Conduent Announces Second Quarter 2022 Financial Results
Key Q2 2022 Highlights
- Results consistent with expectations
- Not separating Transportation business
- Revenue and Adj. Revenue(1):
$928M - Pre-tax Income:
$5M - Adj. EBITDA Margin(1): 9.4%
- Annual Contract Value (ACV)(2):
$180M - Annual Recurring Revenue (ARR) signings: $100M
- Net ARR Activity Metric(2) (TTM):
$104M
Key Financial Q2 2022 Results
($ in millions, except margin and per share data) | Q2 2022 | Q2 2021 | Current Quarter Y/Y B/(W) |
Revenue | (9.6)% | ||
Adjusted Revenue(1) | (8.0)% | ||
GAAP Net Income (loss) | — | 12 | (100.0)% |
Adjusted EBITDA(1) | 87 | 119 | (26.9)% |
Adjusted EBITDA Margin (1) | 9.4% | 11.8% | (240) bps |
GAAP Pre-tax Income | 5 | 19 | (73.7)% |
GAAP Diluted EPS | (125.0)% | ||
Adjusted Diluted EPS(1) | (85.0)% | ||
Cash Flow from Operating Activities | (16) | 105 | (115.2)% |
Adjusted Free Cash Flow(1) | (31) | 62 | (150.0)% |
Q2 2022 Performance Commentary
Revenue and Adjusted Revenue for Q2 2022 were in line with expectations, however, lower than the prior year period, primarily driven by significant, non-recurring stimulus payments volume in our Government Services business in the prior year, as well as unfavorable foreign exchange impact, particularly from the Euro and British pound.
Pre-tax income was
Adjusted EBITDA of
New Business ACV of
The Net ARR Activity Metric for Q2 2022 was
Additional Q2 2022 Performance Highlights
- Recognized as a 2022 Leader in
Benefits Administration byNelson Hall for the fourth consecutive report - Awarded Field Technology Support Partner of the Year by H&R Block
- Ranked #8 in 2022 BPS Top 50 Providers, by
Everest Group - Recognized with Supplier Excellence Award for the Second Consecutive Year by
Toyota Financial Services - Recognized by Forbes as one of “America’s Best 500 Employers for Diversity 2022” for the second consecutive year
Updated FY 2022 Outlook (4)
FY 2021 Actuals |
FY 2022 Outlook |
|
Adj. Revenue(1) | ||
Adj. EBITDA(1) / Adj. EBITDA Margin(1) | 10.0% - 10.5% | |
Adj. Free Cash Flow(2) as % of Adj. EBITDA(1) | Approx. 18% (3) | Approx. 15% (3) |
(1) Refer to Appendix for definition and complete non-GAAP reconciliations of Adjusted Revenue, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Diluted EPS and Adjusted Free Cash Flow
(2) Refer to Appendix for definition.
(3) Normalized for the impact of payment of deferred payroll taxes primarily related to the CARES Act of
(4) Refer to Appendix for definition of Non-GAAP Outlook
Conference Call
Management will present the results during a conference call and webcast on
The call will be available by live audio webcast along with the news release and online presentation slides at https://investor.conduent.com/.
The conference call will also be available by calling 1-877-407-4019 toll-free. If requested, the conference ID for this call is 13730820.
The international dial-in is 1-201-689-8337. The international conference ID is also 13730820.
A recording of the conference call will be available by calling 1-877-660-6853 one hour after the conference call concludes. The replay ID is 13730820.
The telephone recording will be available until
About Conduent
Non-GAAP Financial Measures
We have reported our financial results in accordance with
Forward-Looking Statements
This release and any attachments to this release may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” "plan," “intend,” “will,” “aim,” “should,” “could,” “forecast,” “target,” “may,” "continue to," "if,” “growing,” “projected,” “potential,” “likely,” and similar expressions, as they relate to us, are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. All statements other than statements of historical fact included in this press release are forward-looking statements, including, but not limited to, statements regarding our financial results, condition and outlook; changes in our operating results; general market and economic conditions; our belief that keeping the Transportation business as part of the
In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this press release, any exhibits to this press release and other public statements we make. Our actual results may vary materially from those expressed or implied in our forward-looking statements.
