SEC Filing | Conduent, Inc.

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cndt-20230930


Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

_______________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37817

CONDUENT INCORPORATED

(Exact Name of Registrant as specified in its charter)

New York

81-2983623

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

100 Campus Drive,

Suite 200,

Florham Park,

New Jersey

07932

(Address of principal executive offices)

(Zip Code)

(844) 663-2638

(Registrant’s telephone number, including area code)

_________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	CNDT	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Small reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Class		Outstanding at October 31, 2023
Common Stock,	$0.01 par value	217,287,098


						CNDT Q3 2023 Form 10-Q


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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Form 10-Q") and any exhibits to this Form 10-Q may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"). These forward-looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available. The words “anticipate,” “believe,” “estimate,” “expect,” "plan," “intend,” “will,” “aim,” “should,” “could,” “forecast,” “target,” “may,” "continue to," "endeavor," "if,” “growing,” “projected,” “potential,” “likely,” "see," "ahead," "further," "going forward," "on the horizon," and similar expressions (including the negative and plural forms of such words and phrases), 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. These statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, many of which are outside of our control, that could cause actual results to differ materially from those expected or implied by such forward-looking statements and could materially adversely affect our business, financial condition, results of operations, cash flows and liquidity.

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: 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; risk and impact of geopolitical events and increasing geopolitical tensions, macroeconomic conditions, natural disasters and other factors in a particular country or region on our workforce, customers and vendors; our ability to deliver on our contractual obligations properly and on time; changes in interest in outsourced business process services; 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; 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; expectations relating to environmental, social and governance considerations; utilization of our stock repurchase program; 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; 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; risk and impact of potential goodwill and other asset impairments; our significant indebtedness and the terms of such indebtedness; our failure to obtain or maintain a satisfactory credit rating and financial performance; our ability to receive dividends or other payments from our subsidiaries; 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; increases in the cost of voice and data services or significant interruptions in such services; changes in government regulation and economic, strategic, political and social conditions; volatility of our stock price and the risk of litigation following a decline in the price of our stock; economic factors such as inflation, the level of economic activity and labor market conditions, as well as rising interest rates; the completion of our portfolio rationalization strategy; 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 of this Form 10-Q as well as in our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") and any subsequent Quarterly Report on Form 10-Q and Current Report on Form 8-K. Any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether because of new information, subsequent events or otherwise, except as required by law.


						CNDT Q3 2023 Form 10-Q


Table of Contents

CONDUENT INCORPORATED

FORM 10-Q

September 30, 2023

TABLE OF CONTENTS


		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Income (Loss)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Shareholders' Equity	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23


Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

Part II — Other Information

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	38
Signatures		39

For additional information about Conduent Incorporated and access to our Annual Reports to Shareholders and SEC filings, free of charge, please visit our website at https://investor.conduent.com/. Any information on or linked from the website is not incorporated by reference into this Form 10-Q.


						CNDT Q3 2023 Form 10-Q


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PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)

CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2023		2022		2023		2022
Revenue	$	932	$	977	$	2,769	$	2,872

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	724		754		2,148		2,236
Selling, general and administrative (excluding depreciation and amortization)	115		117		344		332
Research and development (excluding depreciation and amortization)	2		2		5		5
Depreciation and amortization	81		54		199		168
Restructuring and related costs	7		4		49		24
Interest expense	28		22		82		59
Goodwill impairment	287		—		287		—
(Gain) loss on divestitures and transaction costs, net	3		1		8		(159)
Litigation settlements (recoveries), net	—		—		(22)		(31)

Other (income) expenses, net	(2)		—		(3)		—
Total Operating Costs and Expenses	1,245		954		3,097		2,634

Income (Loss) Before Income Taxes	(313)		23		(328)		238

Income tax expense (benefit)	(24)		8		(26)		87
Net Income (Loss)	$	(289)	$	15	$	(302)	$	151



Net Income (Loss) per Share:
Basic	$	(1.34)	$	0.06	$	(1.42)	$	0.67
Diluted	$	(1.34)	$	0.06	$	(1.42)	$	0.66

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


						CNDT Q3 2023 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Net Income (Loss)	$	(289)	$	15	$	(302)	$	151
Other Comprehensive Income (Loss), Net(1)
Currency translation adjustments, net	(18)		(37)		3		(82)


Unrecognized gains (losses), net	(1)		(1)		—		(2)

Other Comprehensive Income (Loss), Net	(19)		(38)		3		(84)

Comprehensive Income (Loss), Net	$	(308)	$	(23)	$	(299)	$	67

__________

(1)All amounts are net of tax. Tax effects were immaterial.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


						CNDT Q3 2023 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	451	$	582
Accounts receivable, net	612		630

Contract assets	197		171
Other current assets	275		242
Total current assets	1,535		1,625
Land, buildings and equipment, net	241		266
Operating lease right-of-use assets	202		197
Intangible assets, net	34		39
Goodwill	668		955
Other long-term assets	466		489
Total Assets	$	3,146	$	3,571
Liabilities and Equity
Current portion of long-term debt	$	40	$	35
Accounts payable	166		228
Accrued compensation and benefits costs	195		197
Unearned income	99		81

Other current liabilities	305		382
Total current liabilities	805		923
Long-term debt	1,266		1,277
Deferred taxes	61		83
Operating lease liabilities	167		160
Other long-term liabilities	85		69
Total Liabilities	2,384		2,512

