SEC Filing | Conduent, Inc.

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cndt-20200630


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: June 30, 2020


☐			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 July 31, 2020

Common Stock,

$0.01 par value

209,228,322


						CNDT Q2 2020 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 words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “aim,” “should,” "continue to" and similar expressions, as they relate to us, are intended to identify forward-looking statements. In addition, all statements regarding the anticipated effects of the novel coronavirus, or COVID-19, pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, and markets, results of operations and financial condition and anticipated actions to be taken by management to sustain our business during the economic uncertainty caused by the pandemic and related governmental and business actions, as well as other statements that are not strictly historical in nature, are forward looking. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that could cause actual results to differ materially. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. These forward-looking statements are also subject to the significant continuing impact of the COVID-19 pandemic on our business, operations, financial results and financial condition, which is dependent on developments which are highly uncertain and cannot be predicted.

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 of this Form 10-Q, our quarterly report on Form 10-Q for the quarter ended March 31, 2020, as well as in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and any 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 as a result of new information, subsequent events or otherwise.


						CNDT Q2 2020 Form 10-Q


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CONDUENT INCORPORATED

FORM 10-Q

June 30, 2020

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
	Capital Resources and Liquidity	34
	Market Risk Management	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

Part II — Other Information

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
Signatures			40

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 Q2 2020 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 June 30,						Six Months Ended June 30,
(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
Goodwill impairment	—		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)

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


						CNDT Q2 2020 Form 10-Q


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CONDUENT INCORPORATED

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


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Net Income (Loss)	$	(51)	$	(1,029)	$	(100)	$	(1,337)
Other Comprehensive Income (Loss), Net⁽¹⁾
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.

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


						CNDT Q2 2020 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	June 30, 2020		December 31, 2019
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
Goodwill	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

Contingencies (See Note 11)
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

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


						CNDT Q2 2020 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(in millions)	2020		2019
Cash Flows from Operating Activities:
Net income (loss)	$	(100)	$	(1,337)
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization	232		227
Contract inducement amortization	1		1
Deferred income taxes	(29)		(140)
Goodwill impairment	—		1,351
(Gain) loss from investments	(2)		(1)
Amortization of debt financing costs	3		3
(Gain) loss on divestitures and transaction costs	6		16
Stock-based compensation	9		14
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(44)		(64)
(Increase) decrease in other current and long-term assets	(41)		(79)
Increase (decrease) in accounts payable and accrued compensation	(24)		(82)
Increase (decrease) in restructuring liabilities	6		8
Increase (decrease) in other current and long-term liabilities	(152)		(142)
Net change in income tax assets and liabilities	17		(9)
Net cash provided by (used in) operating activities	(118)		(234)
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment	(30)		(76)
Proceeds from sale of land, buildings and equipment	—		2
Cost of additions to internal use software	(30)		(37)
Payments for acquisitions, net of cash acquired	—		(90)
Proceeds (payments) from divestitures, including cash sold	2		(8)
Net cash provided by (used in) investing activities	(58)		(209)
Cash Flows from Financing Activities:
Proceeds from revolving credit facility	150		—
Payments on debt	(28)		(28)
Taxes paid for settlement of stock based compensation	(3)		(6)
Dividends paid on preferred stock	(5)		(5)
Net cash provided by (used in) financing activities	114		(39)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(6)		2
Increase (decrease) in cash, cash equivalents and restricted cash	(68)		(480)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	505		765
Cash, Cash Equivalents and Restricted Cash at End of period⁽¹⁾	$	437	$	285

___________

(1)Includes $9 million of restricted cash as of both June 30, 2020 and 2019, 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 Q2 2020 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


	Three Months Ended June 30, 2020
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL⁽¹⁾		Shareholders' Equity
Balance at March 31, 2020	$	2	$	3,891	$	(2,236)	$	(437)	$	1,220
Cash dividends paid - preferred stock, $20/share	—		—		(3)		—		(3)
Stock option and incentive plans, net	—		5		—		—		5
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(51)		—		(51)
Other comprehensive income (loss), net	—		—		—		4		4
Total Comprehensive Income (Loss), Net	—		—		(51)		4		(47)
Balance at June 30, 2020	$	2	$	3,896	$	(2,290)	$	(433)	$	1,175