Important factors and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements include, but are not limited to: the significant continuing effects of the ongoing COVID-19 pandemic on our business, operations, financial results and financial condition, which is dependent on developments which are highly uncertain and cannot be predicted; government appropriations and termination rights contained in our government contracts; our ability to renew commercial and government contracts, including contracts awarded through competitive bidding processes; our ability to recover capital and other investments in connection with our contracts; our reliance on third-party providers; our ability to deliver on our contractual obligations properly and on time; changes in interest in outsourced business process services; risk and impact of geopolitical events, natural disasters and other factors (such as pandemics, including coronavirus) in a particular country or region on our workforce, customers and vendors; claims of infringement of third-party intellectual property rights; our ability to estimate the scope of work or the costs of performance in our contracts; the loss of key senior management and our ability to attract and retain necessary technical personnel and qualified subcontractors; increases in the cost of telephone and data services or significant interruptions in such services; our failure to develop new service offerings and protect our intellectual property rights; our ability to modernize our information technology infrastructure and consolidate data centers; the failure to comply with laws relating to individually identifiable information and personal health information; the failure to comply with laws relating to processing certain financial transactions, including payment card transactions and debit or credit card transactions; breaches of our information systems or security systems or any service interruptions; our ability to comply with data security standards; changes in tax and other laws and regulations; risk and impact of potential goodwill and other asset impairments; our significant indebtedness; our ability to obtain adequate pricing for our services and to improve our cost structure; our ability to collect our receivables, including those for unbilled services; a decline in revenues from, or a loss of, or a reduction in business from or failure of significant clients; fluctuations in our non-recurring revenue; our failure to maintain a satisfactory credit rating; our ability to receive dividends or other payments from our subsidiaries; developments in various contingent liabilities that are not reflected on our balance sheet, including those arising as a result of being involved in a variety of claims, lawsuits, investigations and proceedings; conditions abroad, including local economics, political environments, fluctuating foreign currencies and shifting regulatory schemes; changes in government regulation and economic, strategic, political and social conditions; changes in the volatility of our stock price and the risk of litigation following a decline in the price of our stock; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and other sections in our 2021 Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with or furnished to the
Media Contacts:
Investor Contacts:
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
Three Months Ended |
Six Months Ended |
|||||||||||||||
(in millions, except per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenue | $ | 928 | $ | 1,026 | $ | 1,895 | $ | 2,054 | ||||||||
Operating Costs and Expenses | ||||||||||||||||
Cost of services (excluding depreciation and amortization) | 727 | 772 | 1,482 | 1,559 | ||||||||||||
Selling, general and administrative (excluding depreciation and amortization) | 113 | 125 | 215 | 251 | ||||||||||||
Research and development (excluding depreciation and amortization) | 2 | 1 | 3 | 1 | ||||||||||||
Depreciation and amortization | 53 | 86 | 114 | 181 | ||||||||||||
Restructuring and related costs | 11 | 8 | 20 | 21 | ||||||||||||
Interest expense | 18 | 13 | 37 | 26 | ||||||||||||
