
Table of Contents

CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Cash Flows from Operating Activities:
Net (loss) income $ (17 ) $ 1
$ (27 ) $ (32 )
Adjustments required to reconcile net loss to cash flows from operating activities:
Depreciation and amortization 123
135
378
417
Deferred tax expense (benefit) 24
(35 ) (7 ) (11 )
Gain on investments (3 ) (3 ) (10 ) (6 )
Amortization of debt financing costs 3
—
7
—
Net (gain) loss on sale of asset and businesses (16 ) —
(48 ) 1
Stock-based compensation 8
8
26
18
Changes in operating assets and liabilities:
Increase in accounts receivable, net (6 ) (27 ) (76 ) (137 )
Decrease (increase) in other current and long-term assets 12
2
(34 ) (64 )
Decrease in accounts payable and accrued compensation (1 ) (15 ) (86 ) (154 )
Increase (decrease) in restructuring liabilities 1
(17 ) 25
8
Decrease in other current and long-term liabilities (26 ) (74 ) (80 ) (164 )
Net change in income tax assets and liabilities 5
167
3
91
Other operating, net (3 ) (2 ) (6 ) (5 )
Net cash provided by (used in) operating activities 104
140
65
(38 )
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment (20 ) (31 ) (57 ) (86 )
Proceeds from sales of land, buildings and equipment —
—
33
—
Cost of additions to internal use software (11 ) (11 ) (26 ) (31 )
Proceeds (payments) from sale (purchase) of businesses 56
(1 ) 56
(54 )
Proceeds from investments 117
—
117
—
Net payments on related party notes receivable —
43
—
43
Other investing (1 ) (1 ) (1 ) (1 )
Net cash provided by (used in) investing activities 141
(1 ) 122
(129 )
Cash Flows from Financing Activities:
Proceeds on long term debt —
2
306
6
Debt issuance fee payments —
��
(9 ) —
Payments on debt (79 ) (6 ) (232 ) (18 )
Net (payments to) transfer from former parent —
(145 ) (161 ) 190
Employee stock plans (tax) / proceeds, net (3 ) —
(5 ) —
Dividends paid on preferred stock (2 ) —
(7 ) —
Other financing (2 ) —
(3 ) (1 )
Net cash (used in) provided by financing activities (86 ) (149 ) (111 ) 177
Effect of exchange rate changes on cash and cash equivalents —
(2 ) 2
(2 )
Increase (decrease) in cash and cash equivalents 159
(12 ) 78
8
Cash and cash equivalents at beginning of period 309
160
390
140
Cash and Cash Equivalents at End of Period $ 468
$ 148
$ 468
$ 148


	Three Months Ended March 31,
(in millions)	2020		2019
Cash Flows from Operating Activities:
Net income (loss)	$	(49)	$	(308)
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization	117		115
Contract inducement amortization	1		1
Deferred income taxes	(9)		(45)
Goodwill impairment	—		284
(Gain) loss from investments	(1)		(1)
Amortization of debt financing costs	2		2
(Gain) loss on divestitures and transaction costs	4		14
Stock-based compensation	4		7
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(42)		(60)
(Increase) decrease in other current and long-term assets	(42)		(112)
Increase (decrease) in accounts payable and accrued compensation	(55)		58
Increase (decrease) in restructuring liabilities	(7)		4
Increase (decrease) in other current and long-term liabilities	(131)		(12)
Net change in income tax assets and liabilities	16		5
Other operating, net	—		(1)
Net cash provided by (used in) operating activities	(192)		(49)
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment	(11)		(53)
Proceeds from sale of land, buildings and equipment	—		1
Cost of additions to internal use software	(13)		(17)
Payments for acquisitions, net of cash acquired	—		(90)
Proceeds (payments) from divestitures, including cash sold	1		(9)
Net cash provided by (used in) investing activities	(23)		(168)
Cash Flows from Financing Activities:
Proceeds from revolving credit facility	150		—
Payments on debt	(15)		(14)
Taxes paid for settlement of stock based compensation	(3)		(6)
Dividends paid on preferred stock	(2)		(2)
Net cash provided by (used in) financing activities	130		(22)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(7)		2
Increase (decrease) in cash, cash equivalents and restricted cash	(92)		(237)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	505		765
Cash, Cash Equivalents and Restricted Cash at End of period⁽¹⁾	$	413	$	528

___________

(1)Includes $18 million and $8 million of restricted cash as of March 31, 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 Q1 2020 Form 10-Q

~~Conduent Form 10-Q~~


Table of Contents

CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


(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, $20/per share	—		—		(2)		—		(2)
Stock option and incentive plans, net	—		1		—		—		1
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(49)		—		(49)
Other comprehensive income (loss), net	—		—		—		(30)		(30)
Total Comprehensive Income (Loss), Net	—		—		(49)		(30)		(79)
Balance at March 31, 2020	$	2	$	3,891	$	(2,236)	$	(437)	$	1,220


(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, $20/per share	—		—		(2)		—		(2)
Cumulative impact of adopting the new lease standard	—		—		(8)		—		(8)
Stock option and incentive plans, net	—		1		—		—		1
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(308)		—		(308)
Other comprehensive income (loss), net	—		—		—		22		22
Total Comprehensive Income (Loss), Net	—		—		(308)		22		(286)
Balance at March 31, 2019	$	2	$	3,879	$	(551)	$	(403)	$	2,927

___________

(1)AOCL - Accumulated other comprehensive loss.

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


						CNDT Q1 2020 Form 10-Q


Table of Contents

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.

~~The condensed balance sheet as~~

Description of ~~December 31, 2016 has been derived from audited financial statements~~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 financial statements~~Condensed Consolidated Financial Statements have been ~~prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in our annual financial statements~~ prepared in accordance with accounting principles generally accepted in the United States of America ~~have been condensed or omitted pursuant~~(U.S. GAAP) on a basis consistent with reporting interim financial information in accordance with instructions to ~~those rules~~Form 10-Q and ~~regulations, although~~Article 10 of Regulation S-X of the ~~Company believes that the disclosures made are adequate to make the information not misleading. You should read these~~SEC. The year-end Condensed Consolidated ~~Financial Statements, and notes thereto, in conjunction with~~Balance Sheet was derived from the audited Consolidated Financial Statements included in ~~our 2016~~the Company's Annual ~~Report.~~

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 ~~our~~the opinion of management, all adjustments ~~which are~~ necessary for a fair statement of the financial position, ~~operating~~ results of operations and cash flows ~~for the interim periods presented~~ have been made. These adjustments consist of normal recurring items. ~~Interim~~The interim results of operations are not necessarily indicative of the results of the full year. ~~For convenience~~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 ~~ease of reference, we refer to~~assumptions that affect the amounts reported and disclosed in the financial ~~statement caption “Income (Loss) before Income Taxes ” as “pre-tax~~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 ~~(loss)”.~~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.

~~Separation from Xerox Corporation~~

~~On December~~As of March 31, ~~2016, Conduent Incorporated spun-off from Xerox Corporation (Xerox), pursuant~~2020, the impact of the outbreak of COVID-19 pandemic continues to ~~the Separation and Distribution Agreement. The separation was completed by way of a pro rata distribution of Conduent Incorporated shares held by Xerox to Xerox’s shareholders.~~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 ~~spin-off, we now operate as an independent, publicly traded company on the New York Stock Exchange, under the ticker "CNDT".~~future.

Prior to December 31, 2016, the Financial Statements of the Company were derived from the Consolidated Financial Statements and accounting records of Xerox as if the Company operated on a standalone basis and were prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and pursuant to the rules and regulations of the SEC. Historically, the Company consisted of the Business Process Outsourcing Operating segment within Xerox’s reportable Services segment and did not operate as a separate, standalone company. Accordingly, Xerox had reported the financial position and the related results of operations, cash flows and changes in equity of the Company in Xerox’s Consolidated Financial Statements.


						CNDT Q1 2020 Form 10-Q


Table of Contents

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 ~~To Be~~ Adopted

~~Revenue Recognition:~~ Credit Losses:In ~~May 2014,~~June 2016, the Financial Accounting Standards Board (FASB) updated the accounting guidance related to ~~revenue recognition~~measurement of credit losses on financial instruments, which requires financial assets measured at amortized cost to ~~clarify~~be presented at the principles for recognizing revenue and replaces all existing revenue recognition guidance in U.S. GAAP with one accounting model. The core principle of the guidance is that an entity should recognize revenue when promised goods or services are transferred to customers in annet amount ~~that reflects the consideration that is~~ expected to be ~~received~~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 ~~those goods or services.~~financial instruments held at the reporting date using historical experience, current conditions and reasonable supportable forecasts. The ~~updated~~ guidance ~~also~~expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires ~~additional qualitative and quantitative~~new disclosures ~~relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers largely on a disaggregated basis. We continue to evaluate the adoption impact~~ of the ~~updated accounting guidance on our~~amortized cost balance for each class of financial ~~statements, disclosures and internal controls. However, we do expect that~~asset by credit quality indicator, disaggregated by the ~~new guidance could impact (1) the timing~~year of revenue recognition associated with certain contract modifications; (2) revenue associated with postage recognized on a net basis versus the current gross treatment, (3) certain volume discounts, and (4) timing of the amortization of contract acquisition costs. We will adopt this updated accounting guidance beginning January 1, 2018 using the modified retrospective method under which we will recognize a cumulative-effect adjustment at the date of adoption supplemented with disclosures.

~~Conduent Form 10-Q~~

~~Leases:~~ In February 2016, the FASB updated the accounting guidance related to leases requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except short term leases (lease term of 12 months or less). The accounting for lessors is largely unchanged.origination. This updated guidance is effective for usfiscal 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 an 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, ~~2019~~, ~~with early~~2021. Early adoption is permitted. This guidance must be adopted using a modified retrospective approach through a cumulative-effect adjustment for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We areThe Company is currently evaluating the impact of the ~~updated accounting~~new guidance on ~~our~~its consolidated financial statements.

~~Cash Flows:~~

Reference Rate Reform:In ~~November 2016~~March 2020, the FASB issued an 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 ~~regarding~~provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the ~~presentation of restricted cash in the statement of cash flows. Specifically, this update requires~~reference rate reform if certain criteria are met. This guidance is applicable to contract modifications that ~~restricted cash and restricted cash equivalents should~~replace a reference LIBOR rate affected by reference rate reform. The amendments may be ~~included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. At September 30, 2017 and~~applied through December 31, ~~2016, we had $25 million and $22 million of restricted cash, respectively, reported in other current assets. This update~~2022. The Company is ~~effective for us beginning January 1, 2018.~~

~~Business Combinations:~~ In January 2017, the FASB issued clarifying accounting guidance related to the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update is effective for us beginning January 1, 2018, with early adoption permitted. The amendment in this update will be applied prospectively. We are currently evaluating the impact of the ~~adoption~~new guidance on its consolidated financial statements.


