Slide 1: Conduent Q2 2017 Earnings Results
August 9, 2017 Conduent Q2 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: Q2 2017 Overview
Q2 2017 Overview Key Highlights • Solid Q2 results; reaffirming FY2017 guidance • Strong new business signings • Strategic transformation on track; additional Q2 actions expected to yield results in H2 • Focus on Other segment has led to improved performance • Making progress in Commercial, but must
Slide 4: Segment Summary
Segment Summary Commercial • Revenue down 7% yr/yr as expected • Margin flat versus prior year period as revenue decline offset transformation savings • Revenue productivity ~$50K per employee, down ~2% vs. Q4 2016 Percentage of Q2 2017 • ARR signings $98M, up 12% yr/yr Revenue • NRR signings $44M,
Slide 5: Strategic Transformation
Strategic Transformation Progress and Outlook ($ in millions) Expected Savings • Gaining momentum across the board; expect to FY 2017 Cumulative ~$430 achieve 2017 target FY 2018 Cumulative ~$700 • Solid pipeline of cost initiatives provides comfort in Sources of Expected expected 2017-2018 savings
Slide 6: Operational Focus
Operational Focus Selling, General & Administrative (SG&A) Trends Real Estate Locations $183 $170 $169 $169 462 Down $164 (18% ) $153 10.9% 10.5% 10.6% 379 10.3% 10.2% 10.9% Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q4 2016 Q2 2017 SG&A ($ in M) % of revenue 1 Note: Q4 2016 % of adjusted revenue SG&
Slide 7: Signings and Renewal Rate
Signings and Renewal Rate $1,244M 89% Total Contract Value (TCV) Signings Renewal Rate • Total TCV up 34% qtr/qtr and down 42% yr/yr • Reflects opportunities of acceptable margin and risk • New Business: $657M, up 24% qtr/qtr and 25% yr/yr, • Continued focus on improving quality of revenue reflects
Slide 8: Pipeline, Sales and Key Wins
Pipeline, Sales and Key Wins Top 10 New Business Wins Pipeline: HTIR: 1 BICM: 2 ◦ Rolling 12-month pipeline over $16B, up 29% yr/yr ▪ During H1 added over $9B Transportation: 2 ◦ Quality of pipeline has improved given increased sales efforts, verticalization of go-to-market strategy and improved rep
Slide 9: Portfolio Review
Portfolio Review Core vs. Non-Core Update • Completed sale of Global Mobility business in July Desirability ◦ ~$13M annual revenue, negative (~15%) operating margin ◦ No impact to 2017 guidance • Currently $250 to $500M of revenue under review for divestiture Core ◦ Will update guidance as appropria
Slide 10: Financials
Financials CONDUENT ss 10
Slide 11: Q2 2017 Earnings
Q2 2017 Earnings (in millions) Q2 2016 Q2 2017 B/(W) Comments Yr/Yr Revenue $1,613 $1,496 ($117) Portfolio actions, business run-off and contract losses Gross margin 15.8% 16.2% 40 bps Strategic transformation SG&A 170 153 $17 Adjusted operating income1 77 88 $11 1 Adjusted operating margin 4.8% 5.9
Slide 12: Commercial Segment
Commercial Segment Segment Highlights ($ in millions) Q2 '16 Q2 '17 Yr/Yr Revenue $939 $876 (7%) • Revenue decline includes impact from strategic exits, lost Segment Profit $35 $32 (9%) business and volume headwinds Segment Margin % 3.7% 3.7% 0 bps • Strategic transformation savings offset by Custom
Slide 13: Public Sector Segment
Public Sector Segment Segment Highlights ($ in millions) Q2 '16 Q2 '17 Yr/Yr • Revenue headwinds as expected due to prior year Revenue $579 $540 (7%) contract losses in Government Healthcare, State & Local Segment Profit $78 $59 (24%) and Payments Segment Profit Margin % 13.5% 10.9% (260 bps) Segmen
Slide 14: Other Segment
Other Segment Segment Highlights ($ in millions) Q2 '16 Q2 '17 Yr/Yr Revenue $95 $80 (16%) • Revenue down 16% yr/yr as we reduce exposure in Segment Loss1 ($36) ($3) NM Education and Health Enterprise Segment Margin % (37.9%) (3.8%) NM • Yr/Yr profit improvement largely driven by prior year Segment
Slide 15: Cash Flow
Cash Flow (in millions) Q2 2016 Q2 2017 Net loss ($10) ($4) Depreciation & amortization 134 130 Q2 2017 Commentary: Stock-based compensation 6 12 Restructuring payments (13) (13) Restructuring and related costs 20 34 • Better than expected cash flow driven by Change for income tax assets and liabili
Slide 16: Capital Structure Overview
Capital Structure Overview Debt Structure ($ in millions) Credit Metrics / Statistics 3/31/2017 6/30/2017 Expected annual interest expense ~$140M Cash $255 $309 Preferred dividend (annually) ~$10M 1 Total Debt 2,121 2,130 Target net leverage ratio <2.5x 2, 5 Term Loan A due Average remaining maturit