Contingencies (See Note 14)
Series A convertible preferred stock	142		142

Common stock	2		2
Treasury stock, at cost	(7)		—
Additional paid-in capital	3,937		3,924
Retained earnings (deficit)	(2,852)		(2,543)
Accumulated other comprehensive loss	(463)		(466)
Total Conduent Inc. Equity	617		917
Noncontrolling Interest	3		—
Total Equity	620		917
Total Liabilities and Equity	$	3,146	$	3,571

Shares of common stock issued and outstanding	216,287		218,348
Shares of series A convertible preferred stock issued and outstanding	120		120
Shares of common stock held in treasury	2,226		—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


						CNDT Q3 2023 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(in millions)	2023		2022
Cash Flows from Operating Activities:
Net income (loss)	$	(302)	$	151
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization	199		168
Contract inducement amortization	3		2
Deferred income taxes	(23)		43
Goodwill impairment	287		—

Amortization of debt financing costs	3		3

(Gain) loss on divestitures and sales of fixed assets, net	—		(166)
Stock-based compensation	13		15

Changes in operating assets and liabilities:
Accounts receivable	19		24
Other current and long-term assets	(115)		(116)
Accounts payable and accrued compensation and benefits costs	(55)		6

Other current and long-term liabilities	(36)		(33)
Net change in income tax assets and liabilities	(26)		(4)
Net cash provided by (used in) operating activities	(33)		93
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment	(33)		(62)

Cost of additions to internal use software	(31)		(48)

Proceeds from divestitures	—		326
Net cash provided by (used in) investing activities	(64)		216
Cash Flows from Financing Activities:

Payments on revolving credit facility	—		(100)
Payments on debt	(30)		(24)


Treasury stock purchases	(7)		—
Taxes paid for settlement of stock-based compensation	(7)		(1)
Dividends paid on preferred stock	(7)		(7)
Contribution from noncontrolling interest	3		—
Net cash provided by (used in) financing activities	(48)		(132)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	2		(10)
Increase (decrease) in cash, cash equivalents and restricted cash	(143)		167
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	598		420
Cash, Cash Equivalents and Restricted Cash at End of period(1)	$	455	$	587

___________

(1)Includes $4 million and $10 million of restricted cash as of September 30, 2023 and 2022, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


						CNDT Q3 2023 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


	Three Months Ended September 30, 2023
(in millions)	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Non-controlling Interest		Shareholders' Equity
Balance at June 30, 2023	$	2	$	(1)	$	3,931	$	(2,561)	$	(444)	$	—	$	927
Dividends - preferred stock, $20/share	—		—		—		(2)		—		—		(2)
Stock incentive plans, net	—		—		6		—		—		—		6
Treasury stock purchases	—		(6)		—		—		—		—		(6)
Contribution from noncontrolling interest	—		—		—		—		—		3		3
Comprehensive Income (Loss):
Net Income (Loss)	—		—		—		(289)		—		—		(289)
Other comprehensive income (loss), net	—		—		—		—		(19)		—		(19)
Total Comprehensive Income (Loss), Net	—		—		—		(289)		(19)		—		(308)
Balance at September 30, 2023	$	2	$	(7)	$	3,937	$	(2,852)	$	(463)	$	3	$	620


	Three Months Ended September 30, 2022
(in millions)	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Non-controlling Interest		Shareholders' Equity
Balance at June 30, 2022	$	2	$	—	$	3,918	$	(2,220)	$	(475)	$	—	$	1,225
Dividends - preferred stock, $20/share	—		—		—		(2)		—		—		(2)
Stock incentive plans, net	—		—		6		—		—		—		6
Treasury stock purchases	—		—		—		—		—		—		—
Contribution from noncontrolling interest	—		—		—		—		—		—		—
Comprehensive Income (Loss):
Net Income (Loss)	—		—		—		15		—		—		15
Other comprehensive income (loss), net	—		—		—		—		(38)		—		(38)
Total Comprehensive Income (Loss), Net	—		—		—		15		(38)		—		(23)
Balance at September 30, 2022	$	2	$	—	$	3,924	$	(2,207)	$	(513)	$	—	$	1,206


	Nine Months Ended September 30, 2023
(in millions)	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Non-controlling Interest		Shareholders' Equity
Balance at December 31, 2022	$	2	$	—	$	3,924	$	(2,543)	$	(466)	$	—	$	917
Dividends - preferred stock, $60/share	—		—		—		(7)		—		—		(7)
Stock incentive plans, net	—		—		13		—		—		—		13
Treasury stock purchases	—		(7)		—		—		—		—		(7)
Contribution from noncontrolling interest	—		—		—		—		—		3		3
Comprehensive Income (Loss):
Net Income (Loss)	—		—		—		(302)		—		—		(302)
Other comprehensive income (loss), net	—		—		—		—		3		—		3
Total Comprehensive Income (Loss), Net	—		—		—		(302)		3		—		(299)
Balance at September 30, 2023	$	2	$	(7)	$	3,937	$	(2,852)	$	(463)	$	3	$	620