(Gain) loss on divestitures and transaction costs | 3 | (1 | ) | (160 | ) | 1 | ||||||||||
Litigation settlements (recoveries), net | (3 | ) | 1 | (31 | ) | 2 | ||||||||||
Loss on extinguishment of debt | — | 2 | — | 2 | ||||||||||||
Other (income) expenses, net | (1 | ) | — | — | — | |||||||||||
Total Operating Costs and Expenses | 923 | 1,007 | 1,680 | 2,044 | ||||||||||||
Income (Loss) Before Income Taxes | 5 | 19 | 215 | 10 | ||||||||||||
Income tax expense (benefit) | 5 | 7 | 79 | 9 | ||||||||||||
Net Income (Loss) | $ | — | $ | 12 | $ | 136 | $ | 1 | ||||||||
Net Income (Loss) per Share: | ||||||||||||||||
Basic | $ | (0.01 | ) | $ | 0.05 | $ | 0.61 | $ | (0.02 | ) | ||||||
Diluted | $ | (0.01 | ) | $ | 0.04 | $ | 0.60 | $ | (0.02 | ) |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended |
Six Months Ended |
|||||||||||||||
(in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Net Income (Loss) | $ | — | $ | 12 | $ | 136 | $ | 1 | ||||||||
Other Comprehensive Income (Loss), Net(1) | ||||||||||||||||
Currency translation adjustments, net | (40 | ) | 4 | (45 | ) | (7 | ) | |||||||||
Unrecognized gains (losses), net | — | — | (1 | ) | (1 | ) | ||||||||||
Changes in benefit plans, net | — | (1 | ) | — | (1 | ) | ||||||||||
Other Comprehensive Income (Loss), Net | (40 | ) | 3 | (46 | ) | (9 | ) | |||||||||
Comprehensive Income (Loss), Net | $ | (40 | ) | $ | 15 | $ | 90 | $ | (8 | ) |
__________
(1) All amounts are net of tax. Tax effects were immaterial.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in thousands) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 519 | $ | 415 | ||||
Accounts receivable, net | 684 | 699 | ||||||
Assets held for sale | — | 184 | ||||||
Contract assets | 155 | 154 | ||||||
Other current assets | 239 | 228 | ||||||
Total current assets | 1,597 | 1,680 | ||||||
Land, buildings and equipment, net | 263 | 281 | ||||||
Operating lease right-of-use assets | 212 | 231 | ||||||
Intangible assets, net | 43 | 52 | ||||||
1,310 | 1,339 | |||||||
Other long-term assets | 475 | 453 | ||||||
Total Assets | $ | 3,900 | $ | 4,036 | ||||
Liabilities and Equity | ||||||||
Current portion of long-term debt | $ | 30 | $ | 30 | ||||
Accounts payable | 166 | 198 | ||||||
Accrued compensation and benefits costs | 219 | 243 | ||||||
Unearned income | 73 | 82 | ||||||
Liabilities held for sale | — | 29 | ||||||
Other current liabilities | 407 | 443 | ||||||
Total current liabilities | 895 | 1,025 | ||||||
Long-term debt | 1,272 | 1,383 | ||||||
Deferred taxes | 105 | 75 | ||||||
Operating lease liabilities | 173 | 184 | ||||||
Other long-term liabilities | 88 | 95 | ||||||
Total Liabilities | 2,533 | 2,762 | ||||||
Series A convertible preferred stock | 142 | 142 | ||||||
Common stock | 2 | 2 | ||||||
Additional paid-in capital | 3,918 | 3,910 | ||||||
Retained earnings (deficit) | (2,220 | ) | (2,351 | ) | ||||
Accumulated other comprehensive loss | (475 | ) | (429 | ) | ||||
Total Equity | 1,225 | 1,132 | ||||||
Total Liabilities and Equity | $ | 3,900 | $ | 4,036 | ||||
Shares of common stock issued and outstanding | 215,705 | 215,381 | ||||||
Shares of series A convertible preferred stock issued and outstanding | 120 | 120 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended |
Six Months Ended |
|||||||||||||||
(in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net income (loss) | $ | — | $ | 12 | $ | 136 | $ | 1 | ||||||||
Adjustments required to reconcile net income (loss) to cash flows from operating activities: | ||||||||||||||||
Depreciation and amortization | 53 | 86 | 114 | 181 | ||||||||||||
Contract inducement amortization | 1 | — | 1 | — | ||||||||||||
Deferred income taxes | 1 | (5 | ) | 32 | (6 | ) | ||||||||||
Amortization of debt financing costs | 1 | 2 | 2 | 4 | ||||||||||||
Loss on extinguishment of debt | — | 2 | — | 2 | ||||||||||||
(Gain) loss on divestitures and sales of fixed assets, net | (2 | ) | — | (166 | ) | 1 | ||||||||||
Stock-based compensation | 7 | 6 | 9 | 9 | ||||||||||||
Changes in operating assets and liabilities | (77 | ) | 2 | (133 | ) | (89 | ) | |||||||||
