Conduent Reports Stronger than Expected Second Quarter 2020 Results with Significantly Increased New Business Signings
Key Highlights
- Revenue and Adjusted EBITDA both well-above expectations
- Strong New Business signings results
- Total Contract Value of signings:
$623M (strongest quarter since spin1), up 90% year-over-year and 92% quarter-over-quarter - Annual Recurring Revenue of signings:
$105M , up 25% year-over-year and 84% quarter-over-quarter
- Total Contract Value of signings:
- On track to overachieve FY 2020 $100+ million cost reduction program
- Continued year-over-year improvement in operational and technical performance, strengthening client retention
Q2 2020 Performance Commentary
Revenue for the quarter beat expectations due to better than expected results in the Government and Transportation segments. Revenue compared with Q2 2019 was lower driven by prior year lost business and COVID-19 related impacts. Higher than expected activity in our Government business was primarily driven by increased volumes in our
Additional highlights from Q2 2020 include strong sales performance with
The company is also on target to overachieve on the FY 2020
Key Financial Second Quarter 2020 Results
- Revenue of
$1,016 million , down (8.6)% year-over-year, or (8.3)% in constant currency. - Q2 2020 GAAP net loss of
$(51) million compared to$(1,029) million in Q2 2019. - Adjusted EBITDA of
$110 million , down (3.5)% year-over-year. Adjusted EBITDA margin was 10.8%, up 50 bps year-over-year. - Pre-tax income was
($64) million compared to($1,119) million in Q2 2019. - Diluted EPS from continuing operations was (
$0.25 ) versus ($4.94 ) in the same period last year. - Adjusted diluted EPS from continuing operations was
$0.12 compared to$0.13 in Q2 2019. - Cash inflow from operations was
$74 million during Q2 2020 compared to cash outflows of$(185) million in Q2 2019. - Adjusted Free Cash Flow, was an inflow of
$40 million during Q2 2020 compared to Adjusted Free Cash Flow outflows of$(116) million in Q2 2019.
(1) Excluding Divestitures
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 1-877-883-0383 (international dial-in 1-412-902-6506) at approximately
A recording of the conference call will be available by calling 1-877-344-7529 or 1-412-317-0088 one hour after the conference call concludes on
For international calls, please select a dial-in number from:
https://services.choruscall.com/ccforms/replay.html.
The telephone recording will be available until
About Conduent
Conduent’s differentiated services and solutions improve experiences for millions of people every day, including two-thirds of all insured patients in the
Non-GAAP 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”, “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; the strength of our pipeline being greater than it has in a long time; our focus on near-term projects and expectations that such projects will result in improved client performance optimization, client retention programs, enhanced service level agreement monitoring, and contract standardization; our expectations that we will overachieve on our
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 impact of the ongoing COVID-19 pandemic; government appropriations and termination rights contained in our government contracts; risk and impact of potential goodwill and other asset impairments; 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 ability to attract and retain necessary technical personnel and qualified subcontractors; our ability to deliver on our contractual obligations properly and on time; competitive pressures; our significant indebtedness; changes in interest in outsourced business process services; our ability to obtain adequate pricing for our services and to improve our cost structure; risk and impact of geographical events, natural disasters and other factors (such as pandemics, including COVID-19) in a particular country or region on our workforce, customers, vendors, partners and the global economy; claims of infringement of third-party intellectual property rights; the failure to comply with laws relating to individually identifiable information and personal health information and 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 estimate the scope of work or the costs of performance in our contracts; our continuing emphasis on and shift toward technology-led digital transactions; customer decision-making cycles and lead time for customer commitments; 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 attract and retain key