	Nine Months Ended September 30, 2022
(in millions)	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Non-controlling Interest		Shareholders' Equity
Balance at December 31, 2021	$	2	$	—	$	3,910	$	(2,351)	$	(429)	$	—	$	1,132
Dividends - preferred stock, $60/share	—		—		—		(7)		—		—		(7)
Stock incentive plans, net	—		—		14		—		—		—		14
Treasury stock purchases	—		—		—		—		—		—		—
Contribution from noncontrolling interest	—		—		—		—		—		—		—
Comprehensive Income (Loss):
Net Income (Loss)	—		—		—		151		—		—		151
Other comprehensive income (loss), net	—		—		—		—		(84)		—		(84)
Total Comprehensive Income (Loss), Net	—		—		—		151		(84)		—		67
Balance at September 30, 2022	$	2	$	—	$	3,924	$	(2,207)	$	(513)	$	—	$	1,206

___________

(1)AOCL - Accumulated other comprehensive loss. Refer to Note 13 – Accumulated Other Comprehensive Loss for the components of AOCL.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


						CNDT Q3 2023 Form 10-Q


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Note 1 – Basis of Presentation

References herein to “we,” “us,” “our,” the “Company” and “Conduent” refer to Conduent Incorporated and its consolidated subsidiaries unless the context suggests otherwise.

Description of Business

Conduent Incorporated is a New York corporation, organized in 2016. As a global technology-led business process solutions company, Conduent delivers digital business solutions and services spanning the commercial, government and transportation spectrum – creating exceptional outcomes for its clients and the millions of people who count on them. The Company leverages cloud computing, artificial intelligence, machine learning, automation and advanced analytics to deliver mission-critical solutions. Through a dedicated global team of associates, process expertise, and advanced technologies, Conduent’s solutions and services digitally transform its clients’ operations to enhance customer experiences, improve performance, increase efficiencies and reduce costs.

Basis of Presentation

The unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The year-end Condensed Consolidated Balance Sheet was derived from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Certain reclassifications have been made to prior year information to conform to current year presentation. Intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows have been made. These adjustments consist of normal recurring items. The interim results of operations are not necessarily indicative of the results of the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In the first quarter of 2023, the Company identified an error and recorded an out-of-period adjustment to correct the recognition of revenue on a Government segment contract that originated in 2020 and impacted all quarterly periods through December 31, 2022. This adjustment resulted in a reduction to revenue and income (loss) before income taxes of $7 million and a corresponding decrease to accounts receivable of $1 million and an increase to other current liabilities of $6 million in the first quarter of 2023. The Company evaluated the impact of the out-of-period adjustment and concluded it was not material to any previously issued interim or annual consolidated financial statements and the adjustment is not expected to be material to the year ending December 31, 2023.

The Company has evaluated subsequent events through November 1, 2023, and no material subsequent events were identified.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to fair values of financial instruments, goodwill and intangible assets, income taxes and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

As of September 30, 2023, the effects of global macroeconomic and geopolitical uncertainty on the Company's business, results of operations and financial condition continue to evolve. As a result, many of the Company's estimates and assumptions continue to require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company's estimates may change materially in the future.


						CNDT Q3 2023 Form 10-Q


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Summary of Significant Accounting Policies

There have been no changes to the Company's Significant Accounting Policies as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 other than the addition of policies related to a share repurchase program and Noncontrolling interest as described below.

Share Repurchase Program

On May 16, 2023, the Board of Directors authorized a share repurchase program, granting approval for the Company to repurchase up to $75 million of its common stock over the next three years. The Company has the discretion to repurchase shares periodically through open market transactions and may include Rule 10b5-1 trading plans.

This share repurchase program does not obligate the Company to acquire a specific number of shares and the program may be modified, suspended or discontinued at any time at the Company’s discretion without prior notice.

The Company holds repurchased shares of common stock as treasury stock. The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders' equity. The Company accrues the cost of repurchased shares and excludes such shares from the calculation of basic and diluted earnings per share, as of the trade date. The Company recognizes a liability for share repurchases which have not settled and for which cash has not been paid in Other current liabilities on the Company's Condensed Consolidated Balance Sheets.

Noncontrolling Interest

The Company's Consolidated Financial Statements include the historical basis of assets, liabilities, revenues and expenses of the individual businesses of the Company, including joint ventures over which the Company has a controlling financial interest. Control is based on ownership interest. The ownership interest held by an owner other than the Company in a less than wholly owned subsidiary is classified as a non-controlling interest. Net income (loss) is allocated to the noncontrolling interest based on ownership interest.

In May 2023, the Company signed a new customer contract with the State of Victoria, Australia to provide the next generation of the state's public transport ticketing system. As a result, the Company and Convergint Australia Pty Ltd (“Convergint”) entered into a shareholder agreement to form Conduent Victoria Ticketing System Pty Ltd (“Conduent Victoria”). The Company holds an 80% equity investment in Conduent Victoria, while the remaining 20% is owned by Convergint.

For the three and nine months ended September 30, 2023, noncontrolling interest in Conduent Victoria was not material to the Company's Condensed Consolidated Statements of Income (Loss) or Condensed Consolidated Statements of Comprehensive Income (Loss) and, therefore, the Company did not present any separate disclosures for such noncontrolling interest in those statements.

Note 2 – Recent Accounting Pronouncements

The Company's significant accounting policies are described in Note 1 – Basis of Presentation and Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

New Accounting Standards Adopted

The Company has not adopted any new accounting standards in 2023 that had a material impact on its Consolidated Financial Statements.

New Accounting Standards To Be Adopted

The Company has considered all recent accounting standards issued, but not yet effective, and does not expect any to have a material impact on its Consolidated Financial Statements.