Net cash provided by (used in) operating activities | (16 | ) | 105 | (5 | ) | 103 | ||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Cost of additions to land, buildings and equipment | (17 | ) | (25 | ) | (51 | ) | (39 | ) | ||||||||
Cost of additions to internal use software | (16 | ) | (16 | ) | (32 | ) | (32 | ) | ||||||||
Proceeds from divestitures | 2 | 1 | 325 | 2 | ||||||||||||
Net cash provided by (used in) investing activities | (31 | ) | (40 | ) | 242 | (69 | ) | |||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Payments on revolving credit facility | — | — | (100 | ) | — | |||||||||||
Payments on debt | (8 | ) | (56 | ) | (16 | ) | (79 | ) | ||||||||
Premium on debt redemption | — | (2 | ) | — | (2 | ) | ||||||||||
Taxes paid for settlement of stock-based compensation | — | (1 | ) | — | (1 | ) | ||||||||||
Dividends paid on preferred stock | (3 | ) | (3 | ) | (5 | ) | (5 | ) | ||||||||
Net cash provided by (used in) financing activities | (11 | ) | (62 | ) | (121 | ) | (87 | ) | ||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5 | ) | 1 | (6 | ) | (2 | ) | |||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | (63 | ) | 4 | 110 | (55 | ) | ||||||||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 593 | 399 | 420 | 458 | ||||||||||||
Cash, Cash Equivalents and Restricted Cash at End of period(1) | $ | 530 | $ | 403 | $ | 530 | $ | 403 |
___________
(1) Includes
Appendix
Definition
Net ARR Activity Metric (TTM)
Projected Annual Recurring Revenue for contracts signed in the prior 12 months, less the annualized impact of any client losses, contractual volume and price changes, and other known impacts for which the company was notified in that same time period, which could positively or negatively impact results. The metric annualizes the net impact to revenue. Timing of revenue impact varies and may not be realized within the forward 12-month timeframe. The metric is for indicative purposes only. This metric excludes COVID-related volume impacts and non-recurring revenue signings. This metric is not indicative of any specific 12 month timeframe.
New Business Annual Contract Value (ACV): (New Business TCV / contract term) multiplied by 12.
Non-GAAP Financial Measures
We have reported our financial results in accordance with
We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with
A reconciliation of the following non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with
These reconciliations also include the income tax effects for our non-GAAP performance measures in total, to the extent applicable. The income tax effects are calculated under the same accounting principles as applied to our reported pre-tax performance measures under ASC 740, which employs an annual effective tax rate method. The noted income tax effect for our non-GAAP performance measures is effectively the difference in income taxes for reported and adjusted pre-tax income calculated under the annual effective tax rate method. The tax effect of the non-GAAP adjustments was calculated based upon evaluation of the statutory tax treatment and the applicable statutory tax rate in the jurisdictions in which such charges were incurred.
Adjusted Net Income (Loss), Adjusted Diluted Earnings per Share, Adjusted Weighted Average Common Shares Outstanding, and Adjusted Effective Tax Rate
We make adjustments to Net Income (Loss) before Income Taxes for the following items, as applicable, to the particular financial measure, for the purpose of calculating Adjusted Revenue, Adjusted Net Income (Loss), Adjusted Diluted Earnings per Share, Adjusted Weighted Average Common Shares Outstanding, and Adjusted Effective Tax Rate:
- Amortization of acquired intangible assets. The amortization of acquired intangible assets is driven by acquisition activity, which can vary in size, nature and timing as compared to other companies within our industry and from period to period.
- Restructuring and related costs. Restructuring and related costs include restructuring and asset impairment charges as well as costs associated with our strategic transformation program.
- (Gain) loss on divestitures and transaction costs. Represents (gain) loss on divested businesses and transaction costs.