employees; increases in the cost of telephone and data services or significant interruptions in such services; our failure to develop new service offerings; our ability to modernize our information technology infrastructure and consolidate data centers; our ability to comply with data security standards; our ability to receive dividends or other payments from our subsidiaries; changes in tax and other laws and regulations; changes in government regulation and economic, strategic, political and social conditions; the outcome of litigation to which we are a party from time to time; 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 Annual Reports 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
(in millions, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Revenue | $ | 1,016 | $ | 1,112 | $ | 2,067 | $ | 2,270 | ||||||||||||
Operating Costs and Expenses | ||||||||||||||||||||
Cost of Services (excluding depreciation and amortization) | 795 | 879 | 1,627 | 1,785 | ||||||||||||||||
Selling, general and administrative (excluding depreciation and amortization) | 111 | 121 | 227 | 248 | ||||||||||||||||
Research and development (excluding depreciation and amortization) | — | 2 | 1 | 5 | ||||||||||||||||
Depreciation and amortization | 115 | 112 | 232 | 227 | ||||||||||||||||
Restructuring and related costs | 29 | 26 | 36 | 42 | ||||||||||||||||
Interest expense | 15 | 20 | 32 | 40 | ||||||||||||||||
— | 1,067 | — | 1,351 | |||||||||||||||||
(Gain) loss on divestitures and transaction costs | 2 | 2 | 6 | 16 | ||||||||||||||||
Litigation costs (recoveries), net | 14 | 1 | 20 | 13 | ||||||||||||||||
Other (income) expenses, net | (1 | ) | 1 | 1 | — | |||||||||||||||
Total Operating Costs and Expenses | 1,080 | 2,231 | 2,182 | 3,727 | ||||||||||||||||
Income (Loss) Before Income Taxes | (64 | ) | (1,119 | ) | (115 | ) | (1,457 | ) | ||||||||||||
Income tax expense (benefit) | (13 | ) | (90 | ) | (15 | ) | (120 | ) | ||||||||||||
Net Income (Loss) | $ | (51 | ) | $ | (1,029 | ) | $ | (100 | ) | $ | (1,337 | ) | ||||||||
Net Income (Loss) per Share: | ||||||||||||||||||||
Basic | $ | (0.25 | ) | $ | (4.94 | ) | $ | (0.50 | ) | $ | (6.44 | ) | ||||||||
Diluted | $ | (0.25 | ) | $ | (4.94 | ) | $ | (0.50 | ) | $ | (6.44 | ) |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)(1)
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Net Income (Loss) | $ | (51 | ) | $ | (1,029 | ) | $ | (100 | ) | $ | (1,337 | ) | ||||||||
Other Comprehensive Income (Loss), Net | ||||||||||||||||||||
Currency translation adjustments, net | 2 | (1 | ) | (26 | ) | 6 | ||||||||||||||
Reclassification of currency translation adjustments on divestitures | — | — | — | 15 | ||||||||||||||||
Reclassification of divested benefit plans and other | — | — | — | (1 | ) | |||||||||||||||
Unrecognized gains (losses), net | 2 | — | (1 | ) | 1 | |||||||||||||||
Changes in benefit plans, net | — | — | 1 | — | ||||||||||||||||
Other Comprehensive Income (Loss), Net | 4 | (1 | ) | (26 | ) | 21 | ||||||||||||||
Comprehensive Income (Loss), Net | $ | (47 | ) | $ | (1,030 | ) | $ | (126 | ) | $ | (1,316 | ) |
__________
(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 | $ | 428 | $ | 496 | ||||||
Accounts receivable, net | 693 | 652 | ||||||||
Contract assets | 160 | 155 | ||||||||
Other current assets | 287 | 283 | ||||||||
Total current assets | 1,568 | 1,586 | ||||||||
Land, buildings and equipment, net | 309 | 342 | ||||||||
Operating lease right-of-use assets | 255 | 271 | ||||||||
Intangible assets, net | 306 | 426 | ||||||||
1,491 | 1,502 | |||||||||
Other long-term assets | 397 | 387 | ||||||||
Total Assets | $ | 4,326 | $ | 4,514 | ||||||
Liabilities and Equity | ||||||||||
Current portion of long-term debt | $ | 68 | $ | 50 | ||||||
Accounts payable | 170 | 198 | ||||||||
Accrued compensation and benefits costs | 182 | 174 | ||||||||
Unearned income | 106 | 108 | ||||||||
Other current liabilities | 496 | 647 | ||||||||
Total current liabilities | 1,022 | 1,177 | ||||||||
Long-term debt | 1,581 | 1,464 | ||||||||
Deferred taxes | 93 | 111 | ||||||||
Operating lease liabilities | 218 | 229 | ||||||||
Other long-term liabilities | 95 | 91 | ||||||||
Total Liabilities | 3,009 | 3,072 | ||||||||
Series A convertible preferred stock | 142 | 142 | ||||||||
Common stock | 2 | 2 | ||||||||
Additional paid-in capital | 3,896 | 3,890 | ||||||||
Retained earnings (deficit) | (2,290 | ) | (2,185 | ) | ||||||
Accumulated other comprehensive loss | (433 | ) | (407 | ) | ||||||
Total Equity | 1,175 | 1,300 | ||||||||