	Three Months Ended June 30, 2019
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL⁽¹⁾		Shareholders' Equity
Balance at March 31, 2019	$	2	$	3,879	$	(551)	$	(403)	$	2,927
Cash dividends paid - preferred stock, $20/share	—		—		(3)		—		(3)
Stock option and incentive plans, net	—		7		—		—		7
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(1,029)		—		(1,029)
Other comprehensive income (loss), net	—		—		—		(1)		(1)
Total Comprehensive Income (Loss), Net	—		—		(1,029)		(1)		(1,030)
Balance at June 30, 2019	$	2	$	3,886	$	(1,583)	$	(404)	$	1,901


	Six Months Ended June 30, 2020
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL⁽¹⁾		Shareholders' Equity
Balance at December 31, 2019	$	2	$	3,890	$	(2,185)	$	(407)	$	1,300
Cash dividends paid - preferred stock, $40/share	—		—		(5)		—		(5)
Stock option and incentive plans, net	—		6		—		—		6
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(100)		—		(100)
Other comprehensive income (loss), net	—		—		—		(26)		(26)
Total Comprehensive Income (Loss), Net	—		—		(100)		(26)		(126)
Balance at June 30, 2020	$	2	$	3,896	$	(2,290)	$	(433)	$	1,175


	Six Months Ended June 30, 2019
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL⁽¹⁾		Shareholders' Equity
Balance at December 31, 2018	$	2	$	3,878	$	(233)	$	(425)	$	3,222
Cash dividends paid - preferred stock, $40/share	—		—		(5)		—		(5)
Cumulative effect of accounting change	—		—		(8)		—		(8)
Stock option and incentive plans, net	—		8		—		—		8
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(1,337)		—		(1,337)
Other comprehensive income (loss), net	—		—		—		21		21
Total Comprehensive Income (Loss), Net	—		—		(1,337)		21		(1,316)
Balance at June 30, 2019	$	2	$	3,886	$	(1,583)	$	(404)	$	1,901

___________

(1)AOCL - Accumulated other comprehensive loss.

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


						CNDT Q2 2020 Form 10-Q


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CONDUENT INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 is a global enterprise and leading provider of mission-critical services and solutions on behalf of businesses and governments – creating exceptional outcomes for its clients and the millions of people who count on them. Through people, process expertise in transaction-intensive processing and technology such as analytics and automation, Conduent's solutions and services create value by improving efficiencies, reducing costs and enabling revenue growth. A majority of Fortune 100 companies and over 500 government entities depend on Conduent every day to manage their business processes and essential interactions with their end users. The Company's portfolio includes industry-focused solutions in attractive growth markets such as healthcare and transportation, as well as solutions that serve multiple industries such as transaction processing, customer care, human resource services and payment services.

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 SEC. 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, 2019. 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, 2019.

Use of Estimates

Preparation of financial statements in conformity with U.S GAAP requires us 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, we evaluate our estimates, including those related to fair values of financial instruments, goodwill and intangible assets, income taxes and contingent liabilities, among others. We base our 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 June 30, 2020, the impact of the outbreak of COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in the future.


						CNDT Q2 2020 Form 10-Q


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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, 2019. Summarized below are the accounting pronouncements adopted subsequent to December 31, 2019 that were applicable and material to the Company.

New Accounting Standards Adopted

Credit Losses: In June 2016, the Financial Accounting Standards Board (FASB) updated the accounting guidance related to measurement of credit losses on financial instruments, which requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The guidance replaces the incurred loss model with an expected loss model referred to as current expected credit loss (CECL). The CECL model requires us to measure lifetime expected credit losses for financial instruments held at the reporting date using historical experience, current conditions and reasonable supportable forecasts. The guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This updated guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the new credit loss guidance as of January 1, 2020. The adoption did not have any material impact on the Company's consolidated financial statements.

New Accounting Standards To Be Adopted

Income Taxes: In December 2019, the FASB issued updated accounting guidance to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This updated guidance is effective for fiscal years beginning January 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

Reference Rate Reform: In March 2020, the FASB issued updated guidance relating to the accounting for the discontinuation of the London Inter-bank Offered Rate (LIBOR), referred to as the reference rate reform. This guidance provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the reference rate reform if certain criteria are met. This guidance is applicable to contract modifications that replace a reference LIBOR rate affected by reference rate reform. The amendments may be applied through December 31, 2022. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.


