Slide 1: Conduent Q3 2018 Earnings Results
November 7, 2018 Conduent Q3 2018 Earnings Results
Slide 2: Cautionary Statements
Cautionary Statements Forward-Looking Statements This report contains “forward-looking statements”, as defined in the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical
Slide 3: Q3 2018 Overview
Q3 2018 Overview Key Quarterly Highlights • Q3 2018 adjusted revenue(2) down (3)% yr/yr; up 1% excluding strategic decisions • GAAP EPS of $(1.16); Adj. diluted EPS(1) of $0.28; up 27% yr/yr; up 180% excluding divestiture impact • Adj. EBITDA of $157M, up 10% yr/yr; Adj. EBITDA margin of 12.0%, up 1
Slide 4: Strategic Transformation
Strategic Transformation Progress and Outlook Real Estate Footprint 12,400 462 355 10,499 • Remain on-target for cumulative 2018 transformation goal 264 8,339 of ~$700M • Reduced real estate locations (26)% yr/yr and reduced total Real Estate Locations Total Square Feet (000's) square feet (21)% yr/
Slide 5: Segment Summary - Q3 2018
Segment Summary - Q3 2018 Commercial Public Sector • Adjusted revenue up 1%(1) yr/yr • Adjusted revenue down (0.6)%(1) yr/yr ◦ Revenue down (4)% as reported ◦ Revenue down (1)% as reported • Adj. EBITDA margin increased 110 bps(1) yr/yr through high-value digital • Adj. EBITDA margin increased 340 b
Slide 6: Q3 2018 Signings, Pipeline and Renewal Rate
Q3 2018 Signings, Pipeline and Renewal Rate $738M 91% Total Contract Value (TCV)(1) Signings Renewal Rate • TCV down (20)% yr/yr • Reflects opportunities in-line with business model, • Renewals of $474M, due to lower renewal opportunities acceptable margin, T&C and risk • In quarter timing / slippag
Slide 7: Financials
CONDUENT Pe Financials
Slide 8: Q3 2018 Earnings
Q3 2018 Earnings (in millions) Q3 2018 Q3 2017 B/(W) Q3 2017 B/(W) Comments Q3 2018 vs Q3 2017 Yr/Yr adjusted for Yr/Yr adjusted for 606, 606, Divestitures Divestitures (1) Up 1% excluding FX, ASC 606, 2017 & 2018 Revenue $1,304 $1,480 ($176) $1,358 ($54) divestitures and strategic decisions Gross M
Slide 9: Commercial Segment
Commercial Segment Adjusted Quarterly Revenue and Profit(1) Q3 2018 Segment Highlights • Excluding strategic decisions, adjusted revenue up 1%(1) yr/yr $797 ◦ Adjusted revenue declined (4)% yr/yr, impacted by $762 $755 $790 $782 $743 $727 strategic decisions 7.2% • Segment profit grew 28% yr/yr, dri
Slide 10: Public Sector Segment
Public Sector Segment Adjusted Quarterly Revenue and Profit(1) Q3 2018 Segment Highlights • Excluding strategic decisions, adjusted revenue down $536 $525 $527 $530 $519 $520 (0.6)%(1) yr/yr $508 ◦ Revenue declined (1)% yr/yr, impacted by lost business and lower volumes 12.5% 8.9% 10.2% 9.4% 8.0% 7.
Slide 11: Other Segment
Other Segment Reported Quarterly Revenue and Profit Q3 2018 Segment Highlights(1) $176 $170 $160 • Revenue declined from divestiture impact and $133 $130 $125 accelerated Student Loan business run-off $57 • Completed exit Student Loan business in Q3 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 S
Slide 12: Cash Flow
Cash Flow (in millions) Q3 2018 YTD 2018 Key Messages: Net income (loss) ($237) ($276) Depreciation & amortization 113 347 Stock-based compensation 11 30 • Q3 2018 operating cash flow use driven Deferred tax benefit (43) (90) by working capital and net tax payments (Gain) loss on extinguishment of d
Slide 13: Capital Structure Overview
Capital Structure Overview Debt Structure ($ in millions) Credit Metrics FY 2018E interest expense ~$115M 6/30/2018 9/30/2018 (in millions) Preferred dividend (annual) ~$10M Total Cash(1) $1,003 $595 Target net leverage ratio ~2.0x Deferred Comp Cash (90) (77) Average remaining maturity on outstandi
Slide 14: Divestiture Update
Divestiture Update Signed(1) Divestiture • Select Customer Care Contracts: ~$500M FY 2017 Revenue Closed Divestitures • Commercial Vehicle Operations: closed June 28, 2018; $66M FY 2017 Revenue • Off-Street Parking: closed July 10, 2018; $42M FY 2017 Revenue • Actuarial and HR Consulting: closed Aug
Slide 15: FY 2018 Guidance
FY 2018 Guidance Prior FY 2018 Updated FY 2018 (in millions) Adjusted FY 2017(3) Guidance Guidance $5.34 - $5.40B Revenue $5.6B $5.41 - $5.61B (constant currency)(1) Yr/yr flat excluding strategic actions $640 - $650M Adj. EBITDA(2) $598M $662 - $688M Up 7 - 9% Adj. EBITDA Margin(2) 10.6% 11.8 - 12.