Total Liabilities and Equity | $ | 4,326 | $ | 4,514 | ||||||
Shares of common stock issued and outstanding | 209,225 | 211,511 | ||||||||
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) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income (loss) | $ | (51 | ) | $ | (1,029 | ) | $ | (100 | ) | $ | (1,337 | ) | ||||||||
Adjustments required to reconcile net income (loss) to cash flows from operating activities: | ||||||||||||||||||||
Depreciation and amortization | 115 | 112 | 232 | 227 | ||||||||||||||||
Contract inducement amortization | — | — | 1 | 1 | ||||||||||||||||
Deferred income taxes | (20 | ) | (95 | ) | (29 | ) | (140 | ) | ||||||||||||
— | 1,067 | — | 1,351 | |||||||||||||||||
(Gain) loss from investments | (1 | ) | — | (2 | ) | (1 | ) | |||||||||||||
Amortization of debt financing costs | 1 | 1 | 3 | 3 | ||||||||||||||||
(Gain) loss on divestitures and transaction costs | 2 | 2 | 6 | 16 | ||||||||||||||||
Stock-based compensation | 5 | 7 | 9 | 14 | ||||||||||||||||
Changes in operating assets and liabilities | 23 | (251 | ) | (238 | ) | (368 | ) | |||||||||||||
Other operating, net | — | 1 | — | — | ||||||||||||||||
Net cash provided by (used in) operating activities | 74 | (185 | ) | (118 | ) | (234 | ) | |||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Cost of additions to land, buildings and equipment | (19 | ) | (23 | ) | (30 | ) | (76 | ) | ||||||||||||
Proceeds from sale of land, buildings and equipment | — | 1 | — | 2 | ||||||||||||||||
Cost of additions to internal use software | (17 | ) | (20 | ) | (30 | ) | (37 | ) | ||||||||||||
Payments for acquisitions, net of cash acquired | — | — | — | (90 | ) | |||||||||||||||
Proceeds (payments) from divestitures, including cash sold | 1 | 1 | 2 | (8 | ) | |||||||||||||||
Net cash provided by (used in) investing activities | (35 | ) | (41 | ) | (58 | ) | (209 | ) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from revolving credit facility | — | — | 150 | — | ||||||||||||||||
Payments on debt | (13 | ) | (14 | ) | (28 | ) | (28 | ) | ||||||||||||
Taxes paid for settlement of stock based compensation | — | — | (3 | ) | (6 | ) | ||||||||||||||
Dividends paid on preferred stock | (3 | ) | (3 | ) | (5 | ) | (5 | ) | ||||||||||||
Net cash provided by (used in) financing activities | (16 | ) | (17 | ) | 114 | (39 | ) | |||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1 | — | (6 | ) | 2 | |||||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | 24 | (243 | ) | (68 | ) | (480 | ) | |||||||||||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 413 | 528 | 505 | 765 | ||||||||||||||||
Cash, Cash Equivalents and Restricted Cash at End of period(1) | $ | 437 | $ | 285 | $ | 437 | $ | 285 |
___________
(1) Includes
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 GAAP, to exclude the effects of certain items as well as their related tax effects. Management believes that these non-GAAP financial measures provide an additional means of analyzing the results of the current period against the corresponding prior period. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with
A reconciliation of the non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided below.
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, Adjusted Effective Tax and Adjusted Effective Tax Rate
We make adjustments to Income (Loss) before Income Taxes for the following items, as applicable to the particular financial measure, for the purpose of calculating Adjusted Net Income (Loss), Adjusted Diluted Earnings per Share, Adjusted Weighted Average Common Shares Outstanding, Adjusted Effective Tax 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.
Goodwill impairment. This representsGoodwill impairment charge related to the unanticipated losses of certain customer contracts, lower potential future volumes and lower than expected new customer contracts for all reporting units.- (Gain) loss on divestitures and transaction costs. Represents (gain) loss on divested businesses and transaction costs.
- Litigation costs (recoveries), net. Litigation costs (recoveries), represents provisions for various matters subject to litigation.
- Other charge (credit). This comprises other (income) expenses, net, and costs associated with the Company not fully completing the State of New York Health Enterprise Platform project and the Health Enterprise Medical platform projects in
California andMontana and other adjustments. - Divestitures. Revenue/(Income) loss from 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 and 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.
