Full Year 2017 Financial and Operational Highlights

  • Revenue of $6,022 million
  • Net income from continuing operations of $177 million, GAAP diluted EPS from continuing operations of $0.81 
  • Adjusted net income of $186 million and adjusted diluted EPS from continuing operations of $0.85
  • Adjusted EBITDA of $672 million, up 6% year-over-year
  • Generated cash flow from operations of $302 million and adjusted free cash flow of $204 million; $559 million of adjusted cash on balance sheet at year-end
  • Overachieved 2017 strategic transformation goals and on track for 2018 savings
  • Introduced 2018 full year guidance in-line with long-term goals

Q4 2017 Financial and Operational Highlights

  • Revenue of $1,493 million
  • Net income from continuing operations of $208 million, GAAP diluted EPS from continuing operations of $0.98
  • Adjusted net income of $67 million and adjusted diluted EPS from continuing operations of $0.31 
  • Adjusted EBITDA of $188 million, up 9% year-over-year
  • Strong cash flow from operations of $237 million and adjusted free cash flow of $205 million
  • Renewal rate of 96% and $1,047 million of renewal TCV

 

FLORHAM PARK, NJ- Conduent (NYSE: CNDT), the world's largest provider of diversified business services, today announced its fourth quarter and full year 2017 financial results.

“Our results after our first year as an independent company indicate that we are right on track against our financial and operational game plan,” said Ashok Vemuri, CEO of Conduent. “We focused around our core business and aggressively addressed our cost structure to deliver meaningful improvements in our margins and cash flow.  This will enable investments to modernize technology, improve our workplace, and strengthen our positioning as a digital interactions company.  I am pleased with the efforts of our entire team and look forward to accelerating our progress during 2018."

Full Year 2017 Results

Full year 2017 revenues were $6,022 million, down 6.0% compared to FY 2016. Pre-tax loss was $16 million compared to a pre-tax loss of $1,227 million in 2016.  The company reported GAAP operating margin of 2.9% in FY 2017 compared with (15.3)% in FY 2016 and GAAP net income of $181 million compared with GAAP net loss of $983 million in 2016.  Diluted EPS from continuing operations was $0.81 versus ($4.85) in 2016, driven primarily by non-recurring, non-cash items related to goodwill impairment and tax law changes in both 2016 and 2017. 

Full year 2017 adjusted operating income was $418 million, with an adjusted operating margin of 6.9% as compared to $354 million, with an adjusted operating margin of 5.5% in 2016. Adjusted EBITDA improved 5.8% to $672 million, with an adjusted EBITDA margin of 11.2%, as compared with $635 million, with an adjusted EBITDA margin of 9.8% in 2016. The company reported adjusted diluted EPS from continuing operations of $0.85 compared to $1.06 in 2016.

Conduent generated $302 million in cash flow from operations during the year 2017 and ended the year with a cash balance of $658 million. Excluding funds that are associated with the termination of the deferred compensation plan and are expected to be dispersed to participants in 2018, Conduent ended the quarter with an adjusted cash balance of $559 million. Total debt was $2,061 million as of December 31, 2017.

Fourth Quarter 2017 Results

Fourth quarter 2017 revenues were $1,493 million, down 1.4% compared to Q4 2016. Pre-tax income was $4 million compared to ($1,141) million in Q4 2016. The company reported Q4 2017 GAAP net income of $208 million compared with GAAP net loss of $951 million in Q4 2016.  Diluted EPS from continuing operations was $0.98 versus ($4.69) in the same period last year, driven primarily by non-recurring, non-cash items related to goodwill impairment and tax law changes in both 2016 and 2017.

Fourth quarter adjusted operating income was $130 million, with an adjusted operating margin of 8.7% as compared to $109 million, with an adjusted operating margin of 6.8% in Q4 2016. Adjusted EBITDA improved 9.3% to $188 million, with an adjusted EBITDA margin of 12.6%, as compared to $172 million, with an adjusted EBITDA margin of 10.8% in Q4 2016. The company reported adjusted diluted EPS from continuing operations of $0.31 compared to $0.29 in Q4 2016.

Conduent generated $237 million in cash flow from operations during the fourth quarter 2017 and ended the quarter with a cash balance of $658 million.  Total debt was $2,061 million as of December 31, 2017.

Excluding funds that are associated with the termination of the deferred compensation plan and are expected to be dispersed to participants in 2018, Conduent ended the quarter with an adjusted cash balance of $559 million.

Headcount of approximately 90,000 as of December 31, 2017 compared with approximately 96,000 as of December 31, 2016.

Total contract value (TCV) signings of $1,730 million for the quarter were up 4% compared with Q4 2016, impacted by greater renewal signings and new business wins primarily with existing Healthcare Payer, State & Local and Pharma clients.