						CNDT Q3 2023 Form 10-Q


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Note 3 – Revenue

Disaggregation of Revenue

The following table provides information about disaggregated revenue by major service offering, the timing of revenue recognition and a reconciliation of the disaggregated revenue by reportable segment. Refer to Note 4 – Segment Reporting for additional information on the Company's reportable segments.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Commercial:
Customer experience management	$	144	$	162	$	463	$	468
Business operations solutions	126		138		388		415
Healthcare claims and administration solutions	87		100		266		278
Human capital solutions	108		104		327		325
Total Commercial	465		504		1,444		1,486
Government:
Government healthcare solutions	159		150		453		438
Government services solutions	131		141		371		418
Total Government	290		291		824		856
Transportation:
Road usage charging & management solutions	81		87		237		244
Transit solutions	61		55		157		161
Curbside management solutions	18		22		57		63
Public safety solutions	15		16		44		49
Commercial vehicles	2		2		6		6
Total Transportation	177		182		501		523

Divestitures	—		—		—		7


Total Consolidated Revenue	$	932	$	977	$	2,769	$	2,872

Timing of Revenue Recognition:
Point in time	$	25	$	37	$	76	$	82
Over time	907		940		2,693		2,790
Total Revenue	$	932	$	977	$	2,769	$	2,872

Contract Balances

The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets are the Company’s rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Contract assets are transferred to Accounts receivable, net when the rights to consideration become unconditional. Unearned income includes payments received in advance of performance under the contract, which are realized when the associated revenue is recognized under the contract.


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The following table provides information about the balances of the Company's contract assets, unearned income and receivables from contracts with customers:


(in millions)	September 30, 2023		December 31, 2022
Contract Assets (Unearned Income)
Current contract assets	$	197	$	171
Long-term contract assets(1)	11		12
Current unearned income	(99)		(81)
Long-term unearned income(2)	(55)		(42)
Net Contract Assets	$	54	$	60
Accounts receivable, net	$	612	$	630

__________

(1)Presented in Other long-term assets in the Condensed Consolidated Balance Sheets.

(2)Presented in Other long-term liabilities in the Condensed Consolidated Balance Sheets.

Revenues of $8 million and $50 million were recognized during the three and nine months ended September 30, 2023, respectively, related to the Company's unearned income at December 31, 2022. Revenues of $14 million and $67 million were recognized during the three and nine months ended September 30, 2022, respectively, related to the Company's unearned income at December 31, 2021.

The Company had no material asset impairment charges related to contract assets for the three and nine months ended September 30, 2023 or 2022.

Transaction Price Allocated to the Remaining Performance Obligations

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at September 30, 2023 was approximately $1.6 billion. The Company expects to recognize approximately 62% of this revenue over the next two years and the remainder thereafter.

Note 4 – Segment Reporting

The Company's reportable segments correspond to how it organizes and manages the business, as defined by the Company's Chief Executive Officer, who is also the Company's Chief Operating Decision Maker (the "CODM"). The Company's segments involve the delivery of business process services and include service arrangements where it manages a customer's business activity or process.

The Company's financial performance is based on Segment Profit (Loss) for its three reportable segments (Commercial, Government and Transportation), Divestitures and Unallocated Costs. The Company's CODM does not evaluate operating segments using discrete asset information.

Commercial: The Commercial segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial segment, the Company operates on its clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for the Company's clients and their consumers and employees.

Government: The Government segment provides government-centric business process services to U.S. federal, state and local and foreign governments for public assistance, health services, program administration, transaction processing and payment services. The solutions in this segment help governments respond to changing rules for eligibility and increasing citizen expectations.

Transportation: The Transportation segment provides systems, support, and revenue-generating solutions, to government transportation agency clients. The Company delivers mission-critical public safety, mobility and digital payment solutions that streamline operations, have a positive impact on the environment and increase revenue and reduce congestion while creating safe, seamless travel experiences for consumers.

Divestitures includes the Company's Midas Suite of patient safety, quality and advanced analytics solutions which it sold to a third party in the first quarter of 2022.


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Unallocated Costs includes IT infrastructure costs that are shared by multiple reportable segments, enterprise application costs and certain corporate overhead expenses not directly attributable or allocated to the reportable segments.

Selected financial information for the Company's reportable segments was as follows:


	Three Months Ended September 30,
(in millions)	Commercial		Government		Transportation		Divestitures		Unallocated Costs		Total
2023
Revenue	$	465	$	290	$	177	$	—	$	—	$	932
Segment profit (loss)	$	6	$	84	$	(4)	$	—	$	(75)	$	11

2022
Revenue	$	504	$	291	$	182	$	—	$	—	$	977
Segment profit (loss)	$	44	$	79	$	16	$	—	$	(87)	$	52


	Nine Months Ended September 30,
(in millions)	Commercial		Government		Transportation		Divestitures		Unallocated Costs		Total
2023
Revenue	$	1,444	$	824	$	501	$	—	$	—	$	2,769
Segment profit (loss)	$	87	$	224	$	(9)	$	—	$	(224)	$	78

2022
Revenue	$	1,486	$	856	$	523	$	7	$	—	$	2,872
Segment profit (loss)	$	94	$	224	$	40	$	2	$	(218)	$	142


(in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)	2023		2022		2023		2022
Income (Loss) Before Income Taxes	$	(313)	$	23	$	(328)	$	238
Reconciling items:
Amortization of acquired intangible assets	1		2		5		11
Restructuring and related costs	7		4		49		24
Interest expense	28		22		82		59
Goodwill impairment	287		—		287		—
(Gain) loss on divestitures and transaction costs, net	3		1		8		(159)
Litigation settlements (recoveries), net	—		—		(22)		(31)

Other (income) expenses, net	(2)		—		(3)		—
Segment Profit (Loss)	$	11	$	52	$	78	$	142

Refer to Note 3 – Revenue for additional information on disaggregated revenues of the reportable segments.