						CNDT Q1 2020 Form 10-Q


Table of Contents

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 March 31,
(in millions)	2020		2019
Commercial Industries:
Customer experience management	$	168	$	171
Business operations solutions	153		166
Commercial healthcare solutions	113		122
Human resource services	138		153
Total Commercial Industries	572		612
Government Services:
Government healthcare solutions	152		177
Government services solutions	138		148
Total Government Services	290		325
Transportation:
Roadway charging & management services	78		79
Transit solutions	67		54
Curbside management solutions	22		27
Public safety solutions	20		21
Commercial vehicles	2		3
Total Transportation	189		184
Other:
Divestitures	—		36
Education	—		1
Total Other	—		37
Total Consolidated Revenue	$	1,051	$	1,158

Timing of Revenue Recognition:
Point in time	$	30	$	39
Over time	1,021		1,119
Total Revenue	$	1,051	$	1,158

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 Q1 2020 Form 10-Q


Table of Contents

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


(in millions)	March 31, 2020		December 31, 2019
Contract Assets (Unearned Income)
Current contract assets	$	169	$	155
Long-term contract assets⁽¹⁾	8		10
Current unearned income	(109)		(108)
Long-term unearned income⁽²⁾	(19)		(21)
Net Contract Assets (Unearned Income)	$	49	$	36
Accounts receivable, net	$	690	$	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 $42 million and $53 million were recognized during the three months ended March 31, 2020 and 2019, respectively, related to the Company's unearned income at December 31, 2019 and 2018, respectively.

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 March 31, 2020 was approximately $1.8 billion. The Company expects to recognize approximately 66% of this ~~clarifying accounting guidance on our consolidated financial statements.~~revenue over the next two years and the remainder thereafter.

~~Accounting Standards Implemented~~

~~Goodwill:~~ In January 2017, the FASB issued updated accounting guidance for simplifying the goodwill impairment test. Under the new guidance an entity does not have to calculate the implied fair value of goodwill at the impairment testing date of its assets and liabilities as if those assets and liabilities had been acquired in a business combination. Instead the goodwill impairment test will compare the fair value of a reporting unit with its carrying amount and recognize as an impairment charge any amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. We have elected to early adopt this new guidance for our goodwill impairment tests performed after January 1, 2017. Adoption did not have any effect on our financial condition, results of operations or cash flows.

Note 34 – 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, and are aligned to the industries in which our clients operate.

~~Beginning in 2017, in an effort~~ 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 ~~better~~ reflect how we currently manage our ~~business, we changed our reporting segments~~business. All prior periods presented have been revised to ~~align the Healthcare business based upon customer focus between Commercial Industries and Public Sector.~~reflect this change in costs structure.

Our financial performance is based on ~~"Segment~~Segment Profit / (Loss)~~" which is defined as income before amortization of intangibles, restructuring~~ and ~~related costs, interest, gain on sale of an asset, separation costs, other (income) expense, net~~Segment Adjusted EBITDA for our 3 reportable segments (Commercial Industries, Government Services and ~~income taxes for the following three segments:~~Transportation), Other operations and Shared IT / Infrastructure & Corporate Costs.

~~Commercial Industries~~

~~Public Sector~~

~~Other~~

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 ~~end-to-end business-to-business~~mission-critical solutions and ~~business-to-customer~~ services ~~that~~to reduce costs, improve efficiencies and enable revenue growth for our clients ~~to optimize~~and their ~~key processes.~~ consumers and employees.

Government Services: Our ~~multi-industry competencies include customer care, human resource management and finance and accounting services.~~

~~Public Sector:~~ ~~Our Public Sector~~Government Services segment provides government-centric business process services to U.S. federal, state and local and foreign governments for ~~transportation,~~ 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.

~~Other:~~

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.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Other includes our ~~Government Health Enterprise Medicaid Platform business, where we are limiting our focus to our current Health Enterprise clients~~divestitures and our Student Loan business, which isthe Company exited in ~~run-off mode. Other~~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 and consolidation of our data centers as part of our transformation initiatives. It also includes ~~non-allocated~~costs related to corporate ~~expenses as well as inter-segment eliminations.~~overhead functions and shared real estate costs. These costs are not allocated to the reportable segments.

~~Conduent Form 10-Q~~

Selected financial information for our reportable segments iswas as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions)
Segment
Revenue
Segment Profit (Loss)
Segment
Revenue
Segment Profit (Loss)
2017
Commercial Industries $ 864
$ 53
$ 2,663
$ 114
Public Sector 540
59
1,629
179
Other 76
1
237
(7 )
Total $ 1,480
$ 113
$ 4,529
$ 286
2016
Commercial Industries $ 923
$ 42
$ 2,869
$ 103
Public Sector 584
78
1,734
217
Other 89
(23 ) 291
(75 )
Total $ 1,596
$ 97
$ 4,894
$ 245


	Three Months Ended March 31,
(in millions)	Commercial Industries		Government Services		Transportation		Other						Shared IT / Infrastructure & Corporate Costs		Total
2020							Divestitures		Other
Revenue	$	572	$	290	$	189	$	—	$	—	$	—	$	1,051
Segment profit (loss)	$	90	$	93	$	23	$	—	$	4	$	(165)	$	45
Segment depreciation and amortization	$	25	$	6	$	9	$	—	$	—	$	18	$	58
Adjusted EBITDA	$	115	$	99	$	32	$	—	$	(3)	$	(147)	$	96

2019
Revenue	$	612	$	325	$	184	$	36	$	1	$	—	$	1,158
Segment profit (loss)	$	117	$	80	$	19	$	1	$	—	$	(148)	$	69
Segment depreciation and amortization	$	22	$	9	$	9	$	—	$	—	$	14	$	54
Adjusted EBITDA	$	139	$	89	$	28	$	1	$	—	$	(134)	$	123

(in millions) Three Months Ended
September 30, Nine Months Ended
September 30,
Reconciliation to Pre-tax Income (Loss) 2017 2016 2017 2016
Segment Profit $ 113
$ 97
$ 286
$ 245
Reconciling items:
Amortization of intangible assets (60 ) (63 ) (182 ) (200 )
Restructuring and related costs (22 ) (8 ) (76 ) (57 )
Interest Expense (35 ) (1 ) (105 ) (3 )
(Gains) loss on sale of asset and businesses 16
—
41
(1 )
Related party interest —
(10 ) —
(30 )
Separation costs⁽¹⁾
(2 ) (15 ) (8 ) (34 )
Other income (expense), net 3
2
24
(6 )
Pre-tax Income (Loss) $ 13
$ 2
$ (20 ) $ (86 )

~~__________________________~~


(in millions)	Three Months Ended March 31,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)	2020		2019
Income (Loss) Before Income Taxes	$	(51)	$	(338)
Reconciling items:
Amortization of acquired intangible assets	60		62
Restructuring and related costs	7		16
Interest expense	17		20
Goodwill impairment	—		284
(Gain) loss on divestitures and transaction costs	4		14
Litigation costs (recoveries), net	6		12
Other (income) expenses, net	2		(1)
Segment Pre-tax Income (Loss)	$	45	$	69
Segment depreciation and amortization (including contract inducements)	$	58	$	54
CA MMIS charge (credit)	(7)		—
Adjusted EBITDA	$	96	$	123

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


~~(1)~~			Separation costs are expenses incurred in connection with the separation into an independent, publicly-traded company. These costs are primarily for third-party investment banking, accounting, legal, consulting and other similar types of services related to the separation transaction as well as costs associated with the operational separation of the two companies, such as those related to human resources, brand management, real estate and information management to the extent not capitalized.			CNDT Q1 2020 Form 10-Q

~~Goodwill~~12

Due to the first quarter 2017 change in segments, we were required to test Goodwill for impairment. As a result of the impairment test, the fair value of both the Commercial Industries and Public Sector reporting units exceeded their carrying values. To the extent the assumptions underlying the goodwill impairment test change, there could be additional impairments in the future.

~~No interim goodwill impairment trigger was identified as there was no significant change in the assumptions underlying the impairment test, including profitability in each of the reporting units.~~

~~Note 4 – Accounts Receivable, Net~~

~~Accounts receivable, net was as follows:~~

(in millions) September 30, 2017 December 31, 2016
Amounts billed or billable $ 1,115
$ 1,014
Unbilled amounts 267
279
Allowance for doubtful accounts (2 ) (7 )
Accounts Receivable, Net $ 1,380
$ 1,286

~~Conduent Form 10-Q~~


Table of Contents

Unbilled amounts include amounts associated with percentage-of-completion accounting and other earned revenues not currently billable due to contractual provisions. Amounts to be invoiced in the subsequent months for current services provided are included in amounts billable, and at September 30, 2017 and December 31, 2016 were approximately $418 million and $429 million, respectively.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. The allowance for uncollectible accounts receivables is determined principally on the basis of past collection experience, as well as consideration of current economic conditions and changes in our customer collection trends.

In the first quarter 2017 we settled a customer dispute over an aged accounts receivable balance for $19 million. We applied $5 million of the proceeds to net accounts receivable and a $14 million gain was recorded as follows:

~~$7 million to discontinued operations as a portion of the receivable was related to a business that was part of our Information Technology Outsourcing (ITO) discontinued operation; and~~

$7 million to continuing operations as the remainder of the receivable was related to our continuing Healthcare Provider business; the majority of the $7 million is reflected in legal settlements in Other (income) expense, net.

Note 5 – Restructuring Programs and Related Costs

~~During~~

The Company engages in a series of restructuring programs related to downsizing its employee base, exiting certain activities, outsourcing certain internal functions and engaging in other actions designed to reduce its cost structure and improve productivity. The implementation of the ~~nine months ended September 30, 2017, we recorded net restructuring~~Company's strategic transformation program and ~~asset impairment charges of $68 million, which~~various productivity initiatives have reduced the Company's real estate footprint across all geographies and segments resulting in increased lease cancellation and other related costs. Also included ~~approximately $38 million of severance~~in Restructuring and related costs in the table below are incremental, non-recurring costs related to ~~headcount reductions~~the consolidation of ~~approximately 3,200 employees worldwide, $33~~the Company's data centers, which totaled $2 million ~~of lease cancellation costs~~ and $4$9 million ~~of asset impairments. These costs were offset by $7 million of net reversals, primarily resulting from~~for the three months ended March 31, 2020 and 2019, respectively. Management continues to evaluate the Company's business, and in the future, there may be additional provisions for new plan initiatives and/or changes in ~~estimated reserves from prior period initiatives. The restructuring reserve balance~~previously recorded estimates as ~~of September 30, 2017, for all programs was $40 million, of which approximately $28 million is expected to be spent over the next twelve months.~~payments are made, or actions are completed.