- Litigation settlements (recoveries), net represents settlements or recoveries for various matters subject to litigation.
- Other charges (credits). This includes Other (income) expenses, net on the Condensed Consolidated Statements of Income (loss) and other insignificant (income) expense associated with providing transition services on the California Medicaid contract loss and other adjustments.
- Abandonment of
Cloud Computing Project . This includes charges in connection with the abandonment of a cloud computing project. The costs include writing off previously capitalized costs and remaining hosting fees that would have continued to be incurred without any economic benefit. - Divestitures.
The Company provides adjusted net income and adjusted EPS financial measures to assist our investors in evaluating our ongoing operating performance for the current reporting period and, where provided, over different reporting periods, by adjusting for certain items which may be recurring or non-recurring and which in our view do not necessarily reflect ongoing performance. We also internally use these measures to assess our operating performance, both absolutely and in comparison to other companies, and in evaluating or making selected compensation decisions.
Management believes that the adjusted effective tax rate, provided as supplemental information, facilitates a comparison by investors of our actual effective tax rate with an adjusted effective tax rate which reflects the impact of the items which are excluded in providing adjusted net income and certain other identified items, and may provide added insight into our underlying business results and how effective tax rates impact our ongoing business.
Adjusted Revenue, Adjusted Operating Income and Adjusted Operating Margin
We make adjustments to Revenue, Costs and Expenses and Operating Margin, as applicable, for the following items, for the purpose of calculating Adjusted Revenue, Adjusted Operating Income and Adjusted Operating Margin:
- Amortization of acquired intangible assets.
- Restructuring and related costs.
- Interest expense. Interest expense includes interest on long-term debt and amortization of debt issuance costs.
- (Gain) loss on divestitures and transaction costs.
- Litigation settlements (recoveries), net.
- Other charges (credits).
- Abandonment of
Cloud Computing Project . - Divestitures.
We provide our investors with adjusted revenue, adjusted operating income and adjusted operating margin information, as supplemental information, because we believe it offers added insight, by itself and for comparability between periods, by adjusting for certain non-cash items as well as certain other identified items which we do not believe are indicative of our ongoing business, and may also provide added insight on trends in our ongoing business.
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
- Restructuring and related costs.
- (Gain) loss on divestitures and transaction costs.
- Litigation settlements (recoveries), net.
- Abandonment of
Cloud Computing Project . - Other charges (credits).
- Divestitures
Adjusted EBITDA is not intended to represent cash flows from operations, operating income (loss) or net income (loss) as defined by
Free Cash Flow
Free Cash Flow is defined as cash flows from operating activities as reported on the consolidated statement of cash flows, less cost of additions to land, buildings and equipment, cost of additions to internal use software, and proceeds from sales of land, buildings and equipment. We use the non-GAAP measure of Free Cash Flow as a criterion of liquidity. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available to make acquisitions and invest in land, buildings and equipment and internal use software, after required payments on debt. In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow reconciled to cash flow provided by operating activities, which we believe to be the most directly comparable measure under
Adjusted Free Cash Flow
Adjusted Free Cash Flow is defined as Free Cash Flow from above plus adjustments for litigation insurance recoveries, transaction costs, taxes paid on gains from divestitures and litigation recoveries, and certain other identified adjustments. We use Adjusted Free Cash Flow, in addition to Free Cash Flow, to provide supplemental information to our investors concerning our ability to generate cash from our ongoing operating activities and for performance based components of employee compensation; by excluding these items, we believe we provide useful additional information to our investors to help them further understand our ability to generate cash period-over-period as well as added information on comparability to our competitors. Such as with Free Cash Flow information, as so adjusted, it is specifically not intended to provide amounts available for discretionary spending. We have added certain adjustments to account for items which we do not believe reflect our core business or operating performance, and we computed all periods with such adjusted costs.
