4 2017 Segment Highlights • Revenue declined yr/yr and sequentially as education business run-off accelerated, partially offset by MMIS contract remediation Q4 Revenue By Vertical (% of segment total) • Adjusted EBITDA improved yr/yr, primarily driven by positive Education: 13% impact
Slide 14: Cash Flow
Cash Flow (in millions) Q4 2017 FY 2017 Net income $208 $181 Depreciation & amortization 119 497 Stock-based compensation 14 40 2017 Commentary: Deferred tax benefit (223) (230) Restructuring payments (15) (58) • Free cash flow3 of $204M Restructuring and related costs 24 92 Change for income tax as
Slide 15: Capital Structure Overview
Capital Structure Overview Debt Structure ($ in millions) Credit Metrics / Statistics 12/31/2016 9/30/2017 12/31/2017 Actual 2017 interest expense $137M Total Cash $390 $468 $658 Preferred dividend (annually) ~$10M Deferred Comp Cash 0 (116) (99) Target net leverage ratio <2.5x Adjusted Cash1 390 35
Slide 16: FY 2018 Guidance
FY 2018 Guidance Impact from Adjustments to Adjusted FY 2018 Guidance (in millions) FY 2017 FY 2017 FY 2017 (vs Adjusted FY 2017) Revenue $6,022 ~($225) $5,797 Down 3% - flat (CC1) (constant currency) Adjusted EBITDA2 $672 ~($20) $652 Up 8% - 12% Adjusted Free Cash $204 ~($1) $203 25 - 35% of Adj. E
Slide 17: CEO Closing Remarks
CEO Closing Remarks 17
Slide 18: Conduent: A Digital Interactions Company
Conduent: A Digital Interactions Company 18
Slide 19: 2017 - Recap of Performance
2017 - Recap of Performance ◦ Financial Performance: Met or over-achieved guidance ◦ Strengthened Balance Sheet: Improved cash generation provides flexibility ◦ Transformation: Over-performance on 2017 program and on track for 2018 ◦ Established our Brand: Solidified go-to-market and client engageme
Slide 20: Q&A
Q&A 20
Slide 21: Appendix
Appendix 21
Slide 22: Signings & Renewal Rate
Signings & Renewal Rate ($ 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 $4
Slide 23: 2018 Modeling Considerations
2018 Modeling Considerations 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 expe
Slide 24: Definitions
Definitions 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 renew
Slide 25: Non-GAAP Financial Measures
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
Slide 26: Non-GAAP Financial Measures
Non-GAAP Financial Measures 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: Goo
Slide 27: Non-GAAP Financial Measures
Non-GAAP Financial Measures 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 mea
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 Net Income Net Income Net Income Net Income (in millions, except EPS) (Loss) Diluted EPS (Loss) Diluted EPS (Loss) Diluted EPS (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 Pre-Tax Income Income Tax Pre-Tax Income Income Tax (in millions) (Loss) (Benefit) Expense Effective Tax Rate (Loss) (Benefit) Expense Effective Tax Rate GAAP as Reported From Contin
Slide 30: Non-GAAP Reconciliation: Revenue and Operating Income / Margin
Non-GAAP Reconciliation: Revenue and Operating Income / Margin (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,
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) 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 Other
Slide 34: Non-GAAP Reconciliation: Adjusted Free Cash Flow
Non-GAAP Reconciliation: Adjusted Free Cash Flow Three Months Ended Years Ended December December 31, 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 software (10
Slide 35: Non-GAAP Reconciliation: Adjusted Cash
Non-GAAP Reconciliation: Adjusted Cash As of As of As of September 30, December 31, December 31, (in millions) 2017 2017 2016 Cash and cash equivalents $ 468 $ 658 $ 390 Deferred compensation paid in 2017 — 17 — Deferred compensation payable (116) (116) — Adjusted cash and cash equivalents $ 352 $ 5
Slide 36: © 2017 Conduent Inc. All rights reserved. Conduent and Conduent Agile Star are trademarks
© 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 ss
CONDUENT ss