Note 5 – Divestitures

Announced Transfer of BenefitWallet Portfolio

In September 2023, the Company entered into a Custodial Transfer and Asset Purchase Agreement to transfer its BenefitWallet health savings account and medical savings account portfolio (collectively, the "Portfolio") to HealthEquity, Inc. ("HealthEquity"). The transfer is expected to close in multiple tranches during the first half of 2024 and is subject to the satisfaction of certain customary closing conditions. As of September 30, 2023, there were no asset or liability balances related to the Portfolio that would require disclosure as assets and liabilities held for sale on the Company's Condensed Consolidated Balance Sheet. The Portfolio generated revenue of $32 million and $95 million in the three and nine months ended September 30, 2023, respectively and $20 million and $46 million in the three and nine months ended September 30, 2022, respectively.


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Completed Divestiture

On February 8, 2022, the Company completed the sale of its Midas business to Symplr Software, Inc. The Company received $322 million of cash consideration for this divestiture ($321 million in the first quarter of 2022 and $1 million in the second quarter of 2022). The divestiture generated a pre-tax gain of $166 million ($165 million in the first quarter of 2022 and $1 million in the second quarter of 2022), which is included in (Gain) loss on divestitures and transaction costs, net. The Company recorded approximately $62 million of income taxes in connection with the divestiture. The revenue generated by this business was $7 million for the nine months ended September 30, 2022.

Note 6 – Software, Net

Internal Use and Product Software

Internal use and Product software are included in Other long-term assets on the Company's Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, with their respective balances as follows:


(in millions)	September 30, 2023		December 31, 2022
Internal use software, at cost	$	636	$	621
Accumulated amortization and impairment	(476)		(432)
Internal use software, net	$	160	$	189

Product software, at cost	$	221	$	207
Accumulated amortization and impairment	(126)		(97)
Product software, net	$	95	$	110

During the third quarter of 2023, the Company made a strategic decision to abandon an Internal use software project and a customer decided not to implement a Product software solution. Consequently, the Company recorded an impairment charge of $19 million and $6 million in the third quarter of 2023, respectively, for the previously capitalized software costs associated with these projects.

The total impairment charge of $25 million related to these software projects are included in Depreciation and amortization line item on the Condensed Consolidated Statements of Income (Loss).

Note 7 – Goodwill

The following table presents the changes in the carrying amount of goodwill, by reportable segment:


(in millions)	Commercial		Government		Transportation		Total
Balance at December 31, 2022	$	287	$	611	$	57	$	955
Foreign currency translation	—		—		—		—
Impairment	(287)		—		—		(287)

Balance at September 30, 2023	$	—	$	611	$	57	$	668

Gross goodwill	$	2,198	$	1,365	$	637	$	4,200
Accumulated impairment	(2,198)		(754)		(580)		(3,532)
Balance at September 30, 2023	$	—	$	611	$	57	$	668

Impairment Charge

In September 2023, the Company entered into a Custodial Transfer and Asset Purchase Agreement (the "Purchase Agreement") to transfer its BenefitWallet health savings account and medical savings account portfolio, which is reported within the Company’s Commercial segment. Since the Purchase Agreement does not represent a disposition of a business, no goodwill was allocated to the Portfolio related to this transaction.


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Consequently, the Purchase Agreement was identified as a triggering event for the Commercial reporting unit that required the Company to evaluate goodwill for impairment. This evaluation resulted in a full impairment of the Commercial reporting unit's goodwill, totaling $287 million. The impairment charge was primarily driven by the Purchase Agreement, and was recognized during the quarter ended September 30, 2023.

The fair values of the goodwill impairment charge were estimated based on a determination of the implied fair value of goodwill, leveraging the results from the Income Approach and Market Approach, and are designated as level 3 of the fair value hierarchy.

In connection with the Commercial reporting unit impairment assessment, the Company first performed a recoverability assessment of long-lived assets and concluded that such assets were not impaired.

Note 8 – Restructuring Programs and Related Costs

The Company engages in a series of restructuring programs related to exiting certain activities, downsizing its employee base, outsourcing certain internal functions and engaging in other actions designed to reduce its cost structure and improve productivity. The implementation of the Company's operational efficiency improvement initiatives has reduced the Company's real estate footprint across all geographies and segments resulting in lease right-of-use asset ("ROU") impairments and other related costs. Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $3 million and $2 million for the three months ended September 30, 2023 and 2022, respectively, and $7 million and $9 million for the nine months ended September 30, 2023 and 2022, respectively. Management continues to evaluate the Company's businesses and, in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed.

Costs associated with restructuring, including employee severance and lease termination costs, are generally recognized when it has been determined that a liability has been incurred, which is generally upon communication to the affected employees or exit from the leased facility. In those geographies where the Company has either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, it recognizes employee severance costs when they are both probable and reasonably estimable. Asset impairment costs related to the reduction of the Company's real estate footprint include impairment of operating lease ROU assets and associated leasehold improvements.