Goodwill impairment.- (Gain) loss on divestitures and transaction costs.
- Litigation costs (recoveries), net.
- Other charge (credit).
- 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.
We provide adjusted revenues as supplemental information to our presentation of reported GAAP revenue in order to facilitate additional information to our investors concerning period-to-period comparisons reflecting the impact of our 2019 divestiture.
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 GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our on-going business. Adjusted EBITDA represents income (loss) before interest, income taxes, depreciation and amortization and contract inducement amortization adjusted for the following items. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue or adjusted revenue, as applicable.
- Restructuring and related costs.
Goodwill impairment.- (Gain) loss on divestitures and transaction costs.
- Litigation costs (recoveries), net.
- Other charge (credit).
- 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, tax payments related to divestitures and proceeds from sales of land, buildings and equipment. We use the non-GAAP measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. 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 deferred compensation payments, transaction costs, costs related to
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 outlook for adjusted EBITDA margin, we exclude certain items which are otherwise included in determining the comparable GAAP financial measure. A description of the adjustments which historically have been applicable in determining adjusted EBITDA are reflected in the table below. We are providing such outlook only on a non-GAAP basis because the Company is unable to predict with reasonable certainty the totality or ultimate outcome or occurrence of these adjustments for the forward-looking period, which can be dependent on future events that may not be reliably predicted. Based on past reported results, where one or more of these items have been applicable, such excluded items could be material, individually or in the aggregate, to reported results.
Non-GAAP Reconciliations: Adjusted Revenue, 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) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
ADJUSTED REVENUE | ||||||||||||||||||||
Revenue | $ | 1,016 | $ | 1,112 | $ | 2,067 | $ | 2,270 | ||||||||||||
Adjustment: | ||||||||||||||||||||
Divestitures(1) | — | — | — | (36 | ) | |||||||||||||||
Adjusted Revenue | 1,016 | 1,112 | 2,067 | 2,234 | ||||||||||||||||
Foreign currency impact | 4 | 7 | 8 | 16 | ||||||||||||||||
Revenue at Constant Currency | $ | 1,020 | $ | 1,119 | $ | 2,075 | $ | 2,250 | ||||||||||||
ADJUSTED NET INCOME (LOSS) | ||||||||||||||||||||
Income (Loss) From Continuing Operations | $ | (51 | ) | $ | (1,029 | ) | $ | (100 | ) | $ | (1,337 | ) | ||||||||
Adjustments: | ||||||||||||||||||||
Amortization of acquired intangible assets(2) | 60 | 61 | 120 | 123 | ||||||||||||||||
Restructuring and related costs | 29 | 26 | 36 | 42 | ||||||||||||||||
— | 1,067 | — | 1,351 | |||||||||||||||||
(Gain) loss on divestitures and transaction costs | 2 | 2 | 6 | 16 | ||||||||||||||||
Litigation costs (recoveries), net | 14 | 1 | 20 | 13 | ||||||||||||||||
Other charges (credits) | (1 | ) | 5 | (6 | ) | 4 | ||||||||||||||
Total Non-GAAP Adjustments | 104 | 1,162 | 176 | 1,549 | ||||||||||||||||
Income tax adjustments(3) | (26 | ) | (103 | ) | (35 | ) | (150 | ) | ||||||||||||
Adjusted Net Income (Loss) Before Adjustment for Divestitures | $ | 27 | $ | 30 | $ | 41 | $ | 62 | ||||||||||||
