Slide 1: Conduent Q3 2017 Earnings Results
November 8, 2017 Conduent Q3 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: Q3 2017 Overview
Q3 2017 Overview Key Highlights • Commercial segment profit margin up 150 bps year-over-year and 240 bps sequentially • Public Sector revenue and profitability consistent qtr/qtr • Other segment performance continues to improve • Renewal signings up qtr/qtr and renewal rate of 98% • Rolling 12-month
Slide 4: Strategic Transformation
Strategic Transformation Real Estate Locations 462 Progress and Outlook 379 355 • Continued progress in Q3; expect to achieve 2017 target • Pipeline of cost initiatives provides comfort in expected Q4 2016 Q2 2017 Q3 2017 2018 savings targets Selling, General & Administrative (SG&A) Trends • Strong
Slide 5: Operational Focus
Operational Focus Investing in the sales force, pursuing larger deals with shorter duration, driving cross-sell Modernizing platforms, investing in automation, analytics and digital experiences Centralizing our technology ecosystem and taking control of our IT infrastructure Optimizing workforce and
Slide 6: Signings, Pipeline and Renewal Rate
Signings, Pipeline and Renewal Rate $1,048M 98% Total Contract Value (TCV) Signings Renewal Rate • Total TCV declined 16% qtr/qtr and 32% yr/yr, • Reflects opportunities with acceptable margin and risk impacted by delays with two large deals* • Renewals: $657M, improved sequentially but still impact
Slide 7: Portfolio Review Update
Portfolio Review Update • During Q3, divested five businesses: ◦ Global Mobility (Human Resource Services) ◦ FIREHOUSE (State & Local) Desirability ◦ Healthcare consulting (Healthcare Provider) ◦ Breakaway Group (Healthcare Provider) ◦ Wireless Data Services' mobile device management business (Custo
Slide 8: Financials
Financials CONDUENT ss
Slide 9: Q3 2017 Earnings
Q3 2017 Earnings (in millions) Q3 2016 Q3 2017 B/(W) Comments Yr/Yr Revenue $1,596 $1,480 ($116) Impacted by strategic decisions, lost business Gross margin 16.8% 17.6% 80 bps Continued progress driven by strategic SG&A 164 144 $20 transformation program 1 Adjusted operating income 97 111 $14 Adjust
Slide 10: Commercial Segment
Commercial Segment Revenue By Vertical (% of segment total) Segment Highlights Hi-Tech, Industrial & Banking, Insurance & • Revenue declined 6% yr/yr, impacted by lost business, lower Retail: 36% Capital Markets: 17% volumes and strategic decisions • Segment profit grew 26% yr/yr, driven by strategi
Slide 11: Public Sector Segment
Public Sector Segment Segment Highlights Revenue By Business (% of segment total) • Revenue down 8% yr/yr and flat sequentially • Transportation down 2% yr/yr, but improved 6% sequentially Payment State & Local: 23% • Segment profit in-line with expectations as strategic transformation Services: 22%
Slide 12: Other Segment
Other Segment Segment Highlights Revenue By Vertical (% of segment total) • Revenue declined yr/yr in-line with expectations • Profitability improved, driven by both Health Enterprise and Education Education: 25% • Successful remediation / extension of large MMIS contract expected to improve profita
Slide 13: Cash Flow
Cash Flow (in millions) Q3 2017 YTD Net loss ($17) ($27) Depreciation & amortization 123 378 Q3 2017 Commentary: Stock-based compensation 8 26 Restructuring payments (21) (43) Restructuring and related costs 22 68 • Free cash flow3 of $73M Change for income tax assets and liabilities 5 3 Change in a
Slide 14: Capital Structure Overview
Capital Structure Overview Debt Structure ($ in millions) Credit Metrics / Statistics 6/30/2017 9/30/2017 Expected 2017 interest expense ~$140M Total Cash $309 $468 Preferred dividend (annually) ~$10M Deferred Comp Cash — 116 Adjusted Cash1 309 352 Target net leverage ratio <2.5x 2 Total Debt 2,130
Slide 15: 2017 Guidance
2017 Guidance FY 2016 FY 2017E Revenue $6,408M Down 4.5-6.5% (CC1) Adjusted EBITDA2 $635M Up ~5% Free Cash Flow ($81M) 20-30% of Adj. EBITDA2 1 Constant currency based on foreign exchange rates as of the prior-year period 2 Please refer to Appendix "Non-GAAP Outlook" for certain non-GAAP information