A summary of the Company's restructuring program activity during the nine months ended September 30, 2023 and 2022 is as follows:


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2022	$	10	$	—	$	—	$	10
Provision	25		18		7		50
Changes in estimates	(1)		—		—		(1)
Total Net Current Period Charges(1)	24		18		7		49
Charges against reserve and currency	(24)		(17)		(7)		(48)
Accrued Balance at September 30, 2023	$	10	$	1	$	—	$	11


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2021	$	5	$	1	$	—	$	6
Provision	4		13		6		23
Changes in estimates	(1)		—		—		(1)
Total Net Current Period Charges(1)	3		13		6		22
Charges against reserve and currency	(7)		(14)		(6)		(27)

Accrued Balance at September 30, 2022	$	1	$	—	$	—	$	1

__________

(1)Represents amounts recognized within the Consolidated Statements of Income (Loss) for the years shown.

During the three and nine months ended September 30, 2023, the Company incurred $0 million and $6 million, respectively, of professional support costs associated with bringing certain technology functions in-house.


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The following table summarizes the total amount of costs incurred in connection with these restructuring programs by reportable and non-reportable segment:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Commercial	$	2	$	1	$	25	$	2
Government	—		—		—		—
Transportation	—		—		—		—
Divestitures	—		—		—		—
Unallocated Costs(1)	5		3		24		20
Total Net Restructuring Charges	$	7	$	4	$	49	$	22

__________

(1)Represents costs related to the consolidation of the Company's data centers, operating lease ROU assets impairment, termination and other costs not allocated to the segments.

Note 9 – Debt

Long-term debt was as follows:


(in millions)	September 30, 2023		December 31, 2022
Term loan A due 2026	$	242	$	252
Term loan B due 2028	506		510
Senior notes due 2029	520		520
Revolving credit facility maturing 2026	—		—
Finance lease obligations	30		20
Other	28		33
Principal debt balance	1,326		1,335
Debt issuance costs and unamortized discounts	(20)		(23)
Less: current maturities	(40)		(35)
Total Long-term Debt	$	1,266	$	1,277

As of September 30, 2023, the Company had no outstanding borrowings under its Revolver. However, the Company utilized $2 million of the Revolver to issue letters of credit as of September 30, 2023. The net Revolver available to be drawn upon as of September 30, 2023 was $548 million.

At September 30, 2023, the Company was in compliance with all debt covenants related to the borrowings in the table above.

Note 10 – Financial Instruments

The Company is a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of its business. As a part of the Company's foreign exchange risk management strategy, the Company uses derivative instruments, primarily forward contracts, to hedge the funding of foreign entities which have a non-dollar functional currency, thereby reducing volatility of earnings or protecting fair values of assets and liabilities.

At September 30, 2023 and December 31, 2022, the Company had outstanding forward exchange contracts with gross notional values of $143 million and $104 million, respectively. At September 30, 2023, approximately 68% of these contracts mature within three months, 12% in three to six months, 14% in six to twelve months and 6% in greater than twelve months. Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on the Company's balance sheet, income statement or cash flows for the periods presented.

Refer to Note 11 – Fair Value of Financial Assets and Liabilities for additional information regarding the fair value of the Company's foreign exchange forward contracts.


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Note 11 – Fair Value of Financial Assets and Liabilities

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP established a hierarchy framework to classify the fair value based on the observability of significant inputs to the measurement. The levels of the fair value hierarchy are as follows:

Level 1: Fair value is determined using an unadjusted quoted price in an active market for identical assets or liabilities.

Level 2: Fair value is estimated using inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.

Level 3: Fair value is estimated using unobservable inputs that are significant to the fair value of the assets or liabilities.

Summary of Financial Assets and Liabilities Accounted for at Fair Value on a Recurring Basis

The following table represents assets and liabilities measured at fair value on a recurring basis. The basis for the measurement at fair value in all cases was Level 2.


(in millions)	September 30, 2023		December 31, 2022
Assets:
Foreign exchange contract - forward	$	1	$	—
Total Assets	$	1	$	—
Liabilities:
Foreign exchange contracts - forward	$	1	$	1
Total Liabilities	$	1	$	1

Summary of Other Financial Assets and Liabilities

The estimated fair values of other financial assets and liabilities were as follows:


	September 30, 2023				December 31, 2022
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
Long-term debt	$	1,266	$	1,192	$	1,277	$	1,155

The fair value amounts for Cash and cash equivalents, Restricted cash, Accounts receivable, net and Short-term debt approximate carrying amounts due to the short-term maturities of these instruments.

The fair value of Long-term debt was estimated using quoted market prices for identical or similar instruments (Level 2 inputs).

Note 12 – Employee Benefit Plans

The Company has post-retirement savings and investment plans in several countries, including the U.S., India and the Philippines. In many instances, employees participating in defined benefit pension plans that have been amended to freeze future service accruals were transitioned to an enhanced defined contribution plan. In these plans, employees are permitted to contribute a portion of their salaries and bonuses to the plans. The Company, at its discretion, matches a portion of employee contributions.

The Company recognized an expense related to its defined contribution plans of $2 million and $4 million for the three months ended September 30, 2023 and 2022, respectively, and $8 million and $12 million for the nine months ended September 30, 2023 and 2022, respectively. The balance sheet and income statement impacts of any remaining defined benefit plans are immaterial for all periods presented in these Condensed Consolidated Financial Statements.