~~We also recorded $8 million of costs during the nine months ended September 30, 2017, primarily related to professional support services~~

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 ~~implementation~~affected employees or exit from the leased facility. In those geographies where we have either a formal severance plan or a history of consistently providing severance benefits representing a substantive plan, we recognize employee severance costs when they are both probable and reasonably estimable.

A summary of the ~~strategic transformation program.~~

~~Information related to~~Company's restructuring program activity during the ~~nine~~three months ended ~~September 30, 2017 is outlined below:~~March 31, 2020 and 2019 was as follows:


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2019	$	15	$	6	$	—	$	21
Provision	—		3		1		4
Changes in estimates	—		1		—		1
Total Net Current Period Charges⁽¹⁾	—		4		1		5
Charges against reserve and currency	(8)		(5)		(1)		(14)
Accrued Balance at March 31, 2020	$	7	$	5	$	—	$	12


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2018	$	13	$	36	$	—	$	49
Provision	3		11		3		17
Changes in estimates	—		(1)		—		(1)
Total Net Current Period Charges⁽¹⁾	3		10		3		16
Charges against reserve and currency	(5)		(6)		(3)		(14)
Reclassification to operating lease ROU assets⁽²⁾	—		(22)		—		(22)
Accrued Balance at March 31, 2019	$	11	$	18	$	—	$	29

__________

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

(2)Relates to the adoption of the new lease guidance.

In addition, the Company recorded professional support costs associated with the strategic transformation program in Restructuring and related costs of $2 million and $0 million for the three months ended March 31, 2020 and 2019, respectively.


						CNDT Q1 2020 Form 10-Q


Table of Contents

(in millions)
Severance and
Related Costs

Lease Cancellation
and Other Costs
Asset Impairments Total
Accrued Balance at December 31, 2016 $ 15
$ 5
$ 1
$ 21
Restructuring provision 38
33
4
75
Reversals of prior accruals (5 ) (2 ) —
(7 )
Net Current Period Charges 33
31
4
68
Payments and asset impairments (34 ) (9 ) (6 ) (49 )
Accrued Balance at September 30, 2017 $ 14
$ 27
$ (1 ) $ 40

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

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 2017 2016
Commercial Industries $ 13
$ —
$ 44
$ 36
Public Sector 7
—
21
5
Other 2
—
3
4
Total Net Restructuring and Asset Impairment Charges $ 22
$ —
$ 68
$ 45


	Three Months Ended March 31,
(in millions)	2020		2019
Commercial Industries	$	2	$	2
Shared IT / Infrastructure & Corporate Costs	3		14
Total Net Restructuring Charges	$	5	$	16

~~Conduent Form 10-Q~~

Note 6 -– Debt

~~Long term~~Long-term debt was as follows:

(in millions) September 30, 2017 December 31, 2016
Term loan A due 2021⁽¹⁾
$ 727
$ 694
Term loan B due 2023 844
750
Senior notes due 2024 510
510
Capital lease obligations 39
43
Principal Debt Balance $ 2,120
$ 1,997
Debt issuance costs and unamortized discounts (58 ) (56 )
Less: current maturities (71 ) (28 )
Total Long-term Debt $ 1,991
$ 1,913

~~_______~~


~~(1)~~	~~The aggregate principal debt for Term Loan A includes borrowings in both U.S Dollars and Euros.~~

~~Term Loan B Repricing~~


(in millions)	March 31, 2020		December 31, 2019
Term loan A due 2022	$	652	$	664
Term loan B due 2023	822		824
Revolving credit facility due 2022	150		—
Senior notes due 2024	34		34
Finance lease obligations	20		17
Principal debt balance	1,678		1,539
Debt issuance costs and unamortized discounts	(22)		(25)
Less: current maturities	(60)		(50)
Total Long-term Debt	$	1,596	$	1,464

~~On April 7, 2017, we entered into Amendment No. 1 (Repricing Amendment)~~

As of March 31, 2020, the Company has borrowed $150 million of its $750 million Senior Revolving Credit Facility (Revolver). In addition, the Company has utilized $82 million of the Revolver to issue letters of credit. The net Revolver available to be drawn upon as of March 31, 2020 was $518 million.

At March 31, 2020 and December 31, 2019, the Company was in compliance with all debt covenants related to the Credit Agreement, dated December 7, 2016. As a result of the Repricing Amendment, we were required to pay the Term B Lenders a 1% principal prepayment fee on approximately $848 million principal balanceborrowings in the ~~amount of approximately $8 million, and the Term B Loan interest rate was reduced by 1.5%, from 5.5% over LIBOR to 4.0% over LIBOR. Transaction fees of $1 million were expensed.~~table above.

Note 7 – Financial Instruments

~~We are~~The Company is a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of ~~our~~its business. As a part of ~~our~~the Company's foreign exchange risk management strategy, ~~we use~~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, 2017, we~~March 31, 2020 and December 31, 2019, the Company had outstanding forward exchange contracts with gross notional values of $176 million and $207 million, respectively. At March 31, 2020, approximately ~~$160 million, which is typical of the amounts that are normally outstanding at any point during the year. Approximately 68%~~72% of these contracts mature within three months, ~~12%~~11% in three to six months, ~~15%~~13% in six to 12twelve months and 5%4% in greater than 12twelve months. ~~The majority~~Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on ~~our~~the Company's balance sheet, income statement or cash flows for the periods presented.

Refer to Note 8 – Fair Value of Financial Assets and Liabilities for additional information regarding the fair value of the Company's foreign exchange forward contracts.

~~Conduent~~


						CNDT Q1 2020 Form 10-Q


Table of Contents

Note 8 – 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.

Unless noted herein, the Company's valuation methodologies for assets and liabilities measured at fair value are described in Note 13 – Fair Value of Financial Assets and Liabilities to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

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 isin all cases was Level ~~1 for cash and cash equivalents, restricted cash and accounts receivable,net and Level 2 – Significant Other Observable Inputs for all other instruments.~~2.

(in millions) September 30, 2017 December 31, 2016
Assets:
Cash and cash equivalents $ 468
$ 390
Restricted cash 25
22
Accounts receivable, net 1,380
1,286
Foreign exchange contracts - forwards 2
1
Deferred compensation investments in cash surrender life insurance⁽¹⁾
—
99
Deferred compensation investments in mutual funds⁽¹⁾
—
10
Total $ 1,875
$ 1,808
Liabilities:
Foreign exchange contracts - forwards $ 1
$ 3
Deferred compensation plan liabilities 116
113
Total $ 117
$ 116


(in millions)	March 31, 2020		December 31, 2019
Assets:
Foreign exchange contract - forward	$	1	$	2
Total Assets	$	1	$	2
Liabilities:
Foreign exchange contracts - forwards	$	3	$	—
Total Liabilities	$	3	$	—

~~_______~~

~~(1)~~

In September 2017, the Company terminated the legacy deferred compensation plans (“Plans”) and the Company Owned Life Insurance (COLI), which held the Plans’ investments. As a result, the Company sold the Plans’ investments and has approximately $141 million of cash, of which $25 million is overfunded. The only impact to the income statement is a $19 million tax expense that resulted from the fair market value of the sold investments exceeding the Plans’ tax basis. The Company will make payments to Plan participants of approximately $15 million and $101 million in the fourth quarters of 2017 and 2018, respectively.

We utilize the income approach to measure the fair value for our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices.

Summary of Other Financial Assets and Liabilities ~~Accounted at Fair Value on a Nonrecurring Basis~~

The estimated fair values of our other financial assets and liabilities ~~not measured at fair value on a recurring basis~~ were as follows:


	September 30, 2017		December 31, 2016			March 31, 2020						December 31, 2019
(in millions)	Carrying Amount	Fair Value	Carrying Amount	Fair Value	(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Short-term debt	71	71	28	28
Liabilities:					Liabilities:
Long-term debt	1,991	2,085	1,913	1,933	Long-term debt	$	1,596	$	1,373	$	1,464	$	1,449
Contingent consideration payable					Contingent consideration payable	$	4	$	4	$	4	$	4

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

The fair value of ~~Short and~~ Long-term debt was estimated based on the current rates offered to usthe Company for debt of similar maturities (Level 2).

The fair value of the contingent consideration payable related to the HSP acquisition was measured using a Monte Carlo simulation model and calibrated to management’s financial projections of the acquired business. The value of the contingent consideration payable is then estimated to be the arithmetic average of all simulation paths, discounted to the valuation date (Level 3). The changes in the fair value are recorded in Other income (expense), net on the Condensed Consolidated Statements of Income (Loss).


						CNDT Q1 2020 Form 10-Q


Table of Contents

Note 9 – Employee Benefit Plans

The Company has post-retirement savings and investment plans in several countries, including the U.S., U.K. and Canada. In many instances, employees from those 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 allowed to contribute a portion of their salaries and bonuses to the plans. Historically, the Company matched a portion of employee contributions. However, beginning in 2019, the Company has suspended its match to the 401(k) plan for all U.S. salaried employees.

The Company recognized an expense related to ~~our~~its defined contribution plans of $8$1 million and ~~$10~~$3 million for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, respectively, and $27 million and $28 million, for the nine months ended September 30, 2017 and 2016,~~2019, respectively.

Note 10 ~~- Other Comprehensive Income (Loss)~~

Other comprehensive income for the three and nine months ended September 30 2017, increased $16 million ($17 million net of tax) and $57 million ($58 million net of tax), respectively, from the prior year periods. The increase primarily reflects gains from translation adjustments.

~~Conduent Form 10-Q~~

– Accumulated Other Comprehensive Loss (AOCL)

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


(in millions)	Currency Translation Adjustments		Gains (Losses) on Cash Flow Hedges		Defined Benefit Pension Items		Total
Balance at December 31, 2019	$	(408)	$	3	$	(2)	$	(407)
Other comprehensive income (loss) before reclassifications	(28)		(3)		1		(30)
Amounts reclassified from accumulated other comprehensive loss	—		—		—		—
Net current period other comprehensive income (loss)	(28)		(3)		1		(30)
Balance at March 31, 2020	$	(436)	$	—	$	(1)	$	(437)


(in millions)	Currency Translation Adjustments		Gains (Losses) on Cash Flow Hedges		Defined Benefit Pension Items		Total
Balance at December 31, 2018	$	(426)	$	2	$	(1)	$	(425)
Other comprehensive income (loss) before reclassifications	7		1		—		8
Amounts reclassified from accumulated other comprehensive loss	15		—		(1)		14
Net current period other comprehensive income (loss)	22		1		(1)		22
Balance at March 31, 2019	$	(404)	$	3	$	(2)	$	(403)

__________

(1)All amounts are net of ~~the following:~~tax. Tax effects were immaterial.

