UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): March 7, 2024
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (CFR 240.12b-2).
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. ☐
Item 2.01. Completion of Acquisition or Disposal of Assets.
As previously announced on September 19, 2023, Conduent Incorporated ("Conduent"), by and through its wholly owned subsidiary, Conduent Business Services, LLC ("CBS"), entered into a Custodial Transfer and Asset Purchase Agreement (the "Purchase Agreement") with HealthEquity, Inc. ("HealthEquity"), to transfer its BenefitWallet health savings account ("HSA") and medical savings account ("MSA") portfolio to HealthEquity (the "Transfer"). Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Purchase Agreement.
The Purchase Agreement provides that HealthEquity will, over the course of the several Conversion Dates, pay to CBS an aggregate purchase price of $425 million (the "Purchase Price"), subject to a purchase price adjustment following the Final Conversion Date based on the amount of HSA and MSA assets actually transferred, as consideration for its acquisition of the exclusive right to act as custodian of the HSA Accounts and MSA Accounts (and the assumption of certain specified obligations). The Transfer will close in multiple tranches. A pro-rata portion of the Purchase Price, based upon the relative value of HSA and MSA assets transferred in that tranche, shall be payable upon each Conversion Date.
On March 7, 2024 , following the completion of the first tranche of the Transfer, the Initial Conversion Date was attained and Conduent received $164 million as the pro-rata share of the Purchase Price. Conduent anticipates the remaining two tranches will be completed by May 9, 2024.
Item 8.01 Other Events
On March 13, 2024, Conduent notified Bank of America, N.A., the Administrative Agent for our Credit Agreement, that we intend to use the $164 million proceeds to voluntarily prepay a portion of the outstanding balance of the Senior Secured Term Loan B.
Item 9.01. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated financial statements of Conduent, after giving effect to the Transfer, are filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein:
•Conduent’s unaudited pro forma condensed consolidated balance sheet as of December 31, 2023; and
•Conduent’s unaudited pro forma condensed consolidated statement of income (loss) for the year ended December 31, 2023.
The unaudited pro forma condensed consolidated financial statements are not intended to represent or be indicative of the Conduent’s consolidated results of operations or financial position that would have been reported had the Transfer been completed as of the dates presented and should not be taken as representation of the Conduent’s future consolidated results of operations or financial condition. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable under the circumstances.
(d) Exhibits.
| Exhibit No. | Description | |||||||
| Unaudited Pro Forma Condensed Consolidated Financial Statements of Conduent Incorporated | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
Forward-Looking Statements
This Current Report on Form 8-K ("Report') and any exhibits to this Report may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, as amended. 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, 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 include, but may not be limited to, statements regarding the expectation that the sale of the Company’s BenefitWallet’s HSA, MSA and flexible spending account portfolio to HealthEquity will be consummated and the timing of such consummation. These statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied herein as anticipated, believed, estimated, expected or intended or using other similar expressions. In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Report, any exhibits to this Report and other public statements we make. Important factors and uncertainties that could cause actual results to differ materially from those in our forward-looking statements include, but are not limited to: the Company’s ability to realize the benefits anticipated from the sale of the Company’s BenefitWallet’s HSA, MSA and flexible spending account portfolio to HealthEquity; unexpected costs, liabilities or delays in connection with the proposed transaction; the significant transaction costs associated with the proposed transaction; negative effects of the announcement, pendency or consummation of the transaction on the market price of our common stock or operating results, including as a result of changes in key customer, supplier, employee or other business relationships; the risk of litigation or regulatory actions; our inability to retain and hire key personnel; the risk that certain contractual restrictions contained in the transaction agreement during the pendency of the proposed transaction could adversely affect our ability to pursue business opportunities or strategic transactions; and other factors that are set forth in the “Risk Factors” and other sections of our Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission ("SEC"). Any forward-looking statements made by us in this Report 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly authorized this report to be signed on its behalf by the undersigned duly authorized.
Date: March 13, 2024
| CONDUENT INCORPORATED | ||||||||||||||
| By: | /s/ STEPHEN WOOD | |||||||||||||
| Stephen Wood | ||||||||||||||
| Executive Vice President and Chief Financial Officer | ||||||||||||||
Exhibit 99.1
Conduent Incorporated
Unaudited Pro Forma Condensed Consolidated Financial Statements
Introduction
As previously announced on September 19, 2023, Conduent Incorporated ("Conduent" or the “Company”), by and through its wholly owned subsidiary, Conduent Business Services, LLC ("CBS"), entered into a Custodial Transfer and Asset Purchase Agreement (the "Purchase Agreement") with HealthEquity, Inc. ("HealthEquity"), to transfer its BenefitWallet health savings account ("HSA") and medical savings account ("MSA") portfolio (collectively, the “Business”) to HealthEquity (the "Transfer"). Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Purchase Agreement.