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Note 13 – Accumulated Other Comprehensive Loss (AOCL)

Below are the balances and changes in AOCL(1):


(in millions)	Currency Translation Adjustments		Gains (Losses) on Cash Flow Hedges		Defined Benefit Pension Items		Total
Balance at December 31, 2022	$	(472)	$	1	$	5	$	(466)
Other comprehensive income (loss)	3		—		—		3


Balance at September 30, 2023	$	(469)	$	1	$	5	$	(463)


(in millions)	Currency Translation Adjustments		Gains (Losses) on Cash Flow Hedges		Defined Benefit Pension Items		Total
Balance at December 31, 2021	$	(431)	$	2	$	—	$	(429)
Other comprehensive income (loss)	(82)		(2)		—		(84)


Balance at September 30, 2022	$	(513)	$	—	$	—	$	(513)

__________

(1)All amounts are net of tax. Tax effects were immaterial.

Note 14 – Contingencies and Litigation

As more fully discussed below, the Company is involved in a variety of claims, lawsuits, investigations and proceedings concerning a variety of matters, including: governmental entity contracting, servicing and procurement law; intellectual property law; employment law; commercial and contracts law; the Employee Retirement Income Security Act ("ERISA"); and other laws and regulations. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing its litigation and regulatory matters using available information. The Company develops its view on estimated losses in consultation with outside counsel handling its defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments in any of these matters cause a change in the Company's determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts in excess of any accrual for such matter or matters, this could have a material adverse effect on the Company's results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs. The Company believes it has recorded adequate provisions for any such matters as of September 30, 2023. Litigation is inherently unpredictable, and it is not possible to predict the ultimate outcome of these matters and such outcome in any such matters could be more than any amounts accrued and could be material to the Company's results of operations, cash flows or financial position in any reporting period.

Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates when the Company undertakes an obligation to guarantee the performance of others if specified triggering events occur. Nonperformance under a contract could trigger an obligation of the Company. These potential claims include actions based upon alleged exposures to products, real estate, intellectual property (such as patents), environmental matters and other indemnifications. The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Company's consolidated financial position or liquidity. As of September 30, 2023, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.


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Litigation Against the Company

Employees’ Retirement System of the Puerto Rico Electric Power Authority et al v. Conduent Inc. et al.: On March 8, 2019, a putative class action lawsuit alleging violations of certain federal securities laws in connection with our statements and alleged omissions regarding the Company's financial guidance and business and operations was filed against the Company, its former Chief Executive Officer, and its former Chief Financial Officer in the United States District Court for the District of New Jersey (the "Court"). The complaint sought certification of a class of all persons who purchased or otherwise acquired the Company's securities from February 21, 2018 through November 6, 2018, and also sought unspecified monetary damages, costs, and attorneys’ fees. The Company moved to dismiss the class action complaint in its entirety. In June 2020, the Court denied the motion to dismiss and allowed the claims to proceed. The Court granted Class Certification on February 28, 2022. Upon the substantial completion of document discovery, the parties agreed to engage in mediation, and the Court administratively terminated the litigation to permit those efforts to proceed. Without any admission of liability or damages, in the third quarter of 2022, the parties settled this matter following that mediation, and filed the necessary documentation for preliminary approval by the court, class notice, and the claims administration process. The Court granted preliminary approval of the settlement terms and related documentation on January 27, 2023, and conducted the final Settlement Hearing on May 24, 2023, at which time the settlement received final approval as did plaintiffs' fee request. The Court's preliminary order had previously noted that it "will likely be able to approve the proposed Settlement as fair, reasonable and adequate under Federal Rule of Civil Procedure 23(e)(2)." The Company maintains insurance that covers the costs arising out of this litigation and resulting settlement having met the deductible and other terms and conditions thereof. As a result, during the fourth quarter of 2022, the Company reversed the reserve pertaining to this matter.

Skyview Capital LLC and Continuum Global Solutions, LLC v. Conduent Business Services, LLC: On February 3, 2020, plaintiffs Skyview LLC ("Skyview") filed a lawsuit in the Superior Court of New York County, New York. The lawsuit relates to the sale of a portion of Conduent Business Service, LLC's ("CBS") select standalone customer care call center business to plaintiffs, which sale closed in February 2019. Under the terms of the sale agreement, CBS received approximately $23 million of notes from plaintiffs (the "Notes"). The lawsuit alleges various causes of action in connection with the acquisition, including: indemnification for breach of representation and warranty; indemnification for breach of contract and fraud. Plaintiffs allege that their obligation to mitigate damages and their contractual right of set-off permits them to withhold and deduct from any amounts that are owed to CBS under the Notes, and plaintiffs seek a judgement that they have no obligation to pay the Notes. On August 20, 2020, Conduent filed a counterclaim against Skyview seeking the outstanding balance on the Notes, the amounts owed for the Jamaica deferred closing, and other transition services agreement and late rent payment obligations. Conduent also moved to dismiss Skyview’s claims in 2020. In May 2021, the court denied the motion and allowed the claims to proceed. Fact and expert discovery has been concluded and the parties filed summary judgment motions on July 24, 2023. Briefings on the motions were completed as of September 29, 2023, and oral argument has been scheduled for December 5, 2023. Conduent denies all the plaintiffs' allegations, believes that it has strong defenses to all of plaintiffs’ claims and will continue to defend the litigation vigorously. The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves.