(in millions) September 30, 2017 December 31, 2016
Cumulative translation adjustments $ (438 ) $ (472 )
Other unrealized gains (losses), net 1
(1 )
Benefit plans net actuarial losses and prior service credits (53 ) (53 )
Total Accumulated Other Comprehensive Loss $ (490 ) $ (526 )

Note 11 – Contingencies and Litigation

As more fully discussed below, ~~we are~~the Company is involved in a variety of claims, lawsuits, investigations and proceedings ~~concerning: securities law;~~concerning a variety of matters, including: governmental entity contracting, servicing and procurement law; intellectual property ~~law; environmental~~ law; employment law; commercial and contracts law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations. ~~We determine~~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. ~~We assess our~~The Company assesses its potential liability by analyzing ~~our~~its litigation, regulatory and ~~regulatory~~other matters using available information. ~~We develop our views~~The Company develops its view on estimated losses in consultation with outside counsel handling ~~our~~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 ~~our~~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 ~~they~~in excess of any accrual for such matter or matters, this could have a material adverse effect on ~~our~~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 ~~and,~~ as of ~~September 30, 2017,~~March 31, 2020. Litigation is inherently unpredictable, and it ~~was~~is not ~~reasonably~~ possible ~~that a material loss had been incurred~~to predict the ultimate outcome of these matters and such outcome in ~~connection with~~any such matters could be in excess of any amounts accrued and could be material to the ~~amounts recognized~~Company's results of operations, cash flows or financial position in ~~its financial statements.~~any reporting period.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships with suppliers, customers and ~~nonconsolidated~~non-consolidated affiliates when ~~we undertake~~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 ~~final~~ 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 condensed consolidated financial position or liquidity. As of ~~September 30, 2017, we have~~March 31, 2020, the Company had accrued ~~our~~its estimate of liability incurred under ~~our~~its indemnification arrangements and guarantees.

Litigation Against the Company

State of Texas v. Xerox Corporation, Conduent Business Services, LLC (f/k/a Xerox Business Services, LLC), Conduent State Healthcare, LLC (f/k/a Xerox State Healthcare, LLC, ~~and~~f/k/a ACS State Healthcare, ~~LLC:~~LLC) and Conduent Incorporated:On May 9, 2014, the State of Texas, via the Texas Office of Attorney General (the “State”), filed a lawsuit in the 53rd Judicial District Court of Travis County, Texas. The lawsuit ~~alleges~~alleged that ~~Xerox Corporation,~~Conduent State Healthcare LLC (f/k/a Xerox State Healthcare, LLC and ACS State ~~Healthcare~~Healthcare) (“CSH”), Conduent Business Services LLC (“CBS”) and Conduent Incorporated (“CI”) (collectively, CSH, CBS and CI are referred to herein as the ~~"Xerox~~"Conduent Defendants") and Xerox Corporation (together with the Conduent Defendants, the “Defendants”) violated the Texas Medicaid Fraud Prevention Act in the administration of its contract with the Texas Department of Health and Human Services (“HHSC”). In February 2019 a settlement agreement and release was reached among the Defendants, the State and HHSC which was amended in May 2019 ("Texas Agreement"). Pursuant to the terms of the Texas Agreement, the Conduent Defendants were required to pay the State of Texas $236 million, of which$118 million was paid in 2019 and $118 million paid in January 2020. The ~~State~~case has been dismissed with prejudice with a full release and discharge of the Defendants.

Skyview Capital LLC and Continuum Global Solutions, LLC v. Conduent Business Services, LLC: On February 3, 2020, plaintiffs 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 (the “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 ~~Xerox Defendants made false representations~~Notes, and plaintiffs seek a judgement that they have no obligation to pay the Notes. CBS denies all of ~~material facts regarding the processes, procedures, implementation~~these allegations, believes that it has strong defenses to all of plaintiffs’ claims and ~~results regarding the prior authorization of orthodontic~~will vigorously defend itself against these claims. The ~~State seeks recovery~~Company is not able to determine or predict the ultimate outcome of ~~actual damages, two times the amount~~this proceeding or reasonably provide an estimate or range of any overpayments made as a result of unlawful acts, civil penalties, pre- and post-judgment interest and all costs and attorneys’ fees. The State references the amount in controversy as exceeding hundreds of millions of dollars. The Xerox Defendants filed their Answer in June, 2014 denying all allegations. The Xerox Defendants will continue to vigorously defend themselves in this matter. We do not believe it is probable that we will incur a material loss in excessestimate of the ~~amount accrued for this matter. In the course of litigation, we periodically engage in discussions with plaintiff’s counsel for~~ possible ~~resolution of the matter. Should developments cause a change in our determination as to an unfavorable~~ outcome or result in a final adverse judgment or settlement for a significant amount, there could be a material adverse effect on our results of operations, cash flows and financial position in the period in which such change in determination, judgment or settlement occurs.loss, if any.

~~Conduent~~


						CNDT Q1 2020 Form 10-Q


Table of Contents

Dennis Nasrawi v. Buck Consultants et al.:On October 8, 2009, plaintiffs filed a lawsuit in the Superior Court of California, Stanislaus County, and on November 24, 2009, the case was removed to the U.S. Court for the Eastern District of California, Fresno Division. Plaintiffs allege actuarial negligence against Buck Consultants, LLC (“Buck”), which was a wholly-owned subsidiary of Conduent, for the use of faulty actuarial assumptions in connection with the 2007 actuarial valuation for the Stanislaus County Employees Retirement Association (“StanCERA”). Plaintiffs allege that the employer contribution rate adopted by StanCERA based on Buck’s valuation was insufficient to fund the benefits promised by the County. On July 13, 2012, the Court entered its ruling that the plaintiffs lacked standing to sue in a representative capacity on behalf of all plan participants. The Court also ruled that plaintiffs had adequately pleaded their claim that Buck allegedly aided and abetted StanCERA in breaching its fiduciary duty. Plaintiffs then filed their Fifth Amended Complaint and added StanCERA to the litigation. Buck and StanCERA filed demurrers to the amended complaint. On September 13, 2012, the Court sustained both demurrers with prejudice, completely dismissing the matter and barring plaintiffs from refiling their claims. Plaintiffs appealed, and ultimately the California Court of Appeals (Sixth District) reversed the trial court’s ruling and remanded the case back to the trial ~~court.~~court as to Buck only, and only with respect to Plaintiffs' claim of aiding and abetting StanCERA in breaching its fiduciary duty. This case has been stayed pending the outcome of parallel litigation the plaintiffs are pursuing against StanCERA. The parallel litigation was tried before the bench in June 2018, and on January 24, 2019, the court found in favor of StanCERA, holding that it had not breached its fiduciary duty to plaintiffs. On April 26, 2019, Plaintiffs in the parallel litigation filed an appeal. This case remains stayed until the parallel litigation is finally concluded. Absent the court finding that StanCERA breached its fiduciary duty, Plaintiffs’ claim against Buck for aiding and abetting said breach would not appear viable. Buck will continue to aggressively defend these lawsuits. In August 2018, Conduent sold Buck Consultants, LLC; however, the Company retained this liability after the sale. 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.

Conduent Business Services, LLC v. Cognizant Business Services, LLC:On April 12, 2017, Conduent Business Services LLC (“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 alleges 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 seeks 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 alleges that it terminated the Contract for cause, because, among other things, Cognizant violated the Foreign Corrupt Practices Act. Cognizant initially asserted 2 counterclaims for breach of contract seeking recovery of damages in excess of $47 million, which includes amounts allegedly not paid to Cognizant under the Contract and an alleged $25 million termination fee. CBS has responded to Cognizant’s counterclaims by denying the allegations. Cognizant subsequently filed a second amended counterclaim seeking an additional $43 million to satisfy the minimum revenue commitment attributable to the years 2017-2020, which increased Cognizant's damages claim to approximately $90 million. CBS will continue to vigorously defend itself against the counterclaims but 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.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Other Matters

~~On January 5, 2016,~~

Since 2014, Xerox Education Services, Inc. ("XES") has cooperated with several federal and state agencies regarding a variety of matters, including XES' self-disclosure to the U.S. Department of Education (the "Department") and the Consumer Financial Protection Bureau ~~(the "CFPB"~~("CFPB") ~~notified Xerox Education Services, Inc. (XES)~~ that in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (NORA) process, the CFPB’s Office of Enforcement is considering recommending that the CFPB take legal action against XES, alleging that XES violated the Consumer Financial Protection Act’s prohibition of unfair practices. Should the CFPB commence an action, it may seek restitution, civil monetary penalties, injunctive relief, or other corrective action. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to the CFPB before an enforcement action is recommended or commenced. This notice stems from an inquiry that commenced in 2014 when XES received and responded to a Civil Investigative Demand containing a broad request for information. During this process, XES self-disclosed to the Department of Education and the CFPB certain adjustments of which it had become aware that had not been timely made relating to its servicing of a small percentage ofsome third-party student loans under outsourcing arrangements for various financial ~~institutions. The~~institutions required adjustments. With the exception of an inquiry the Illinois Attorney General's Office commenced in September 2019, the Company has resolved the investigations the CFPB and ~~the Department of Education, as well as certain states' attorney general offices and other regulatory~~several state agencies ~~began similar reviews. XES has cooperated~~commenced and continues to ~~fully cooperate~~work with the Department and the U.S. Department of Justice to resolve all ~~regulatory agencies,~~outstanding issues, including a number of operational projects that XES discovered and ~~XES has submitted its NORA response. We~~disclosed since 2014. The Company cannot provide assurance that the CFPB, another regulator, a financial institution on behalf of which the Company serviced third-party student loans, or another party will not ultimately commence a legal action against XES in ~~this matter nor~~which fines, penalties or other liabilities are wesought from XES. Nor is the Company able to predict the likely outcome of ~~the investigations into this matter. We~~these matters, should any such matter be commenced, or reasonably provide an estimate or range of estimates of any loss in excess of current reserves. The Company could, in future periods, incur judgments or enter into settlements to resolve these potential matters for amounts in ~~connection with this matter~~excess of current reserves and there could be a material adverse effect on ~~our~~the Company's results of operations, cash flows and financial position in the period in which such change in judgment or settlement occurs.

Other Contingencies

Certain contracts, primarily in ~~our Public Sector segment,~~the Company's Government Services and Transportation segments, require usthe Company to provide a surety bond or a letter of credit as a guarantee of performance. As of ~~September 30, 2017, we~~March 31, 2020, the Company had ~~$570~~$591 million of outstanding surety bonds used to secure ~~our~~its performance of contractual obligations with ~~our~~its clients and ~~we had $238~~$210 million of outstanding letters of credit ~~and bank guarantees used~~issued to secure ~~our~~the Company's performance of contractual obligations to ~~our~~its clients as well as other corporate obligations.