Slide 16: CEO Closing Remarks
CEO Closing Remarks 16
Slide 17: The Conduent Value Chain
The Conduent Value Chain Managing digital interactions between our clients and their end-users at massive scale Clients 76 of the Fortune 100 20 of the top 20 Health Insurers 9 of top 10 Pharma Companies 3 of the top 5 Life Insurers 4 ofthe top 5 Telecommunications 5 of the top 10 banks 6 of the top
Slide 18: Q&A
Q&A 18
Slide 19: Appendix
Appendix 19
Slide 20: Signings & Renewal Rate
Signings & Renewal Rate ($ in millions) Q1' 16 Q2' 16 Q3' 16 Q4' 16 Q1' 17 Q2' 17 Q3' 17 Total Contract Value $1,488 $2,158 $1,546 $1,660 $931 $1,244 $1,048 New Business $643 $527 $633 $724 $530 $657 $390 Renewals $845 $1,631 $913 $936 $401 $587 $657 Annual Recurring Revenue Signings $129 $112 $166
Slide 21: 2017 Modeling Considerations
2017 Modeling Considerations Commentary D&A (excl. amortization of intangibles) Modest sequential increase in Q4 Profitability Q4 weighted given seasonality and cost initiatives Restructuring costs Now expecting $90-95M for the full year (~$75M previously) Interest Expense ~$33M for Q4; ~$140M for t
Slide 22: Definitions
Definitions TCV = Total contract value 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 renewed during the period as a percentage of ARR on all contracts for wh
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 Operating Income and Adjusted Operating Margin. We make adjustments to Costs and Expenses and Margin for the following items (as defined above), for the purpose of calculating Adjusted Operating Income and Adjusted Operating Margin: • Amortization of intangible a
Slide 25: 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 26: Non-GAAP Reconciliation: Net Income (Loss) & EPS
Non-GAAP Reconciliation: Net Income (Loss) & EPS Three Months Ended Three Months Ended September 30, 2017 September 30, 2016 (in millions, except EPS) Net Income (Loss) EPS Net Income (Loss) EPS GAAP as Reported From Continuing Operations $ (17) $ (0.09) $ 1 $ 0.01 Adjustments: Amortization of intan
Slide 27: Non-GAAP Reconciliation: Effective Tax Rate
Non-GAAP Reconciliation: Effective Tax Rate Three Months Ended Three Months Ended September 30, 2017 September 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 Cont
Slide 28: Non-GAAP Reconciliation: Operating Income / Margin
Non-GAAP Reconciliation: Operating Income / Margin (in millions) Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 GAAP Revenue From Continuing Operations $ 1,480 $ 1,496 $ 1,553 $ 1,514 $ 1,596 $ 1,613 $ 1,685 GAAP Pre-tax (Loss) Income From Continuing Operations 13 (11) (22) (1,141) 2 (34) (
Slide 29: Non-GAAP Reconciliation: Adjusted EBITDA
Non-GAAP Reconciliation: Adjusted EBITDA (in millions) Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 Full Year 2016 Reconciliation to Adjusted Revenue GAAP Revenue From Continuing Operations $ 1,480 $ 1,496 $ 1,553 $ 1,514 $ 1,596 $ 1,613 $ 1,685 $ 6,408 NY MMIS adjustment — — — 83 — — — —
Slide 30: Non-GAAP Reconciliation: Segment Adjusted EBITDA
Non-GAAP Reconciliation: Segment Adjusted EBITDA (in millions) Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 Commercial Industries Segment GAAP revenue $ 864 $ 876 $ 923 $ 936 $ 923 $ 939 $ 1,007 Segment profit $ 53 $ 32 $ 29 $ 48 $ 42 $ 35 $ 26 Depreciation & amortization 40 43 41 33 43 4
Slide 31: Non-GAAP Reconciliation: Other Segment Revenue, Profit (Loss) and Margin
Non-GAAP Reconciliation: Other Segment Revenue, Profit (Loss) and Margin Three Months Ended Three Months Ended Three Months Ended Three Months Ended September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 (in millions) Revenue Loss Margin Revenue Loss Margin Revenue Loss Margin Revenue Los
Slide 32: Non-GAAP Reconciliation: Free Cash Flow
Non-GAAP Reconciliation: Free Cash Flow Three Months Three Months Ended Ended Year Ended September 30, September 30, December 31, (in millions) 2017 2016 2016 Operating Cash Flow $ 104 $ 140 $ 108 Cost of additions to land, buildings & equipment (20) (31) (149) Cost of additions to internal use soft
Slide 33: © 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.