Revenue at Constant Currency
To better understand trends in our business, we believe that it is helpful to adjust revenue to exclude the impact of changes in the translation of foreign currencies into
Non-GAAP Outlook
In providing the outlook for Adjusted EBITDA we exclude certain items which are otherwise included in determining the comparable
Non-GAAP Reconciliations: Revenue at Constant Currency, Adjusted Net Income (Loss), Adjusted Effective Tax, Adjusted Operating Income (Loss) and Adjusted EBITDA were as follows:
Three Months Ended |
Six Months Ended |
|||||||||||||||
(in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
ADJUSTED REVENUE | ||||||||||||||||
Revenue | $ | 928 | $ | 1,026 | $ | 1,895 | $ | 2,054 | ||||||||
Adjustment: | ||||||||||||||||
Divestitures(1) | — | (17 | ) | (7 | ) | (35 | ) | |||||||||
Adjusted Revenue | 928 | 1,009 | 1,888 | 2,019 | ||||||||||||
Foreign currency impact | 11 | (10 | ) | 16 | (17 | ) | ||||||||||
Revenue at Constant Currency | $ | 939 | $ | 999 | $ | 1,904 | $ | 2,002 | ||||||||
ADJUSTED NET INCOME (LOSS) | ||||||||||||||||
Net Income (Loss) | $ | — | $ | 12 | $ | 136 | $ | 1 | ||||||||
Adjustments: | ||||||||||||||||
Amortization of acquired intangible assets(2) | 3 | 32 | 9 | 72 | ||||||||||||
Restructuring and related costs | 11 | 8 | 20 | 21 | ||||||||||||
Loss on extinguishment of debt | — | 2 | — | 2 | ||||||||||||
(Gain) loss on divestitures and transaction costs | 3 | (1 | ) | (160 | ) | 1 | ||||||||||
Litigation settlements (recoveries), net | (3 | ) | 1 | (31 | ) | 2 | ||||||||||
Other charges (credits) | (1 | ) | — | — | — | |||||||||||
Total Non-GAAP Adjustments | 13 | 42 | (162 | ) | 98 | |||||||||||
Income tax adjustments(3) | (4 | ) | (8 | ) | 60 | (17 | ) | |||||||||
Adjusted Net Income (Loss) | $ | 9 | $ | 46 | $ | 34 | $ | 82 | ||||||||
ADJUSTED EFFECTIVE TAX | ||||||||||||||||
Income (Loss) Before Income Taxes | $ | 5 | $ | 19 | $ | 215 | $ | 10 | ||||||||
Adjustments: | ||||||||||||||||
Total Non-GAAP Adjustments | 13 | 42 | (162 | ) | 98 | |||||||||||
Adjusted PBT Before Adjustment for Divestitures | 18 | 61 | 53 | 108 | ||||||||||||
Divestitures(1) | — | (8 | ) | (2 | ) | (17 | ) | |||||||||
Adjusted PBT | $ | 18 | $ | 53 | $ | 51 | $ | 91 | ||||||||
Income tax expense (benefit) | $ | 5 | $ | 7 | $ | 79 | $ | 9 | ||||||||
Income tax adjustments(3) | 4 | 8 | (60 | ) | 17 | |||||||||||
Adjusted Income Tax Expense (Benefit) | 9 | 15 | 19 | 26 | ||||||||||||
Adjusted Net Income (Loss) Before Adjustment for Divestitures | 9 | 46 | 34 | 82 | ||||||||||||
Divestitures(1) | — | (8 | ) | (2 | ) | (17 | ) | |||||||||
Adjusted Net Income (Loss) | $ | 9 | $ | 38 | $ | 32 | $ | 65 |
CONTINUED | Three Months Ended |
Six Months Ended |
||||||||||||||
(in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
ADJUSTED OPERATING INCOME (LOSS) | ||||||||||||||||
Income (Loss) Before Income Taxes | $ | 5 | $ | 19 | $ | 215 | $ | 10 | ||||||||
Adjustments: | ||||||||||||||||
Total non-GAAP adjustments | 13 | 42 | (162 | ) | 98 | |||||||||||
Interest expense | 18 | 13 | 37 | 26 | ||||||||||||