In general, wethe Company would only be liable for the amount of these guarantees in the event of default in ~~our~~the Company's performance of ~~our~~its obligations under each ~~contract; the probability of which we believe is remote. We believe we have~~contract. The Company believes it has sufficient capacity in the surety markets and liquidity from ~~our~~its cash flow and ~~our~~its various credit arrangements ~~including those with our former parent,~~(including its Revolver) to allow usit to respond to future requests for proposals that require such credit support.

~~Conduent Form 10-Q~~

We have service arrangements where we service third-party student loans in the Federal Family Education Loan program (FFEL) on behalf of various financial institutions. We service these loans for investors under outsourcing arrangements and do not acquire any servicing rights that are transferable by us to a third-party. At September 30, 2017, we serviced a FFEL portfolio of approximately 0.8 million loans with an outstanding principal balance of approximately $12.8 billion. Some servicing agreements contain provisions that, under certain circumstances, require us to purchase the loans from the investor if the loan guaranty has been permanently terminated as a result of a loan default caused by our servicing error. If defaults caused by us are cured during an initial period, any obligation we may have to purchase these loans expires. Loans that we purchase may be subsequently cured, the guaranty reinstated and the loans repackaged for sale to third parties. We evaluate our exposure under our purchase obligations on defaulted loans and establish a reserve for potential losses, or default liability reserve, through a charge to the provision for loss on defaulted loans purchased. The reserve is evaluated periodically and adjusted based upon management’s analysis of the historical performance of the defaulted loans. As of September 30, 2017, other current liabilities include reserves of approximately $1 million for losses on defaulted loans purchased which we believe to be adequate. In addition to potential purchase obligations arising from servicing errors, various laws and regulations applicable to student loan borrowers could give rise to fines, penalties and other liabilities associated with loan servicing errors.

Note 12 -– Preferred Stock

Series A Preferred Stock

In ~~connection with~~December 2016, the ~~Separation from Xerox, we~~Company issued ~~120 thousand~~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 pays 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 thousand~~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 13 – Shareholders’ Equity~~

(in millions)
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

AOCL⁽¹⁾
Former Parent Company Investment
Conduent Shareholders'
Equity
Balance at December 31, 2016 $ 2
$ 3,812
$ —
$ (526 ) $ —
$ 3,288
Comprehensive (loss) income, net —
—
(27 ) 36
—
9
Cash dividends paid - preferred stock⁽²⁾
—
—
(7 ) —
—
(7 )
Stock option and incentive plans, net —
22
—
—
—
22
Balance at September 30, 2017 $ 2
$ 3,834
$ (34 ) $ (490 ) $ —
$ 3,312

(in millions)
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

AOCL⁽¹⁾
Former Parent Company Investment
Conduent Shareholders'
Equity
Balance at December 31, 2015 $ —
$ —
$ —
$ (181 ) $ 5,343
$ 5,162
Comprehensive loss, net —
—
—
(22 ) (32 ) (54 )
Net transfers from former parent —
—
—
—
382
382
Balance at September 30, 2016 $ —
$ —
$ —
$ (203 ) $ 5,693
$ 5,490

~~_____________________________~~


~~(1)~~			~~AOCL - Accumulated other comprehensive loss.~~			CNDT Q1 2020 Form 10-Q


~~(2)~~ Table of Contents			~~Cash dividends on preferred stock of~~ ~~$20.00~~ ~~per share for the first, second and third quarters of 2017.~~

~~Conduent Form 10-Q~~

Note 1413 – Earnings per Share

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

The following table sets forth the computation of basic and diluted earnings per share of common ~~stock (shares in thousands):~~

stock:

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions, except per-share data) 2017 2016 2017 2016
Basic Earnings (Loss) per Share:
Net (loss) income from continuing operations $ (17 ) $ 1
$ (31 ) $ (32 )
Accrued dividends on preferred stock (2 ) —
(7 ) —
Adjusted Net (Loss) Income From Continuing Operations Available to Common Shareholders (19 ) 1
(38 ) (32 )
Income from discontinued operations, net of tax —
—
4
—
Adjusted Net (Loss) Income Available to Common Shareholders $ (19 ) $ 1
$ (34 ) $ (32 )
Weighted average common shares outstanding 204,356
202,875
203,838
202,875

Basic Earnings (Loss) per Share:
Continuing operations $ (0.09 ) $ 0.01
$ (0.19 ) $ (0.16 )
Discontinued operations —
—
0.02
—
Basic (Loss) Income per Share $ (0.09 ) $ 0.01
$ (0.17 ) $ (0.16 )

Diluted Earnings (Loss) per Share:
Net (loss) income from continuing operations $ (17 ) $ 1
$ (31 ) $ (32 )
Accrued dividends on preferred stock (2 ) —
(7 ) —
Adjusted Net (Loss) Income from Continuing Operations Available to Common Shareholders (19 ) 1
(38 ) (32 )
Net income from discontinued operations —
—
4
—
Adjusted Net (Loss) Income Available to Common Shareholders $ (19 ) $ 1
$ (34 ) $ (32 )
Weighted average common shares outstanding⁽¹⁾
204,356
202,875
203,838
202,875

Diluted Earnings (Loss) per Share:
Continuing operations $ (0.09 ) $ 0.01
$ (0.19 ) $ (0.16 )
Discontinued operations —
—
0.02
—
Diluted (Loss) Income per Share: $ (0.09 ) $ 0.01
$ (0.17 ) $ (0.16 )

(1) With the exception of the third quarter 2016, the computation of weighted average shares is the same for basic and diluted earnings per share due to the net loss from continuing operations. For third quarter 2016, there were no Conduent options outstanding.


	Three Months Ended March 31,
(in millions, except per share data in whole dollars and shares in thousands)	2020		2019
Net income (loss)	$	(49)	$	(308)
Cash dividend paid - preferred stock	(2)		(2)
Adjusted Net Income (Loss) Available to Common Shareholders	$	(51)	$	(310)

Weighted average common shares outstanding	211,093		207,944
Common shares issuable with respect to:
Stock options	—		—
Restricted stock and performance units / shares	—		—
Adjusted Weighted Average Common Shares Outstanding	211,093		207,944

Net Income (Loss) per Share:
Basic	$	(0.24)	$	(1.49)
Diluted	$	(0.24)	$	(1.49)


						CNDT Q1 2020 Form 10-Q


Table of Contents

Note 14 – Supplementary Financial Information

The components of Other assets and liabilities were as follows:


(in millions)	March 31, 2020		December 31, 2019
Other Current Assets
Prepaid expenses	$	86	$	70
Income taxes receivable	43		38
Value-added tax (VAT) receivable	21		20
Restricted cash	18		9
Net receivable from buyers of divested businesses	52		52
Other	98		94
Total Other Current Assets	$	318	$	283
Other Current Liabilities
Accrued liabilities	$	285	$	309
Litigation related accruals	67		178
Current operating lease liabilities	87		91
Restructure reserves	7		15
Income tax payable	27		11
Other taxes payable	14		16
Other	48		27
Total Other Current Liabilities	$	535	$	647
Other Long-term Assets
Internal use software, net	$	147	$	150
Deferred contract costs, net	76		84
Product software, net	50		40
Other	111		113
Total Other Long-term Assets	$	384	$	387
Other Long-term Liabilities
Income tax liabilities	20		20
Unearned income	19		21
Restructuring reserves	5		6
Other	37		44
Total Other Long-term Liabilities	$	81	$	91


						CNDT Q1 2020 Form 10-Q


Table of Contents

Note 15 – Related Party ~~Transaction~~Transactions

During the third quarter of 2019, Carl C. Icahn and his affiliates (shareholders) increased their ownership interest in the Company. In ~~January 2017, in connection~~the normal course of business, the Company provides services to, and purchases from, certain related parties with the ~~Separation~~same shareholders. The services provided to these entities included those related to human resources, end-user support and ~~Distribution Agreement,~~other services and solutions. The purchases from these entities included office equipment and related services and supplies. In addition, we ~~paid~~have a receivable related to certain income tax matters and a payable for certain litigation related reimbursement matters with our former parent company, Xerox ~~$161 million for final settlement.~~

~~The~~Corporation. Revenue and purchases from these entities were included in Revenue and Costs of services / Selling, General and administrative, respectively, on the Company's Condensed Consolidated Statements of Income (Loss)~~, Condensed Consolidated Statements~~.

Transactions with related parties were as follows:


	Three Months Ended March 31,
(in millions)	2020		2019
Revenue from related parties	$	6	$	9
Purchases from related parties	$	6	$	12

The Company's receivable and payable balances with related party entities were not material as of ~~Comprehensive Loss~~March 31, 2020 and Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2016 included an allocation of general corporate expenses from Xerox, the Company's former parent. Management considered these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided, by Xerox. Allocations for management costs and corporate support services provided totaled $41 million and $125 million for the three and nine months ended September 30, 2016, respectively. These amounts included costs for corporate functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology and other shared services. Where possible, these costs were allocated based on direct usage, with the remainder allocated on a basis of costs, headcount or other measures we have determined as reasonable.December 31, 2019.

~~Conduent Form 10-Q~~

Note 16 – ~~Subsequent Event~~Goodwill

~~On October 10, 2017,~~

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


(in millions)	Commercial Industries		Government Services		Transportation		Total
Balance at December 31, 2019	$	821	$	621	$	60	$	1,502
Foreign currency translation	(9)		(6)		(1)		(16)
Balance at March 31, 2020	$	812	$	615	$	59	$	1,486

In the first quarter of 2020, the Company performed its ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value. After evaluating and weighing all relevant events and circumstances, we ~~entered into Amendment No. 2 (Repricing Amendment)~~concluded that it is not more likely than not that the fair values of any of our reporting units were less than their carrying values. Consequently, we determined that it was not necessary to perform an interim impairment test for any of our reporting units.

To the ~~Credit Agreement, dated December 7, 2016,~~extent the COVID-19 pandemic continues to disrupt the economic environment, such as ~~amended by Amendment No. 1 dated April 7, 2017. This Repricing Amendment~~a decline in the performance of ~~Term B Loan reduced~~ the ~~interest rate 1.0% from 4.0% over LIBOR to 3.0% over LIBOR.~~reporting units or loss of a significant contract or multiple significant contracts, the fair value of one or more of the reporting units could fall below their carrying value, resulting in a goodwill impairment charge.

In addition, the Company has assessed whether any impairment of its amortizable assets existed and has determined that no charges were deemed necessary under applicable accounting standards as of March 31, 2020.

~~Conduent~~


						CNDT Q1 2020 Form 10-Q


Table of Contents

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of Conduent Incorporated and its consolidated subsidiaries. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying ~~notes.~~Notes.

~~Separation from Xerox Corporation~~Overview

~~On December 31, 2016, Conduent Incorporated completed its spin-off from Xerox Corporation.~~

As ~~a result~~one of the ~~spin-off, we now operate as an independent, publicly traded company on the New York Stock Exchange, under the ticker "CNDT". Refer to Note 1 - Basis of Presentation,~~largest business process services companies in the ~~Condensed Consolidated Financial Statements~~world, Conduent delivers mission-critical services and solutions on behalf of businesses and governments – creating exceptional outcomes for ~~additional information regarding~~its clients and the ~~separation.~~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.