						CNDT Q2 2020 Form 10-Q


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Note 3 – Revenue

Disaggregation of Revenue

During the first quarter of 2020, the Company changed how it presents disaggregated revenue by major service offering. This change has no impact on disaggregated revenue by reportable segments or the timing of revenue recognition. All prior periods presented have been revised to reflect this change.

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 June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Commercial Industries:
Customer experience management	$	157	$	158	$	325	$	329
Business operations solutions	133		157		286		323
Commercial healthcare solutions	103		123		216		245
Human resource services	127		154		265		307
Total Commercial Industries	520		592		1,092		1,204
Government Services:
Government healthcare solutions	154		175		306		352
Government services solutions	177		151		315		299
Total Government Services	331		326		621		651
Transportation:
Roadway charging & management services	71		81		149		160
Transit solutions	61		62		128		116
Curbside management solutions	14		28		36		55
Public safety solutions	17		20		37		41
Commercial vehicles	2		3		4		6
Total Transportation	165		194		354		378
Other:
Divestitures	—		—		—		36
Education	—		—		—		1
Total Other	—		—		—		37
Total Consolidated Revenue	$	1,016	$	1,112	$	2,067	$	2,270

Timing of Revenue Recognition:
Point in time	$	32	$	34	$	62	$	73
Over time	984		1,078		2,005		2,197
Total Revenue	$	1,016	$	1,112	$	2,067	$	2,270

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.


						CNDT Q2 2020 Form 10-Q


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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)	June 30, 2020		December 31, 2019
Contract Assets (Unearned Income)
Current contract assets	$	160	$	155
Long-term contract assets⁽¹⁾	16		10
Current unearned income	(106)		(108)
Long-term unearned income⁽²⁾	(22)		(21)
Net Contract Assets (Unearned Income)	$	48	$	36
Accounts receivable, net	$	693	$	652

__________

(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 $22 million and $64 million were recognized during the three and six months ended June 30, 2020, respectively, related to the Company's unearned income at December 31, 2019. Revenues of $28 million and $81 million were recognized during the three and six months ended June 30, 2019, respectively, related to the Company's unearned income at December 31, 2018.

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 June 30, 2020 was approximately $1.6 billion. The Company expects to recognize approximately 67% of this revenue over the next two years and the remainder thereafter.

Note 4 – Segment Reporting

Our reportable segments correspond to how we organize and manage the business, as defined by our CEO, who is also our Chief Operating Decision Maker (CODM), and are aligned to the industries in which our clients operate. Our segments involve the delivery of business process services and include service arrangements where we manage a customer's business activity or process. During the first quarter of 2020, we realigned our sales organization and certain shared IT and other allocated functions to reflect how we currently manage our business. All prior periods presented have been revised to reflect this change in costs structure.

Our financial performance is based on Segment Profit / (Loss) and Segment Adjusted EBITDA for our three reportable segments (Commercial Industries, Government Services and Transportation), Other and Shared IT / Infrastructure & Corporate Costs. Our CODM does not evaluate operating segments using discrete asset information.

Commercial Industries: Our Commercial Industries segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial Industries segment, we operate on our clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enable revenue growth for our clients and their consumers and employees.

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


						CNDT Q2 2020 Form 10-Q


Table of Contents

Transportation: Our Transportation segment provides systems and support, as well as revenue-generating services, to government clients. On behalf of government agencies and authorities in the transportation industry, we deliver mission-critical mobility and payment solutions that improve automation, interoperability and decision-making to streamline operations, increase revenue and reduce congestion while creating safer communities and seamless travel experiences for consumers.

Other includes our divestitures and our Student Loan business, which the Company exited in the third quarter of 2018.

Shared IT / Infrastructure & Corporate Costs includes both normal ongoing IT infrastructure and enterprise application costs and costs related to modernization of a significant portion of our infrastructure with new systems and processes. It also includes costs related to corporate overhead functions and shared real estate costs. These costs are not allocated to the reportable segments.

Selected financial information for our reportable segments was as follows:

Three Months Ended
June 30,

(in millions)

Commercial Industries

Government Services

Transportation

Other

Shared IT / Infrastructure & Corporate Costs

Total

2020

Divestitures

Other

Revenue

520

331

165