Slide 16: Q&A
Q&A 16
Slide 17: Appendix
Appendix 17
Slide 18: Signings & Renewal Rate
Signings & Renewal Rate(1) Excluding Divestiture Impact ($ in millions) Q1' 17 Q2' 17 Q3' 17 Q4' 17 Q1' 18 Q2' 18 Q3' 18 Total Contract Value $836 $1,142 $928 $1,422 $1,293 $1,887 $738 New Business $496 $602 $349 $584 $367 $346 $264 Renewals $340 $540 $579 $838 $926 $1,541 $474 Annual Recurring Reve
Slide 19: Definitions
Definitions TCV = Total contract value Annual Recurring Revenue Signings = Includes new business TCV. New Business TCV = Annual recurring revenue signings multiplied by the contract term plus non-recurring revenue signings. Pipeline = TCV pipeline of deals in all sell stages over a rolling 12 months
Slide 20: Financial Modeling Considerations
Financial Modeling Considerations Outlook Commentary FY 2018 Commentary Restructuring costs Expected to be ~$85M for the full year Interest Expense Expected to be ~$115M for the full year, given TLB repricing, bond tender and interest rate expectations Cash Flow Cash flow typically weighted towards
Slide 21: 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 22: 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: • R
Slide 23: Non-GAAP Financial Measures
Non-GAAP Financial Measures Segment and Consolidated Adjusted EBITDA and EBITDA Margin We use Adjusted EBITDA and Adjusted EBITDA Margin 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 correspond
Slide 24: Reconciliation: Adj. Net Income (Loss) & Adj. EPS
Non-GAAP Reconciliation: Adj. Net Income (Loss) & Adj. EPS Three Months Ended September 30, 2018 2017 Net Income Net Income (in millions, except EPS. Shares in thousands) (Loss) Diluted EPS (Loss) Diluted EPS GAAP as Reported From Continuing Operations $ (237) $ (1.16) $ (17) $ (0.09) Adjustments: R
Slide 25: Adj. Net Income and EPS Adjusted for 606 and Divestitures
Three Months Ended September 30, Adjusted for 606 and Divestitures(3) 2018 2017 Net Income Net Income (in millions, except EPS. Shares in thousands) (Loss) Diluted EPS (Loss) Diluted EPS GAAP as Reported From Continuing Operations $ (237) $ (1.16) $ (42) $ (0.20) Adjustments: Restructuring and relat
Slide 26: Reconciliation: Adj. Effective Tax Rate
Non-GAAP Reconciliation: Adj. Effective Tax Rate Three Months Ended September 30, 2018 Three Months Ended September 30, 2017 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
Slide 27: Reconciliation: Adjusted Operating Income / Margin
Non-GAAP Reconciliation: Adjusted Operating Income / Margin (As Reported) Previously Reported (in millions) Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 GAAP Revenue From Continuing Operations $ 1,304 $ 1,387 $ 1,420 $ 6,022 $ 1,493 $ 1,480 $ 1,496 $ 1,553 GAAP Pre-tax Income (Los
Slide 28: Reconciliation: Adjusted Revenue and Operating Income / Margin
Non-GAAP Reconciliation: Adjusted Revenue and Operating Income / Margin(1) (Adjusted results: Adjusts 2017 for comparable results to 2018 reported) Adjusted for 606 and Divestitures(1) (in millions) Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 GAAP Revenue From Continuing Operatio
Slide 29: Reconciliation: Adjusted EBITDA
Non-GAAP Reconciliation: Adjusted EBITDA Previously Reported (in millions) Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Reconciliation to Adjusted Revenue GAAP Revenue From Continuing Operations $ 1,304 $ 1,387 $ 1,420 $ 6,022 $ 1,493 $ 1,480 $ 1,496 $ 1,553 Adjusted Revenue $ 1,3
Slide 30: Reconciliation: Adjusted EBITDA
Non-GAAP Reconciliation: Adjusted EBITDA(1) (Adjusted results: Adjusts 2017 for comparable results to 2018 reported) Adjusted for 606 and Divestitures(1) (in millions) Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Reconciliation to Adjusted Revenue GAAP Revenue From Continuing Oper
Slide 31: Reconciliation: Segment Adjusted EBITDA
Non-GAAP Reconciliation: Segment Adjusted EBITDA(1) Previously Reported (in millions) Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Commercial Industries Segment GAAP revenue $ 727 $ 743 $ 782 $ 3,197 $ 813 $ 777 $ 784 $ 823 Segment profit $ 37 $ 32 $ 27 $ 121 $ 59 $ 29 $ 18 $ 15 S
Slide 32: Reconciliation: Segment Adjusted EBITDA
Non-GAAP Reconciliation: Segment Adjusted EBITDA(1) Adjusted for 606 and Divestitures(1) (in millions) Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Commercial Industries Segment GAAP revenue $ 727 $ 743 $ 782 $ 3,197 $ 813 $ 777 $ 784 $ 823 ASC 606 adjustment — — — (93) (23) (22)
Slide 33: Reconciliation: Segment Adjusted EBITDA Continued
Non-GAAP Reconciliation: Segment Adjusted EBITDA(1) Continued (Adjusts all periods for full divestiture impact) Adjusted for 606 and Divestitures(1) (in millions) Q3 2018 Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Other Segment Segment GAAP revenue $ 57 $ 125 $ 130 $ 639 $ 133 $ 160 $ 1
Slide 34: Reconciliation: Adj. Free Cash Flow
Non-GAAP Reconciliation: Adj. Free Cash Flow Three Months Ended Nine Months Ended September 30, September 30, (in millions) 2018 2017 2018 2017 Operating Cash Flow $ (30) $ 104 $ 30 $ 64 Cost of additions to land, buildings and equipment (43) (20) (119) (57) Proceeds from sales of land, buildings an
Slide 35: Reconciliation: Adjusted Cash
Non-GAAP Reconciliation: Adjusted Cash (in millions) As of September 30, 2018 As of December 31, 2017 Cash and cash equivalents $ 586 $ 658 Deferred compensation payments and adjustments 22 17 Deferred compensation payable (99) (116) Adjusted cash and cash equivalents $ 509 $ 559 35
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 Pe
CONDUENT Pe