~~Currency Impact~~

We create value for our clients through efficient service delivery combined with a personalized and seamless experience for the end-user. We apply our expertise, technology and innovation to continually modernize our offerings for improved customer and constituent satisfaction and loyalty, increase process efficiency and respond rapidly to changing market dynamics. Our strategy is to drive portfolio focus, operational discipline, sales and delivery excellence and innovation, complemented by tightly aligned investments. Our differentiated services and solutions improve experiences for millions of people every day.

Headquartered in Florham Park, New Jersey, we have a team of approximately 65,000 people as of March 31, 2020, servicing customers from service centers in 25 countries.

COVID-19 Outbreak

Throughout the COVID-19 pandemic, we have continued to provide critical and best-in-class services to our customers and their end-users, while ensuring the health and safety of our greatest assets - our associates. To ~~understand~~address the ~~trends in~~potential impact to our business, over the near-term, our Business Continuity team has established a proactive plan, which includes:

•Supporting our associates with a number of specific initiatives, including making improvements to our policies to extend short term disability, providing extra supplemental sick leave coverage, and introducing a hardship leave policy.

•Shifting majority of our workforce to work-from-home. This took a coordinated effort from our technology team and our site location representatives, while focusing on stringent safety and security precautions.

•Increased sanitation and social distancing for required on-site essential associates.

•Draw down on our revolving credit facility (Revolver) as a precautionary measure.

In addition, the Company’s COVID-19 response has also resulted in diversion of management's time and delayed investments from strategic, transformational and technology initiatives which had been planned.

As the crisis continues, we ~~believe that it is helpful~~may revise our approach to ~~analyze~~these initiatives or take additional actions to meet the ~~impact~~needs of ~~changes in~~our employees, customers and their end-users and the ~~translation of foreign currencies into U.S. Dollars on revenue~~Company and ~~expenses. We refer~~ to ~~this analysis as “currency impact” or “the impact from currency” or "constant currency"~~continue to provide our mission-critical services and ~~is calculated by translating current period activity in local currency using the comparable prior year period's currency translation rate.~~solutions.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Financial Review of Operations

Three Months Ended
September 30, Nine Months Ended
September 30,
(in millions) 2017 2016 $ Change 2017 2016 $ Change
Total Revenues $ 1,480
$ 1,596
(116 ) $ 4,529
$ 4,894
(365 )
Total Cost of services 1,219
1,328
(109 ) 3,766
4,107
(341 )
Gross Margin 261
268
(7 ) 763
787
(24 )

Operating Costs and Expenses
Research and development 4
7
(3 ) 11
25
(14 )
Selling, general and administrative 144
164
(20 ) 466
517
(51 )
Restructuring and related costs 22
8
14
76
57
19
Amortization of intangible assets 60
63
(3 ) 182
200
(18 )
Interest expense 35
1
34
105
3
102
Related party interest —
10
(10 ) —
30
(30 )
Separation costs 2
15
(13 ) 8
34
(26 )
(Gain) loss on sale of asset and businesses (16 ) —
(16 ) (41 ) 1
(42 )
Other (income) expenses, net (3 ) (2 ) (1 ) (24 ) 6
(30 )
Total Operating Costs and Expenses $ 248
$ 266
(18 ) $ 783
$ 873
(90 )

Income (Loss) before Income Taxes $ 13
$ 2
$ 11
$ (20 ) $ (86 ) $ 66
Income tax expense (benefit) 30
1
29
11
(54 ) 65
(Loss) Income from Continuing Operations $ (17 ) $ 1
(18 ) $ (31 ) $ (32 ) 1


	Three Months Ended March 31,						2020 vs. 2019
($ in millions)	2020		2019		$ Change		% Change
Revenue	$	1,051	$	1,158	$	(107)	(9)	%

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	832		906		(74)		(8)	%
Selling, general and administrative (excluding depreciation and amortization)	116		127		(11)		(9)	%
Research and development (excluding depreciation and amortization)	1		3		(2)		(67)	%
Depreciation and amortization	117		115		2		2	%
Restructuring and related costs	7		16		(9)		(56)	%
Interest expense	17		20		(3)		(15)	%
Goodwill impairment	—		284		(284)		(100)	%
(Gain) loss on divestitures and transaction costs	4		14		(10)		(71)	%
Litigation costs (recoveries), net	6		12		(6)		(50)	%
Other (income) expenses, net	2		(1)		3
Total Operating Costs and Expenses	1,102		1,496		(394)

Income (Loss) Before Income Taxes	(51)		(338)		287
Income tax expense (benefit)	(2)		(30)		28
Net Income (Loss)	$	(49)	$	(308)	$	259

Revenue

~~Total revenues~~

Revenue for the three months ended March 31, 2020 decreased, compared to the prior year period, primarily due to the impact from divestitures completed in 2019, contract losses, volume and ~~nine~~price pressure and the impact of the COVID-19 pandemic. Partially offsetting these declines were increases from the ramp of new business.

The Company identified approximately $14 million of the revenue decline for the three months ended ~~September 30, 2017 declined across all segments due~~March 31, 2020 was directly attributable to the COVID-19 impact. The impact was primarily ~~to lost business,~~driven by lower volume demand in the wind-down of the New York Medicaid Management Information System (NY MMIS) contract, the run-off of our Student Loan business, strategic contract actions taken by management as part of our portfolio rationalization, lower volumesTransportation and ~~overall price declines that were consistent with prior-period trends. Partially offsetting the decline was the ramp up in new contracts in~~ the Commercial Industries ~~and Public Sector businesses.~~segments.

~~Conduent Form 10-Q~~

Cost of Services (excluding depreciation and amortization)

Cost of services for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 decreased, compared to the prior year ~~periods due primarily to~~period, mainly driven by divestitures completed in 2019, reductions in real estate, information technology and labor costs from our strategic transformation initiatives, lost business, ~~the wind-down of the NY MMIS contract, the run-off of our Student Loan business, strategic contract actions taken by management as part of portfolio management~~lower volumes and lower ~~volumes.~~costs to support volume lost resulting from COVID-19. These savings were partially offset by increases in technology costs to support work from home and increased cleaning and sanitation expenses. The Company is implementing certain cost mitigation activities to offset these increased costs.

~~Gross Margin~~

Declines in gross margin for the three and nine months ended September 30, 2017 compared to the prior year periods reflect lost business and margin pressures in our customer experience service offerings, price declines and to a lesser degree the impact of the hurricanes.

~~Research and Development~~

~~Research and development for the three and nine months ended September 30, 2017, decreased compared to the prior year periods due to cost savings initiatives.~~

Selling, General and Administrative (SG&A) (excluding depreciation and amortization)

Lower SG&A for the three ~~and nine~~ months ended ~~September 30, 2017 was lower than~~March 31, 2020, compared to the prior year ~~periods reflecting~~period, was reflective of divested SG&A expenses, reductions in real estate costs, lower corporate overhead costs and reductions in labor costs. These savings were partially offset by increases in technology costs to support work from home. The Company is implementing certain cost mitigation activities to offset these increased costs.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Depreciation and Amortization

Depreciation and amortization for the ~~impact of our strategic transformation initiatives that drove lower wages and benefits.~~three months ended March 31, 2020 increased, compared to the prior year period, primarily due to increased capitalized software amortization for new projects placed in service.

Restructuring and Related Costs

~~Net~~

We engage in a series of restructuring programs related to optimizing our employee base, reducing our real estate

footprint, exiting certain activities, outsourcing certain internal functions, consolidating our data centers and engaging in other actions designed to reduce our cost structure and improve productivity. The following are the components of our Restructuring and related costs for the three months ended September 30, 2017 includes approximately $7 million of severance costs due to headcount reductions of approximately 700 employees worldwide, $17 million of lease cancellation costs and $2 million of asset impairments. These costs were offset by $4 million of net reversals primarily resulting from changes in estimated reserves from prior-period initiatives.costs:

Net restructuring and related costs for the nine months ended September 30, 2017 includes strategic transformation costs of $8 million and approximately $38 million of severance costs related to headcount reductions of approximately 3,200 employees worldwide, $33 million of lease cancellation costs and $4 million of asset impairments. These costs were offset by $7 million of net reversals, primarily resulting from changes in estimated reserves from prior-period initiatives.

Net restructuring and related costs for the three months ended September 30, 2016 relates to the strategic transformation program. Severance costs of $4 million related to headcount reductions and were offset by $4 million of net reversals for changes in estimated reserves from prior-period initiatives.


	Three Months Ended March 31,
(in millions, except headcount in whole numbers)	2020		2019
Severance and related costs	$	—	$	3
Data center consolidation	2		9
Termination and other costs	3		4
Total Net Current Period Charges	5		16
Consulting and other costs⁽¹⁾	2		—
Restructuring and Related Costs	$	7	$	16

Net restructuring and related costs for the nine months ended September 30, 2016 includes approximately $52 million of severance costs related to headcount reductions of approximately 3,300 employees worldwide, $12 million of ___________

(1)Represents professional support ~~services~~costs associated with ~~the implementation of~~ our strategic transformation program, $2 million of lease cancellation costs and $2 million of asset impairments. These costs were partially offset by $11 million of net reversals for changes in estimated reserves from prior-period initiatives.program.

~~The restructuring reserve balance as of September 30, 2017, for all programs was $40 million, of which approximately $28 million is expected to be spent over the next twelve months.~~

Refer to Note 5 -– Restructuring Programs and Related Costs into the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

~~Amortization of Intangible Assets~~

Amortization of intangible assets for the three and nine months ended September 30, 2017 decreased compared to the prior year periods as the nine months ended September 30, 2016 included the accelerated amortization related to the loss of a large customer contract.

Interest Expense

Interest expense represents interest on long-term debt and the amortization of debt issuance costs. The decrease in Interest expense for the three ~~and nine~~ months ended ~~September 30, 2017 increased~~March 31, 2020, compared to the prior year ~~periods~~period, was driven primarily ~~due to the issuance of~~by a lower average debt in connection with the capitalization of the company during the spin-off in December 2016, the subsequent additional borrowing under the Term Loan B in January 2017 and amounts outstanding under the Company’s $750 million committed credit facility (Credit Facility).

~~Conduent Form 10-Q~~

balance. Refer to Note 6 -– Debt in the Condensed Consolidated Financial Statements for additional information.