ADJUSTED EFFECTIVE TAX | ||||||||||||||||||||
Income (Loss) Before Income Taxes | $ | (64 | ) | $ | (1,119 | ) | $ | (115 | ) | $ | (1,457 | ) | ||||||||
Adjustments: | ||||||||||||||||||||
Total Non-GAAP Adjustments | 104 | 1,162 | 176 | 1,549 | ||||||||||||||||
Adjusted PBT (Before Adjustment for Divestitures) | 40 | 43 | 61 | 92 | ||||||||||||||||
Divestitures(1) | — | — | — | (1 | ) | |||||||||||||||
Adjusted PBT | $ | 40 | $ | 43 | $ | 61 | $ | 91 | ||||||||||||
Income tax expense (benefit) | $ | (13 | ) | $ | (90 | ) | $ | (15 | ) | $ | (120 | ) | ||||||||
Income tax adjustments(3) | 26 | 103 | 35 | 150 | ||||||||||||||||
Adjusted Income Tax Expense (Benefit) | 13 | 13 | 20 | 30 | ||||||||||||||||
Adjusted Net Income (Loss) Before Adjustment for Divestitures | $ | 27 | $ | 30 | $ | 41 | $ | 62 |
CONTINUED | Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
ADJUSTED OPERATING INCOME (LOSS) | ||||||||||||||||||||
Income (Loss) Before Income Taxes | $ | (64 | ) | $ | (1,119 | ) | $ | (115 | ) | $ | (1,457 | ) | ||||||||
Adjustments: | ||||||||||||||||||||
Total non-GAAP adjustments | 104 | 1,162 | 176 | 1,549 | ||||||||||||||||
Interest expense | 15 | 20 | 32 | 40 | ||||||||||||||||
Adjusted Operating Income (Loss) Before Adjustment for Divestitures | 55 | 63 | 93 | 132 | ||||||||||||||||
Divestitures(1) | — | — | — | (1 | ) | |||||||||||||||
Adjusted Operating Income (Loss) | $ | 55 | $ | 63 | $ | 93 | $ | 131 | ||||||||||||
ADJUSTED EBITDA | ||||||||||||||||||||
Income (Loss) From Continuing Operations | $ | (51 | ) | $ | (1,029 | ) | $ | (100 | ) | $ | (1,337 | ) | ||||||||
Income tax expense (benefit) | (13 | ) | (90 | ) | (15 | ) | (120 | ) | ||||||||||||
Depreciation and amortization | 115 | 112 | 232 | 227 | ||||||||||||||||
Contract inducement amortization | — | — | 1 | 1 | ||||||||||||||||
Interest expense | 15 | 20 | 32 | 40 | ||||||||||||||||
EBITDA Before Adjustment for Divestitures | 66 | (987 | ) | 150 | (1,189 | ) | ||||||||||||||
Divestitures(1) | — | — | — | (1 | ) | |||||||||||||||
EBITDA | 66 | (987 | ) | 150 | (1,190 | ) | ||||||||||||||
Adjustments: | ||||||||||||||||||||
Restructuring and related costs | 29 | 26 | 36 | 42 | ||||||||||||||||
— | 1,067 | — | 1,351 | |||||||||||||||||
(Gain) loss on divestitures and transaction costs | 2 | 2 | 6 | 16 | ||||||||||||||||
Litigation costs (recoveries), net | 14 | 1 | 20 | 13 | ||||||||||||||||
Other charges (credits) | (1 | ) | 5 | (6 | ) | 4 | ||||||||||||||
Adjusted EBITDA Before Adjustment for Divestitures | $ | 110 | $ | 114 | $ | 206 | $ | 237 | ||||||||||||
Adjusted EBITDA | $ | 110 | $ | 114 | $ | 206 | $ | 236 |
___________
(1) Adjusted for the full impact from revenue and income/loss from divestitures.
(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 business divestitures, the
Non-GAAP Reconciliations: Adjusted Weighted Average Shares Outstanding, Adjusted Diluted EPS, Adjusted Effective Tax, Adjusted Operating Margin and Adjusted EBITDA Margins for the Non-GAAP reconciliations above were as follows:
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
(Amounts are in whole dollars, shares are in thousands and margins are in %) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
ADJUSTED DILUTED EPS(1) | ||||||||||||||||||||
Weighted Average Common Shares Outstanding | 209,129 | 208,496 | 210,261 | 208,207 | ||||||||||||||||
Adjustments: | ||||||||||||||||||||
Stock options | — | 7 | — | 18 | ||||||||||||||||
Restricted stock and performance units / shares | 1,413 | 2,814 | 1,561 | 2,742 | ||||||||||||||||
Adjusted Weighted Average Common Shares Outstanding | 210,542 | 211,317 | 211,822 | 210,967 | ||||||||||||||||