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Conduent Business Services, LLC v. Cognizant Business Services Corporation: On April 12, 2017, CBS filed a lawsuit against Cognizant Business Services Corporation ("Cognizant") in the Supreme Court of New York County, New York. The lawsuit relates to the Amended and Restated Master Outsourcing Services Agreement effective as of October 24, 2012, and the service delivery contracts and work orders thereunder, between CBS and Cognizant, as amended and supplemented (the "Contract"). The Contract contains certain minimum purchase obligations by CBS through the date of expiration. The lawsuit alleged that Cognizant committed multiple breaches of the Contract, including Cognizant’s failure to properly perform its obligations as subcontractor to CBS under CBS’s contract with the New York Department of Health to provide Medicaid Management Information Systems. In the lawsuit, CBS sought damages in excess of $150 million. During the first quarter of 2018, CBS provided notice to Cognizant that it was terminating the Contract for cause and recorded in the same period certain charges associated with the termination. CBS also alleged that it terminated the Contract for cause, because, among other things, Cognizant violated the Foreign Corrupt Practices Act. In its answer, Cognizant asserted two counterclaims for breach of contract seeking recovery of damages in excess of $47 million, which included amounts alleged not paid to Cognizant under the Contract and an alleged $25 million termination fee. Cognizant's second amended counterclaim increased Cognizant's damages to $89 million. The parties participated in a mediation in late February 2023, and this matter settled, following negotiations that continued thereafter. The parties executed the Settlement Agreement and Mutual Release on March 30, 2023, with no admission of liability or wrongdoing by either party. In April 2023, each side made reciprocal payments of $6 million to the other, with Conduent’s payment made toward the termination fee payable under the applicable service delivery contract. As a result of the settlement, during the first quarter of 2023, the Company adjusted the balance sheet amounts recorded pertaining to this matter. As such, the Company recognized a $17 million benefit in Cost of services (excluding depreciation and amortization) and a $26 million benefit in Litigation settlements (recoveries), net.

Other Matters

During the first quarter of 2022, the Company entered into settlement agreements with six of its insurers under its 2012–2013 errors and omission insurance policy in which the Company agreed to resolve its claims for insurance coverage in connection with the previously disclosed State of Texas matter that settled in February 2019, as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. As a result of the settlement agreements entered with the insurers, in the three months ended March 31, 2022, the Company received an aggregate sum of $38 million, of which $14 million was recognized as defense costs recovery in Selling, general and administrative and $24 million was recognized in Litigation settlements (recoveries), net.

Since 2014, Conduent Education Services, LLC, formerly Xerox Education Services LLC ("CES"), has cooperated with several federal and state agencies regarding a variety of matters, including CES' self-disclosure to the U.S. Department of Education (the "Department") and the Consumer Financial Protection Bureau (the "CFPB") that some third-party student loans under outsourcing arrangements for various financial institutions required adjustments. Except for one remaining state attorney general inquiry, the Company has resolved all investigations by the CFPB, several state agencies, the Department and the U.S. Department of Justice. There have been three consecutive quarters with no material activity. The Company is also nearing completion of the return of loan documentation to the pertinent lenders from the former business portfolio. The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which CES serviced third-party student loans, or another party will not ultimately commence a legal action against CES in which fines, penalties or other liabilities are sought from CES. Nor is the Company able to predict the likely outcome of these matters, should any such matter be commenced, or reasonably provide an estimate or range of estimates of any loss in excess of currently recorded reserves. The Company could, in future periods, incur judgments or enter into settlements to resolve these potential matters for amounts in excess of current reserves and there could be a material adverse effect on the Company's results of operations, cash flows and financial position in the period in which such change in judgment or settlement occurs.


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Other Contingencies

Certain contracts, primarily in the Company's Government and Transportation segments, require the Company to provide a surety bond or a letter of credit as a guarantee of performance. As of September 30, 2023, the Company had $637 million of outstanding surety bonds issued to secure its performance of contractual obligations with its clients and $184 million of outstanding letters of credit issued to secure the Company's performance of contractual obligations to its clients as well as other corporate obligations. In general, the Company would only be liable for these guarantees in the event of default in the Company's performance of its obligations under each contract. The Company believes it has sufficient capacity in the surety markets and liquidity from its cash flow and its various credit arrangements to allow it to respond to future requests for proposals that require such credit support.

Note 15 – Preferred Stock

Series A Preferred Stock

In December 2016, the Company issued 120,000 shares of Series A convertible perpetual preferred stock with an aggregate liquidation preference of $120 million and an initial fair value of $142 million. The convertible preferred stock earns quarterly cash dividends at a rate of 8% per year ($9.6 million per year). Each share of convertible preferred stock is convertible at any time, at the option of the holder, into 44.9438 shares of common stock for a total of 5,393,000 shares (reflecting an initial conversion price of approximately $22.25 per share of common stock), subject to customary anti-dilution adjustments.

Note 16 – Earnings (Loss) per Share

The Company did not declare any common stock dividends in the periods presented.

The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data in whole dollars and shares in thousands)	2023		2022		2023		2022
Basic Net Earnings (Loss) per Share:
Net Income (Loss)	$	(289)	$	15	$	(302)	$	151


Dividend - Preferred Stock	(2)		(2)		(7)		(7)
Adjusted Net Income (Loss) Available to Common Shareholders - Basic	$	(291)	$	13	$	(309)	$	144

Diluted Net Earnings (Loss) per Share:
Net Income (Loss)	$	(289)	$	15	$	(302)	$	151


Dividend - Preferred Stock	(2)		(2)		(7)		(7)
Adjusted Net Income (Loss) Available to Common Shareholders - Diluted	$	(291)	$	13	$	(309)	$