The Purchase Agreement provides that HealthEquity will, over the course of the several Conversion Dates, pay to CBS an aggregate purchase price of $425 million (the “Purchase Price”), subject to a purchase price adjustment following the Final Conversion Date based on the amount of HSA and MSA assets actually transferred, as consideration for its acquisition of the exclusive right to act as custodian of the HSA Accounts and MSA Accounts (and the assumption of certain specified obligations). The Transfer closes in multiple tranches. A pro-rata portion of the Purchase Price, based upon the relative value of HSA and MSA assets transferred in the respective tranche, shall be payable upon each Conversion Date.
On March 7, 2024, following completion of the first tranche of the Transfer, the Initial Conversion Date was attained and Conduent received $164 million as the pro-rata share of the Purchase Price. Conduent anticipates the remaining two tranches will be completed by May 9, 2024.
On March 13, 2024, Conduent notified Bank of America, N.A., the Administrative Agent for our Credit Agreement, that we intend to use the $164 million proceeds to voluntarily prepay a portion of the outstanding balance of the Senior Secured Term Loan B.
The unaudited pro forma condensed consolidated financial information of the Company was derived from the historical condensed consolidated financial statements. The unaudited pro forma condensed consolidated balance sheet gives effect to the Transfer as if it occurred on December 31, 2023. The unaudited pro forma condensed consolidated statements of income (loss) for the year ended December 31, 2023, give effect to the Transfer as if it occurred on January 1, 2023. The following unaudited pro forma condensed consolidated financial information should be read in conjunction with the Company’s historical financial statements and accompanying notes for the year ended December 31, 2023, which were included in the Company’s Form 10-K filed on February 21, 2024.
The transaction accounting adjustments for the Transfer remove results of operations and also give effect to adjustments to reflect the cash proceeds of $425 million from the Transfer and the payment of related income taxes of $85 million. As of January 1, 2023 and December 31, 2023, there were no material asset or liability balances related to the Business.
The unaudited pro forma condensed consolidated financial information is based on information currently available and assumptions that the Company believes are reasonable. Such information is provided for illustrative and informational purposes only and is not intended to reflect what the Company’s consolidated financial position and results of operations would have been had the Transfer occurred on the dates indicated above and is not necessarily indicative of the Company’s future consolidated financial position and results of operations.
Exhibit 99.1
Conduent Incorporated
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2023
| (in millions) | Conduent Historical | Transaction Accounting Adjustments | Notes | Unaudited Pro Forma | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 498 | $ | 340 | (a) | $ | 838 | |||||||||||||||||||
| Accounts receivable, net | 559 | — | 559 | |||||||||||||||||||||||
| Assets held for sale | 180 | — | 180 | |||||||||||||||||||||||
| Contract assets | 178 | — | 178 | |||||||||||||||||||||||
| Other current assets | 240 | — | 240 | |||||||||||||||||||||||
| Total current assets | 1,655 | 340 | 1,995 | |||||||||||||||||||||||
| Land, buildings and equipment, net | 197 | — | 197 | |||||||||||||||||||||||
| Operating lease right-of-use assets | 191 | — | 191 | |||||||||||||||||||||||
| Intangible assets, net | 32 | — | 32 | |||||||||||||||||||||||
| Goodwill | 651 | — | 651 | |||||||||||||||||||||||
| Other long-term assets | 436 | — | 436 | |||||||||||||||||||||||
| Total Assets | $ | 3,162 | $ | 340 | $ | 3,502 | ||||||||||||||||||||
| Liabilities and Equity | ||||||||||||||||||||||||||
| Current portion of long-term debt | $ | 34 | $ | — | $ | 34 | ||||||||||||||||||||
| Accounts payable | 174 | — | 174 | |||||||||||||||||||||||
| Accrued compensation and benefits costs | 183 | — | 183 | |||||||||||||||||||||||
| Unearned income | 91 | — | 91 | |||||||||||||||||||||||
| Liabilities held for sale | 58 | — | 58 | |||||||||||||||||||||||
| Other current liabilities | 328 | 13 | (b) | 341 | ||||||||||||||||||||||
| Total current liabilities | 868 | 13 | 881 | |||||||||||||||||||||||
| Long-term debt | 1,248 | — | 1,248 | |||||||||||||||||||||||
| Deferred taxes | 30 | 23 | (c) | 53 | ||||||||||||||||||||||
| Operating lease liabilities | 157 | — | 157 | |||||||||||||||||||||||
| Other long-term liabilities | 84 | — | 84 | |||||||||||||||||||||||