Adjusted Operating Income (Loss) Before Adjustment for Divestitures | 36 | 74 | 90 | 134 | ||||||||||||
Divestitures(1) | — | (8 | ) | (2 | ) | (17 | ) | |||||||||
Adjusted Operating Income (Loss) | $ | 36 | $ | 66 | $ | 88 | $ | 117 | ||||||||
ADJUSTED EBITDA | ||||||||||||||||
Net Income (Loss) | $ | — | $ | 12 | $ | 136 | $ | 1 | ||||||||
Income tax expense (benefit) | 5 | 7 | 79 | 9 | ||||||||||||
Depreciation and amortization | 53 | 86 | 114 | 181 | ||||||||||||
Contract inducement amortization | 1 | — | 1 | — | ||||||||||||
Interest expense | 18 | 13 | 37 | 26 | ||||||||||||
EBITDA Before Adjustment for Divestitures | 77 | 118 | 367 | 217 | ||||||||||||
Divestitures(1) | — | (8 | ) | (2 | ) | (17 | ) | |||||||||
Divestitures depreciation and amortization(1) | — | (1 | ) | — | (2 | ) | ||||||||||
EBITDA | 77 | 109 | 365 | 198 | ||||||||||||
Adjustments: | ||||||||||||||||
Restructuring and related costs | 11 | 8 | 20 | 21 | ||||||||||||
(Gain) loss on divestitures and transaction costs | 3 | (1 | ) | (160 | ) | 1 | ||||||||||
Litigation settlements (recoveries), net | (3 | ) | 1 | (31 | ) | 2 | ||||||||||
Loss on extinguishment of debt | — | 2 | — | 2 | ||||||||||||
Other charges (credits) | (1 | ) | — | — | — | |||||||||||
Adjusted EBITDA | $ | 87 | $ | 119 | $ | 194 | $ | 224 |
___________
(1) Adjusted for the full impact from revenue and income/loss from divestitures for all periods presented.
(2) Included in Depreciation and amortization on the Consolidated Statements of Income (Loss).
(3) The tax impact of Adjusted Pre-tax income (loss) from continuing operations was calculated under the same accounting principles applied to the 'As Reported' pre-tax income (loss), which employs an annual effective tax rate method to the results and without regard to the adjustments listed.
Non-GAAP Reconciliations: Adjusted Weighted Average Shares Outstanding, Adjusted Diluted EPS, Adjusted Effective Tax Rate, Adjusted Operating Margin and Adjusted EBITDA Margin were as follows:
Three Months Ended |
Six Months Ended |
|||||||||||||||
(Amounts are in whole dollars, shares are in thousands and margins and rates are in %) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
ADJUSTED DILUTED EPS(1) | ||||||||||||||||
Weighted Average Common Shares Outstanding | 215,629 | 212,450 | 215,561 | 212,344 | ||||||||||||
Adjustments: | ||||||||||||||||
Restricted stock and performance units / shares | 3,489 | 7,715 | 3,241 | 7,287 | ||||||||||||
Adjusted Weighted Average Common Shares Outstanding | 219,118 | 220,165 | 218,802 | 219,631 | ||||||||||||
Diluted EPS from Continuing Operations | $ | (0.01 | ) | $ | 0.04 | $ | 0.60 | $ | (0.02 | ) | ||||||
Adjustments: | ||||||||||||||||
Total non-GAAP adjustments | 0.06 | 0.20 | (0.74 | ) | 0.45 | |||||||||||
Income tax adjustments(2) | (0.02 | ) | (0.04 | ) | 0.27 | (0.08 | ) | |||||||||
Adjusted Diluted EPS | $ | 0.03 | $ | 0.20 | $ | 0.13 | $ | 0.35 | ||||||||
ADJUSTED EFFECTIVE TAX RATE | ||||||||||||||||
Effective tax rate | 99.6 | % | 38.2 | % | 37.0 | % | 94.3 | % | ||||||||