Diluted EPS from Continuing Operations | $ | (0.25 | ) | $ | (4.94 | ) | $ | (0.50 | ) | $ | (6.44 | ) | ||||||||
Adjustments: | ||||||||||||||||||||
Total non-GAAP adjustments | 0.49 | 5.56 | 0.84 | 7.42 | ||||||||||||||||
Income tax adjustments(2) | (0.12 | ) | (0.49 | ) | (0.17 | ) | (0.71 | ) | ||||||||||||
Adjusted Diluted EPS Before Adjustment for Divestitures | $ | 0.12 | $ | 0.13 | $ | 0.17 | $ | 0.27 | ||||||||||||
ADJUSTED EFFECTIVE TAX RATE | ||||||||||||||||||||
Effective tax rate | 20.3 | % | 8.0 | % | 13.0 | % | 8.2 | % | ||||||||||||
Adjustments: | ||||||||||||||||||||
Total non-GAAP adjustments | 12.2 | % | 22.2 | % | 19.8 | % | 24.4 | % | ||||||||||||
Adjusted Effective Tax Rate(2) | 32.5 | % | 30.2 | % | 32.8 | % | 32.6 | % | ||||||||||||
ADJUSTED OPERATING MARGIN | ||||||||||||||||||||
Income (Loss) Before Income Taxes Margin | (6.3 | ) | % | (100.6 | ) | % | (5.6 | ) | % | (64.2 | ) | % | ||||||||
Adjustments: | ||||||||||||||||||||
Total non-GAAP adjustments | 10.2 | % | 104.5 | % | 8.6 | % | 68.2 | % | ||||||||||||
Interest expense | 1.5 | % | 1.8 | % | 1.5 | % | 1.8 | % | ||||||||||||
Margin for Adjusted Operating Income Before Adjustment for Divestitures | 5.4 | % | 5.7 | % | 4.5 | % | 5.8 | % | ||||||||||||
Divestitures(3) | — | % | — | % | — | % | 0.1 | % | ||||||||||||
Margin for Adjusted Operating Income | 5.4 | % | 5.7 | % | 4.5 | % | 5.9 | % |
CONTINUED | Three Months Ended |
Six Months Ended |
||||||||||||
(margins are in %) | 2020 | 2019 | 2020 | 2019 | ||||||||||
ADJUSTED EBITDA MARGIN | ||||||||||||||
EBITDA Margin Before Adjustment for Divestitures | 6.5 | % | (88.8 | ) | % | 7.3 | % | (52.4 | ) | % | ||||
Adjustments: | ||||||||||||||
Divestitures(3) | — | % | — | % | — | % | (0.9 | ) | % | |||||
EBITDA Margin | 6.5 | % | (88.8 | ) | % | 7.3 | % | (53.3 | ) | % | ||||
Total non-GAAP adjustments | 4.3 | % | 99.1 | % | 2.7 | % | 62.8 | % | ||||||
Divestitures(3) | — | % | — | % | — | % | 0.9 | % | ||||||
Adjusted EBITDA Margin Before Adjustment for Divestitures | 10.8 | % | 10.3 | % | 10.0 | % | 10.4 | % | ||||||
Divestitures(3) | — | % | — | % | — | % | 0.2 | % | ||||||
Adjusted EBITDA Margin | 10.8 | % | 10.3 | % | 10.0 | % | 10.6 | % |
__________
(1) Average shares for the 2020 and 2019 calculation of adjusted EPS excludes 5 million shares associated with our Series A convertible preferred stock and includes the impact of the preferred stock dividend of
(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 business divestitures, the
(3) Adjusted for the full impact from revenue and income/loss from divestitures.
Free Cash Flow Reconciliation:
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
(in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Operating Cash Flow | $ | 74 | $ | (185 | ) | $ | (118 | ) | $ | (234 | ) | |||||||||
Cost of additions to land, buildings and equipment | (19 | ) | (23 | ) | (30 | ) | (76 | ) | ||||||||||||
Proceeds from sales of land, buildings and equipment | — | 1 | — | 2 | ||||||||||||||||
Cost of additions to internal use software | (17 | ) | (20 | ) | (30 | ) | (37 | ) | ||||||||||||
Tax payment related to divestitures | — | 7 | — | 9 | ||||||||||||||||
Free Cash Flow | $ | 38 | $ | (220 | ) | $ | (178 | ) | $ | (336 | ) | |||||||||
Free Cash Flow | $ | 38 | $ | (220 | ) | $ | (178 | ) | $ | (336 | ) | |||||||||
Transaction costs | 2 | 9 | 3 | 12 | ||||||||||||||||
Transaction costs tax benefit | — | (3 | ) | — | (3 | ) | ||||||||||||||
— | 98 | 118 | 118 | |||||||||||||||||
Adjusted Free Cash Flow | $ | 40 | $ | (116 | ) | $ | (57 | ) | $ | (209 | ) |
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Source: Conduent Business Services, LLC