Financial and Strategic Outlook

Conduent provided the following guidance ranges for FY 2018:

(in millions)

 

FY 2017

Impact from Adjustments to      FY 2017

Adjusted FY 2017

FY 2018E vs Adjusted FY 2017E

Revenue(1)

 

$6,022

~($225)

~$5,797

(3%) - flat

Adjusted EBITDA

 

$672

~($20)

$652

Up 8% - 12%

Free Cash Flow2

 

$204

~($1)

$203

25% - 35% of Adjusted EBITDA

 

 

Adjustments impacting FY 20173

Revenue

Adj. EBITDA

Free Cash Flow

Divestitures (completed in Q3 2017)

~($60)

~($5)

~($1)

Estimated impact from adoption of new accounting standard for revenue recognition

~($165)

~($15)

$0

Total

~($225)

~($20)

~($1)

Note: Please refer to the "Non-GAAP Outlook" in the non-GAAP section below for certain non-GAAP information concerning outlook
(1) Year-over-year revenue comparison at constant currency.
(2) FY17 Adjusted Free Cash Flow. Please refer to the "Adjusted Free Cash Flow Reconciliation" in the non GAAP section below.
(3) Divestitures include the five businesses which were sold in Q3 2017. Prior to the transactions, these businesses earned ~$60 million of revenue, ~$5 million in Adjusted EBITDA and ~$1 million of Free Cash Flow in 2017. Please see Report on Form 8-K filed October 4, 2017 and the Q3 2017 Quarterly Earnings presentation, available in the Investor Relations section of www.conduent.com, for additional details.
Estimated impact from the adoption of the new accounting standard for revenue recognition, had it been applicable in FY 2017, it would have had an estimated impact to Conduent FY 2017 revenues of ~$165 million and Adjusted EBITDA of ~$15 million. There is no impact to Free Cash Flow from this accounting standard adoption.

"Our performance in both the fourth quarter and in the full year bode well for our outlook for continued margin expansion in 2018 and beyond.  We also ended the year in a strong cash position and expect to generate additional cash via divestitures in 2018.  Our focus remains on investing in our core business, strengthening our balance sheet and identifying opportunities to grow, both organically and through acquisitions.  We are well positioned to take advantage of market opportunities as we see them," said Brian Webb-Walsh, CFO of Conduent.

Conference Call

Management will present the results during a conference call and webcast on February 21, 2018 at 10 a.m. ET.

The call will be available by live audio webcast with the news release and online presentation slides at https://investor.conduent.com/.

The conference call will also be available by calling 877-883-0383 (international dial-in 412-902-6506) at approximately 9:45 a.m. ET.

A recording of the conference call will be available by calling 877-344-7529, or 412-317-0088 one hour after the conference call concludes on February 21, 2018. The replay ID is 10116693.

About Conduent

Conduent (NYSE: CNDT) is the world’s largest provider of diversified business services with leading capabilities in transaction processing, automation and analytics. The company’s global workforce is dedicated to helping its large and diverse client base deliver quality services to the people they serve. These clients include 76 of the Fortune 100 companies and over 500 government entities.

Conduent’s differentiated offerings touch millions of lives every day, including two-thirds of all insured patients in the U.S. and nearly nine million people who travel through toll systems daily.  Whether it’s digital payments, claims processing, benefit administration, automated tolling, customer care or distributed learning - Conduent manages and modernizes these interactions to create value for both its clients and their constituents. Learn more at www.conduent.com.

 

Non-GAAP Measures

We have reported our financial results in accordance with U.S. generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using non-GAAP measures. We believe these non-GAAP measures allow investors to better understand the trends in our business and to better understand and compare our results. Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related tax effects. Management believes that these non-GAAP financial measures provide an additional means of analyzing the current periods' results against the corresponding prior periods' results. These non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company's reported results prepared in accordance with U.S. GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable U.S. GAAP measures and should be read only in conjunction with our Condensed Consolidated Financial Statements prepared in accordance with U.S. GAAP. Our management regularly uses supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions, and providing such non-GAAP financial measures to investors allows for a further level of transparency as to how management reviews and evaluates our business results and trends. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Refer to the "Non-GAAP Financial Measures" section attached to this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.

 

Forward Looking Statements

This report and any exhibits to this Report may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. Such factors include, but are not limited to: termination rights contained in our government contracts; our ability to renew commercial and government 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; 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 security systems and service interruptions; our ability to estimate the scope of work or the costs of performance in our contracts; our ability to collect our receivables for unbilled services; a decline in revenues from or a loss 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 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; changes in U.S. GAAP or other applicable accounting policies; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and other sections in our 2016 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. 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 as a result of new information, subsequent events or otherwise.
 

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Media Contacts:

Sean Collins, Conduent, +1-310-497-9205, sean.collins2@conduent.com

 

Investor Contacts:

Alan Katz, Conduent, +1-973-526-7173, alan.katz@conduent.com

Monk Inyang, Conduent, +1-973-261-7182, monk.inyang@conduent.com

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