Adjustments: | ||||||||||||||||
Total non-GAAP adjustments | (52.9)% | (12.5)% | (1.8)% | (69.6)% | ||||||||||||
Adjusted Effective Tax Rate(2) | 46.7 | % | 25.7 | % | 35.2 | % | 24.7 | % | ||||||||
ADJUSTED OPERATING MARGIN | ||||||||||||||||
Income (Loss) Before Income Taxes Margin | 0.5 | % | 1.9 | % | 11.3 | % | 0.5 | % | ||||||||
Adjustments: | ||||||||||||||||
Total non-GAAP adjustments | 1.5 | % | 4.0 | % | (8.6) % | 4.7 | % | |||||||||
Interest expense | 1.9 | % | 1.3 | % | 2.0 | % | 1.3 | % | ||||||||
Margin for Adjusted Operating Income Before Adjustment for Divestitures | 3.9 | % | 7.2 | % | 4.7 | % | 6.5 | % | ||||||||
Divestitures(3) | — | % | (0.7)% | — | % | (0.7)% | ||||||||||
Margin for Adjusted Operating Income | 3.9 | % | 6.5 | % | 4.7 | % | 5.8 | % |
ADJUSTED EBITDA MARGIN | ||||||||||||||||
EBITDA Margin Before Adjustment for Divestitures | 8.3 | % | 11.5 | % | 19.4 | % | 10.6 | % | ||||||||
Adjustments: | ||||||||||||||||
Divestitures(3) | — | % | (0.7)% | (0.1)% | (0.8)% | |||||||||||
EBITDA Margin | 8.3 | % | 10.8 | % | 19.3 | % | 9.8 | % | ||||||||
Total non-GAAP adjustments | 1.1 | % | 1.0 | % | (9.1)% | 1.2 | % | |||||||||
Divestitures(3) | — | % | 0.7 | % | 0.1 | % | 0.8 | % | ||||||||
Adjusted EBITDA Margin Before Adjustment for Divestitures | 9.4 | % | 12.5 | % | 10.3 | % | 11.8 | % | ||||||||
Divestitures(3) | — | % | (0.7)% | — | % | (0.7)% | ||||||||||
Adjusted EBITDA Margin | 9.4 | % | 11.8 | % | 10.3 | % | 11.1 | % |
__________
(1) Average shares for the 2022 and 2021 calculation of adjusted EPS excludes 5.4 million shares associated with our Series A convertible preferred stock and includes the impact of preferred stock dividend of approximately
(2) The tax impact of Adjusted Pre-tax income (loss) from continuing operations was calculated under the same accounting principles applied to the 'As Reported' pre-tax income (loss), which employs an annual effective tax rate method to the results and without regard to the Total Non-GAAP adjustments.
(3) Adjusted for the full impact from revenue and income/loss from divestitures for all periods presented.
Free Cash Flow and Adjusted Free Cash Flow Reconciliation:
Three Months Ended |
Six Months Ended |
|||||||||||||||
(in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Operating Cash Flow | $ | (16 | ) | $ | 105 | $ | (5 | ) | $ | 103 | ||||||
Cost of additions to land, buildings and equipment | (17 | ) | (25 | ) | (51 | ) | (39 | ) | ||||||||
Cost of additions to internal use software | (16 | ) | (16 | ) | (32 | ) | (32 | ) | ||||||||
Free Cash Flow | $ | (49 | ) | $ | 64 | $ | (88 | ) | $ | 32 | ||||||
Free Cash Flow | $ | (49 | ) | $ | 64 | $ | (88 | ) | $ | 32 | ||||||
Transaction costs | 2 | 1 | 3 | 2 | ||||||||||||
Vendor financed lease payments | (2 | ) | (3 | ) | (5 | ) | (5 | ) | ||||||||
Portion of |
— | — | (24 | ) | — | |||||||||||
Tax payment related to divestitures and litigation recoveries | 18 | — | 18 | — | ||||||||||||
Adjusted Free Cash Flow | $ | (31 | ) | $ | 62 | $ | (96 | ) | $ | 29 |
Source: Conduent Business Services, LLC