~~Separation Costs~~

Separation costs are primarily for third-party investment banking, accounting, legal, consulting and other similar types of services related to the separation transaction as well as costs associated with the operational separation from Xerox Corporation, such as those related to human resources, brand management, real estate and information management to the extent not capitalized. Separation costs also include the costs associated with bonuses and restricted stock grants awarded to employees for retention related to separation.Goodwill Impairment

~~Gain on Sale of Asset and Businesses~~

~~We sold a property in June 2017 for a pre-tax gain of $24 million.~~

Additionally, we completed the divestiture of: (1) our Firehouse business and suite of emergency records management products used by fire departments across the country for their incident reporting and Emergency Management System information and records management; (2) our healthcare provider consulting services business, which advises healthcare organizations on IT application optimization; (3) the Breakaway Group business, which provides advisory project services to assist healthcare organizations optimize their health IT applications; (4) the mobile device management business of Wireless Data Services Limited; and (5) the Global Mobility business. The aggregate proceeds for these divestituresThere was $56 million in cash. The businesses sold represents $82 million of 2016 revenue and $60 million for the nine months ended September 30, 2017. We recorded a pre-tax gain of $16 million on these divestitures.

~~Other (Income) Expenses, Net~~

~~Other (income) expenses, net primarily includes foreign currency transaction (gains) losses, litigation and other contingent matters and deferred compensation investment results.~~

~~The increase in Other income~~no goodwill impairment for the three months ended ~~September 30, 2017 is primarily related to an adjustment to contingent consideration on a previous acquisition.~~March 31, 2020. The increase in Other income for the nine months ended September 30, 2017 is primarily related to income received as a result of several customer dispute settlements and an adjustment to contingent consideration on a previous acquisition.

~~Pre-tax Income (Loss)~~

~~Improvement in Pre-tax income (loss)~~goodwill impairment for the three ~~and nine~~ months ended ~~September 30, 2017 as compared~~March 31, 2019 related to the ~~prior year periods was primarily driven~~write-down of the carrying values of the Transportation segment.

(Gain) Loss on Divestitures and Transaction Costs

The costs included in the three months ended March 31, 2020 consist of professional fees related to the strategic review by ~~improvements~~the Company's Board of Directors. The costs included in ~~our Commercial~~the three months ended March 31, 2019 consist of $5 million of changes in estimates related to losses on divestitures and ~~Other segments, benefits from our strategic transformation program, gain on sale~~$9 million of ~~asset and businesses and lower separation costs, partially offset by higher interest expense, higher restructuring~~transaction and related costs, $4 million of which relates to costs to remediate Payment Card Industry Data Security Standards compliance issues related to the sale of select standalone customer care contracts to Skyview Capital LLC.

Litigation Costs (Recoveries), Net

Net litigation costs for the three months ended March 31, 2020 primarily consist of costs related to certain reimbursement matters with our former parent company, Xerox Corporation. Net litigation costs for the three months ended March 31, 2019 primarily consist of the $13 million expense related to the Texas litigation.

Refer to Note 11 – Contingencies and ~~dis-synergies.~~Litigation to the Condensed Consolidated Financial Statements for additional information.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act provides for various tax relief and tax incentive measures, which are not expected to have a material impact on the Company's income tax provision. The payment of the employer share of payroll taxes for the remainder of 2020 will be deferred to 2021 & 2022 under the CARES Act, which will provide a temporary operating cash flow benefit.

The effective tax rate for the three months ended ~~September 30, 2017,~~March 31, 2020 was ~~230.8% as~~3.9%, compared ~~with 50.0%~~to 8.9% for the three months ended ~~September 30, 2016.~~March 31, 2019. The ~~September 30, 2017~~March 31, 2020 rate ~~is higher~~was lower than the U.S. statutory rate of 21%, primarily due to the geographic mix of income, valuation allowances and tax charges recognized on the vesting of employee equity awards, partially offset by tax credits.

The effective tax rate for the three months ended March 31, 2019 was lower than the U.S. statutory tax rate of ~~35%~~21%, primarily due to ~~a taxable gain~~the goodwill impairment charge being partially non-deductible for tax and the geographic mix of income, partially offset by the tax benefit recognized on the ~~termination~~sale of ~~the Company Owned Life Insurance plan (COLI) and gains on U.S. divestitures.~~a portfolio of select standalone customer care contracts to Skyview Capital LLC.

Excluding ~~primarily~~ the ~~tax on the termination~~impact of ~~the COLI, gains on U.S. divestitures~~valuation allowances, vesting of equity awards, amortization of intangible assets and ~~amortization,~~restructuring costs, the normalized effective tax rate for the three months ended ~~September 30, 2017~~March 31, 2020 was ~~36.8%~~33.3%. ~~Primarily excluding the amortization and restructuring costs, the~~The normalized effective tax rate ~~was 39.5%~~of 34.7% for the three months ended ~~September 30, 2016.~~March 31, 2019, was predominantly impacted by the goodwill impairment, divestitures, the Texas litigation reserve, charges for amortization of intangible assets, restructuring and divestiture related costs.

The ~~effective~~Company believes it is reasonably possible that unrecognized tax ~~rate for the nine~~benefits of approximately $13 million will reverse within 12 months ~~ended September 30, 2017, was (55.0)% as compared with 62.8% for the nine months ended September 30, 2016. The September 30, 2017 negative rate is lower than the U.S. statutory tax rate of 35%~~ due to pre-tax loss and tax from taxable gain on the termination of the COLI and gains on U.S. divestitures. The September 30, 2016 effective tax rate was higher than the U.S. statutory tax rate due primarily to U.S. pre-tax losses that are taxed at a higher rate than foreign pre-tax income, which has the effect of increasing the overall effective tax rate.an anticipated audit settlement.

~~Conduent Form 10-Q~~

Excluding primarily the tax on the termination of the COLI, gain on U.S. divestitures and amortization, the normalized effective tax rate for the nine months ended September 30, 2017 was 35.0%. Primarily excluding the amortization and restructuring costs, the normalized effective rate was 23.6% for the nine months ended September 30, 2016.

~~Worldwide Employment~~

Worldwide employment was approximately 90,000 as of September 30, 2017 and decreased by 6,000 from December 31, 2016, due primarily to the impact of restructuring and productivity reductions as well as seasonal reductions and divestitures.

Operations Review of Segment Revenue and Profit

~~Our reportable segments correspond~~

During the first quarter of 2020, we realigned our sales organization and certain shared IT and other allocated costs to ~~how we organize and manage the business and are aligned to the industries in which our clients operate.~~

~~Beginning in 2017, in an effort to better~~ reflect how we currently manage our ~~business, we changed our reporting segments~~business. All prior periods presented have been revised to ~~align the Healthcare business based on customer focus between Commercial Industries and Public Sector.~~

reflect this change. Our financial performance is based on ~~"Segment~~Segment Profit / (Loss)~~" which is defined as income before amortization of intangibles, restructuring~~ and ~~related costs, interest, gain on sale of an asset, separation costs, other (income) expense, net and income taxes~~Segment Adjusted EBITDA for the following three segments:

•Commercial Industries,

~~Public Sector,~~•Government Services, and

•Transportation.

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

~~Revenues~~

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 and consolidation of our data centers as part of our transformation initiatives. It also includes costs related to corporate overhead functions and shared real estate costs. These costs are not allocated to the reportable segments.

There is a risk, however, that our modernization efforts and data center consolidations could materially and adversely disrupt our operations. In addition, the Company’s COVID-19 response has also resulted in diversion of management's time and delayed investments from strategic, transformational and technology initiatives which had been planned. See Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019 and see Part II, Item 1A – Risk Factors of this Form 10-Q for additional information.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Results of financial performance by segment ~~for the three and nine months ended September 30~~ were:

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) Revenue % of Total
Revenue Segment
Profit (Loss) Segment
Profit (Loss)% Revenue
% of Total
Revenue

Segment
Profit (Loss)

Segment
Profit (Loss)%

2017
Commercial Industries $ 864
58 % $ 53
6.1 % $ 2,663
59 % $ 114
4.3 %
Public Sector 540
37 % 59
10.9 % 1,629
36 % 179
11.0 %
Other 76
5 % 1
1.3 % 237
5 % (7 ) (3.0 )%
Total $ 1,480
100 % $ 113
7.6 % $ 4,529
100 % $ 286
6.3 %

2016
Commercial Industries $ 923
58 % $ 42
4.6 % $ 2,869
59 % $ 103
3.6 %
Public Sector 584
37 % 78
13.4 % 1,734
35 % 217
12.5 %
Other 89
5 % (23 ) (25.8 )% 291
6 % (75 ) (25.8 )%
Total $ 1,596
100 % $ 97
6.1 % $ 4,894
100 % $ 245
5.0 %


	Three Months Ended March 31,
(in millions)	Commercial Industries			Government Services			Transportation			Other									Shared IT / Infrastructure & Corporate Costs			Total
2020										Divestitures			Other
Revenue	$	572		$	290		$	189		$	—		$	—		$	—		$	1,051
Segment profit (loss)	$	90		$	93		$	23		$	—		$	4		$	(165)		$	45
Segment depreciation and amortization	$	25		$	6		$	9		$	—		$	—		$	18		$	58
Adjusted EBITDA	$	115		$	99		$	32		$	—		$	(3)		$	(147)		$	96

% of Total Revenue	54.4		%	27.6		%	18.0		%	—		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	20.1		%	34.1		%	16.9		%	—		%	—		%	—		%	9.1		%

2019
Revenue	$	612		$	325		$	184		$	36		$	1		$	—		$	1,158
Segment profit (loss)	$	117		$	80		$	19		$	1		$	—		$	(148)		$	69
Segment depreciation and amortization	$	22		$	9		$	9		$	—		$	—		$	14		$	54
Adjusted EBITDA	$	139		$	89		$	28		$	1		$	—		$	(134)		$	123

% of Total Revenue	52.8		%	28.1		%	15.9		%	3.1		%	0.1		%	—		%	100.0		%
Adjusted EBITDA Margin	22.7		%	27.4		%	15.2		%	2.8		%	—		%	—		%	10.6		%

Commercial Industries Segment

Revenue

Commercial Industries revenue for the three ~~and nine~~ months ended ~~September 30, 2017 was 58% and 59%, respectively, of total revenue and~~March 31, 2020 decreased, ~~6% and 7%, respectively, from~~compared to the prior year ~~periods. The declines were~~period, primarily driven ~~primarily~~ by ~~strategic~~ contract ~~actions~~losses and ~~lost business in~~ the ~~Healthcare Payer, High Tech Industrial & Retail and Provider businesses and lower volumes from existing clients,~~adverse effects of COVID-19, partially offset by revenue from new contracts. The COVID-19 related impact was primarily driven by reduced volumes in our Customer Experience Management service offering and reduced interest rates impacting revenue generated from account balances in the Health Savings Account (BenefitWallet), which is part of our Human Resource Services offering.