Slide 17: Reaffirmed 2017 Guidance
Reaffirmed 2017 Guidance FY 2016 FY 2017E Revenue $6,408M Down 4.5-6.5% (CC1) Adjusted EBITDA2 $635M Up 5-6% Free Cash Flow ($81M) 20-30% of Adj. EBITDA2 1 Constant currency based on foreign exchange rates as of the prior-year period 2 Please refer to Appendix "Non-GAAP Outlook" for certain non-GAAP
Slide 18: Q&A
Q&A 18
Slide 19: Appendix
Appendix 19
Slide 20: Signings & Renewal Rate
Signings & Renewal Rate ($ in millions) Q1' 16 Q2' 16 Q3' 16 Q4' 16 Q1' 17 Q2' 17 Total Contract Value $1,488 $2,158 $1,546 $1,660 $931 $1,244 New Business 643 527 633 724 530 657 Renewals 845 1,631 913 936 401 587 Annual Recurring Revenue Signings $129 $112 $166 $182 $143 $130 Non-Recurring Revenue
Slide 21: 2017 Modeling Considerations
2017 Modeling Considerations Commentary Seasonality Revenue Q3/Q4 weighted given vertical exposure (Healthcare, Retail) D&A (excl. amortization of intangibles) Modest sequential increases in Q3 and Q4 Profitability Q3/Q4 weighted given seasonality and cost initiatives Restructuring costs Still expec
Slide 22: Definitions
Definitions H1 = First six months of the year H2 = Second six months of the year BICM = Banking, Insurance & Capital Markets HTIR = High-Tech, Industrial & Retail TCV = Total contract value ARR = Annual recurring revenue NRR = Non-recurring revenue New Business TCV = Annual recurring revenue signing
Slide 23: 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 24: Non-GAAP Financial Measures
Non-GAAP Financial Measures 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 com
Slide 25: Non-GAAP Reconciliation: Net Income (Loss) & EPS
Non-GAAP Reconciliation: Net Income (Loss) & EPS Three Months Ended Three Months Ended June 30, 2017 June 30, 2016 (in millions, except EPS) Net Income (Loss) EPS Net Income (Loss) EPS GAAP as Reported From Continuing Operations $ (4) $ (0.03) $ (10) $ (0.05) Adjustments: Amortization of intangible
Slide 26: Non-GAAP Reconciliation: Effective Tax Rate
Non-GAAP Reconciliation: Effective Tax Rate Three Months Ended Three Months Ended June 30, 2017 June 30, 2016 Income Tax Income Tax Pre-Tax Income (Benefit) Effective Tax Pre-Tax Income (Benefit) Effective Tax (in millions) (Loss) Expense Rate (Loss) Expense Rate GAAP as Reported From Continuing Ope
Slide 27: Non-GAAP Reconciliation: Operating Income / Margin
Non-GAAP Reconciliation: Operating Income / Margin (in millions) Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 GAAP Revenue From Continuing Operations $ 1,496 $ 1,553 $ 1,514 $ 1,596 $ 1,613 $ 1,685 GAAP Pre-tax (Loss) Income From Continuing Operations (11) (22) (1,141) 2 (34) (54) GAAP Operating
Slide 28: Non-GAAP Reconciliation: Adjusted EBITDA
Non-GAAP Reconciliation: Adjusted EBITDA (in millions) Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 Full Year 2016 Reconciliation to Adjusted Revenue GAAP Revenue From Continuing Operations $ 1,496 $ 1,553 $ 1,514 $ 1,596 $ 1,613 $ 1,685 $ 6,408 NY MMIS adjustment — — 83 — — — — Adjusted Revenue
Slide 29: Non-GAAP Reconciliation: Segment Adjusted EBITDA
Non-GAAP Reconciliation: Segment Adjusted EBITDA (in millions) Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 Commercial Industries Segment GAAP revenue $ 876 $ 923 $ 936 $ 923 $ 939 $ 1,007 Segment profit $ 32 $ 29 $ 48 $ 42 $ 35 $ 26 Depreciation & amortization 43 41 33 43 41 45 Adjusted Segment
Slide 30: Non-GAAP Reconciliation: Other Segment Revenue, Profit (Loss) and Margin
Non-GAAP Reconciliation: Other Segment Revenue, Profit (Loss) and Margin Three Months Three Months Three Months Ended Ended Ended June 30, 2017 March 31, 2017 December 31, 2016 (in millions) Revenue Loss Margin Revenue Loss Margin Revenue Loss Margin GAAP Other Segment As Reported From Continuing Op
Slide 31: Non-GAAP Reconciliation: Free Cash Flow
Non-GAAP Reconciliation: Free Cash Flow Three Months Three Months Year Ended Ended Ended December 31, (in millions) June 30, 2017 June 30, 2016 2016 Operating Cash Flow $ 67 $ (61) $ 108 Cost of additions to land, buildings & equipment (20) (25) (149) Cost of additions to internal use software (7) (
Slide 32: © 2017 Conduent Business Services, LLC. All rights reserved. Conduent and Conduent Agile Star
© 2017 Conduent Business Services, LLC. All rights reserved. Conduent and Conduent Agile Star are trademarks of Conduent Business Services, LLC in the United States and/or other countries.