| Total Liabilities | 2,387 | 36 | 2,423 | |||||||||||||||||||||||
| Series A convertible preferred stock | 142 | — | 142 | |||||||||||||||||||||||
| Common stock | 2 | — | 2 | |||||||||||||||||||||||
| Treasury stock, at cost | (27) | — | (27) | |||||||||||||||||||||||
| Additional paid-in capital | 3,938 | — | 3,938 | |||||||||||||||||||||||
| Retained earnings (deficit) | (2,849) | 304 | (d) | (2,545) | ||||||||||||||||||||||
| Accumulated other comprehensive loss | (435) | — | (435) | |||||||||||||||||||||||
| Total Conduent Inc. Equity | 629 | 304 | 933 | |||||||||||||||||||||||
| Non-controlling Interest | 4 | 4 | ||||||||||||||||||||||||
| Total Equity | 633 | 304 | 937 | |||||||||||||||||||||||
| Total Liabilities and Equity | $ | 3,162 | $ | 340 | $ | 3,502 | ||||||||||||||||||||
Exhibit 99.1
Conduent Incorporated
Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss)
For the Year Ended December 31, 2023
| (in millions, except per share data. Shares in thousands) | Conduent Historical | Transaction Accounting Adjustments | Notes | Unaudited Pro Forma | ||||||||||||||||||||||
| Revenue | $ | 3,722 | $ | (118) | (e) | $ | 3,604 | |||||||||||||||||||
| Operating Costs and Expenses | ||||||||||||||||||||||||||
| Cost of services (excluding depreciation and amortization) | 2,888 | (16) | (e) | 2,872 | ||||||||||||||||||||||
| Selling, general and administrative (excluding depreciation and amortization) | 458 | (14) | (e) | 444 | ||||||||||||||||||||||
| Research and development (excluding depreciation and amortization) | 7 | — | 7 | |||||||||||||||||||||||
| Depreciation and amortization | 264 | (2) | (e) | 262 | ||||||||||||||||||||||
| Restructuring and related costs | 62 | — | 62 | |||||||||||||||||||||||
| Interest expense | 111 | — | 111 | |||||||||||||||||||||||
| Goodwill impairment | 287 | — | 287 | |||||||||||||||||||||||
| (Gain) loss on divestitures and transaction costs, net | 10 | (412) | (f) | (402) | ||||||||||||||||||||||
| Litigation settlements (recoveries), net | (30) | — | (30) | |||||||||||||||||||||||
| Other (income) expenses, net | (3) | — | (3) | |||||||||||||||||||||||
| Total Operating Costs and Expenses | 4,054 | (444) | 3,610 | |||||||||||||||||||||||
| Income (Loss) Before Income Taxes | (332) | 326 | (6) | |||||||||||||||||||||||
| Income tax expense (benefit) | (36) | 79 | (g) | 43 | ||||||||||||||||||||||
| Net Income (Loss) | $ | (296) | $ | 247 | $ | (49) | ||||||||||||||||||||
| Net Income (Loss) per Share: | ||||||||||||||||||||||||||
| Basic | $ | (1.41) | $ | (0.28) | ||||||||||||||||||||||
| Diluted | $ | (1.41) | $ | (0.28) | ||||||||||||||||||||||
| Weighted Average Shares Outstanding (Basic and Diluted) | 216,779 | 216,779 | ||||||||||||||||||||||||
Exhibit 99.1
Conduent Incorporated
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements give effect to the transaction accounting adjustments necessary to reflect the transfer of the Business (the “Transfer”) as if it had occurred:
(a) on January 1, 2023, in the unaudited pro forma statement of income (loss) for the year ended December 31, 2023; and
(b) on December 31, 2023, in the unaudited pro forma balance sheet.
2. Pro Forma Adjustments
The unaudited pro forma condensed consolidated financial statements reflect the following adjustments:
(a) Adjustment reflects cash proceeds of $425 million from the Transfer less tax payment of $85 million related to the gain on the Transfer and before any use of proceeds related to the Transfer.
(b) Adjustment represents accrual of estimated direct transaction costs totaling $13 million.
(c) Adjustment represents the estimated utilization of $23 million of deferred tax assets as a result of the Transfer.
(d) Adjustment reflects after tax gain as if the Transfer had occurred on December 31, 2023. The after-tax gain on disposal is calculated as follows: $425 million representing the net cash proceeds of the Transfer less (i) estimated direct transaction costs of $13 million and (ii) estimated income tax provision of $108 million. As of December 31, 2023, there were no material asset or liability balances related to the Business.
(e) Adjustments reflect the elimination of revenue, costs of services, and operating expenses of the Business, including estimated IT infrastructure costs, enterprise application costs and certain corporate overhead expenses that are expected to be eliminated.
(f) Adjustment reflects gain as if the Transfer had occurred on January 1, 2023. The gain on disposal is calculated as follows: $425 million representing the net cash proceeds less estimated direct transaction costs of $13 million. As of January 1, 2023, there were no material asset or liability balances related to the Business.
(g) Adjustments represent the estimated income tax effect of the transaction accounting adjustments.