Segment Profit and Adjusted EBITDA

~~Increase~~

Decreases in the Commercial Industries segment profit and adjusted EBITDA margin for the three months ended March 31, 2020, compared to the prior year period, were mainly driven by overall revenue declines and the adverse effects of COVID-19, partially offset by reductions in IT, real estate and labor costs from our transformation initiatives.

Government Services Segment

Revenue

Government Services revenue for the three months ended March 31, 2020, decreased compared to the prior year period, primarily driven by contract losses and volume pressure. These declines were partially offset by ramp of new business and volume increases and COVID-19 related volume increases.


						CNDT Q1 2020 Form 10-Q


Table of Contents

Segment Profit and Adjusted EBITDA

Increases in the Government Services segment profit and adjusted EBITDA margin for the three months ended March 31, 2020, compared to the prior year period, were mainly driven by reductions in IT and delivery spend, partially offset by reduced revenue.

Transportation Segment

Revenue

Transportation revenue for the three months ended March 31, 2020 increased, compared to the prior year period, primarily driven by ramp of new business and volume increases, partially offset by lost business and COVID-19 related impact. The COVID-19 related impacts were primarily driven by volume pressure in the Roadway Charging & Management Services and Curbside Management Solutions service offerings and project delays in the Transit Solutions service offering.

Segment Profit and Adjusted EBITDA

Transportation segment profit and adjusted EBITDA margin for the three months ended March 31, 2020 increased, compared to the prior year period, mainly driven by increased revenue and reduced IT platform spend, partially offset by the loss of higher margin business primarily related to COVID-19.

Other

Revenue

Other revenue for the three months ended March 31, 2020 decreased, compared to the prior year period, driven mainly by the divestitures completed in 2019.

Segment Profit (Loss) and Adjusted EBITDA

Increase in Other segment profit for the three months ended September 30, 2017 was driven by benefits from our strategic transformation cost initiatives and from new business, partially offset by losses in our customer experience services offering and the overall revenue decline from existing clients, investments and dis-synergy costs.

~~Conduent Form 10-Q~~

Increase in the Commercial Industries segment profit for the nine months ended September 30, 2017 was driven by benefits from our strategic transformation cost initiatives, partially offset by losses in our customer experience services offering and the overall revenue decline from existing clients, investments and dis-synergy costs.

~~Public Sector Segment~~

~~Revenue~~

~~Public Sector revenue for the three and nine months ended September 30, 2017 was 37% of total revenue for both periods and decreased 8% and 6%, respectively,~~March 31, 2020, compared to the prior year ~~periods. The decreases were~~period, was primarily ~~driven by~~due to the adjustment to the remaining California MMIS settlement liability of $7 million as a result of the contract ~~losses in State~~expiration on March 31, 2020.

Shared IT / Infrastructure & ~~Local, Government Healthcare~~Corporate Costs

Shared IT/Infrastructure and ~~Payment Services. These declines for the nine months ended were partially mitigated by growth in our Transportation business.~~

~~Segment Profit~~

~~Decrease in the Public Sector segment profit~~Corporate costs for the three ~~and nine~~ months ended ~~September 30, 2017 were due to contract losses in Government Healthcare, State & Local, and Payment Services, dis-synergies and investments in our core offerings.~~

~~Other Segment~~

~~Revenue~~

Other revenue for the three and nine months ended September 30, 2017 was 5% of total revenues for both periods and decreased 15% and 19%, respectively, driven by the exit from the NY MMIS contract and the run-off of the student loan business.

~~Segment Profit (Loss)~~

~~Other segment profit (loss) of $1 million and $(7) million for the three and nine months ended September 30, 2017 improved $24 million and $68 million, respectively,~~March 31, 2020 increased, compared to the prior year ~~periods~~period. This was primarily driven by an increase in shared infrastructure related IT due to ~~improved profitability~~some discrete non-recurring credits benefiting the prior year, as well as increased costs incurred due to COVID-19, partially offset by reduced corporate overhead.

Metrics

Signings

The Company has re-defined the way it classifies new business to align with the new organizational structure in order to properly align incentives with measurement metrics. The Global Sales Organization, consisting of Sales Executives, is now responsible for securing sales to new clients or sales of new capabilities to existing clients. The Company defines these as New Logo/New Capability sales. During the first quarter of 2020, the Company sold $282 million of New Logo/New Capability, representing a 127% increase when compared to prior period. New business wins for the quarter were driven by large wins in the ~~student loan~~Customer Experience Management service offering, which is part of our Commercial Industries segment, Government Services segment and the Transportation segment.


						CNDT Q1 2020 Form 10-Q


Table of Contents

The account managers within the business ~~improvements~~units are responsible for existing add-on sales. The Company signed $42 million of existing add-on sales in the ~~HE business.~~

~~Health Enterprise~~

first quarter of 2020, representing a 58% decrease compared to the prior period. In ~~February 2017, we determined that it was not probable that~~total, the ~~NY MMIS project would be completed. As a result~~Company signed $324 million of ~~this determination, we recorded a pre-tax charge of $161 million ($98 million after-tax)~~new business in the ~~fourth~~first quarter ~~2016 financial results. The charge included $83 million for~~of 2020, representing a 44.0% increase compared to the write-off of contract receivables which were recorded as a reduction of revenue and $78 million recorded in costs of outsourcing, including $36 million for wind down costs, a $28 million non-cash charge for the impairment of software and $14 million for the write-off of deferred contract set-up and transition costs and other related assets and liabilities. The three and nine months ended September 30, 2017, includes adjustments to increase our estimated wind-down costs of approximately $1 million and $10 million, respectively.prior period.

We have reached agreement in principle with the State of New York regarding resolution of the Health Enterprise (HE) platform project, which would result in settlement of our New York Health Enterprise platform exposure. Under this agreement in principle, we would pay, or incur costs on behalf of, the State of New York in the amount of approximately $20 million which is reserved. This agreement in principle remains subject to ongoing negotiations and a settlement will not be effective unless and until we enter into a definitive agreement with the State of New York. Our HE platform has been fully implemented in New Hampshire, Alaska and North Dakota and we are in the process of obtaining certification for Alaska and North Dakota.

~~Metrics~~

~~Signings~~

Signings are defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. Total Contract Value (TCV) is the estimated total contractual revenue related to signed contracts. The amounts in the following table exclude divestitures.


	Three Months Ended March 31,						2020 vs. 2019
($ in millions)	2020		2019		$ Change		% Change
New logo & New capability TCV	$	282	$	124	$	158	127	%
Add-on expansion TCV	42		101		$	(59)	(58)	%
Renewals TCV	515		727		(212)		(29)	%
Total Signings	$	839	$	952	$	(113)	(12)	%

~~Conduent Form 10-Q~~

~~Signings~~Total signings for the three ~~and nine~~ months ended ~~September 30, were:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
New business TCV $ 390
$ 633
$ 1,577
$ 1,803
Renewals TCV 657
913
1,645
3,388
Total Signings $ 1,047
$ 1,546
$ 3,222
$ 5,191

Annual recurring revenue signings $ 92
$ 167
$ 366
$ 408
Non-recurring revenue signings $ 86
$ 104
$ 287
$ 326

S~~ignings for the three and nine months ended September 30, 2017~~March 31, 2020 decreased, ~~32% and 38%, from~~compared to the prior year ~~periods, respectively, reflecting the impact of lower contract renewals,~~period, driven by declines in renewal signings, partially ~~resulting from our strategic contract remediation actions~~offset by increases in ~~2017 and a large contract renewal in the second quarter of 2016.~~new business signings.

Renewal Rate

Renewal rate is defined as the annual recurring revenue (ARR) on contracts that are renewed during the period as

a percentage of ARR on all contracts for which a renewal decision was made during the period, excluding any contracts that were not renewed and where a strategic action to improve the risk or profitability had been initiated. ~~Renewal rate~~

Excluding our strategic decision not to renew certain contracts and impact of divestitures, renewal rates for the three ~~and nine~~ months ended ~~September 30, 2017 was 98%~~March 31, 2020 and 2019 were 93% and 92%, ~~respectively,~~respectively.

Critical Accounting Policies

COVID-19 Outbreak

The Company is experiencing disruptions to its business, costs, operations, supply chain, and ~~exceeded~~customer demand for its services and solutions due to the rapid and widening spread of the COVID-19 pandemic. While we experienced some benefits, mainly increases in certain government subsidy programs such as Supplemental Nutrition Assistance Program and Unemployment Insurance, these were more than offset with declines in retail call volumes, large banking client volume declines in transaction processing, interest rate exposure in our ~~target range~~BenefitWallet business, declines in child support and Medicaid volumes, transit solutions and curbside management solutions volume, among other challenges. We expect similar challenges and potential declines in volume ahead of ~~85%-90%. Excluding these strategic~~us, but we also have some offsetting factors such as leveraging automation, focusing on temporary and long-term cost solutions through re-engineering our operating model and leveraging our work-from-home infrastructure.

The Company also continues to monitor the potential impact on the carrying values of certain assets. These foregoing factors and other factors, which may worsen, can be expected to have a material adverse impact on our business, operations, financial results and capital resources. The ultimate impact of the COVID-19 pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted, including the duration of the pandemic, additional or modified government actions, ~~renewals would have been approximately 95%~~new information that will emerge concerning the severity and ~~83%~~impact of COVID-19 and the actions taken to contain COVID-19 or address its impact in the short and long term, among others. We do not yet know and cannot predict the full extent of potential impacts on our business, our services and business offerings or our operating results, financial condition and cash flow. Management uses significant judgment in determining the impact of the COVID-19 pandemic on its financial results for the ~~three~~current period and ~~nine months ended September 30, 2017 .~~for any future periods. Changes in management's assumptions and judgment relating to the impact of COVID-19 could significantly affect the amounts disclosed in the MD&A – Financial Review of Operations and the MD&A – Operations Review of Segment Revenue and Profit, as the effect of the COVID-19 pandemic. For additional information on various COVID-19 impacts, uncertainties and risks, see Part II, Item 1A – Risk Factors included in this Form 10-Q


						CNDT Q1 2020 Form 10-Q


Table of Contents

Capital Resources and Liquidity

As of ~~September 30, 2017~~March 31, 2020, and December 31, ~~2016,~~2019, total cash and cash equivalents were ~~$468~~$395 million ~~(inclusive~~and $496 million, respectively. The Company also has a $750 million Revolver for its various cash needs, of ~~$141~~which $150 million ~~cash related~~has been drawn, as a precautionary measure in March 2020 in response to the ~~termination~~COVID-19 pandemic, and $82 million issued for letters of credit. The net Revolver available to be drawn upon as of March 31, 2020, was $518 million. $71 million of the ~~deferred compensation plan) and $390~~$82 million ~~respectively. We had no outstanding borrowings under our Revolving Credit Facility as of September 30, 2017.~~

~~Additionally, we have~~ letters of credit utilized matured on April 16, 2020, thereby increasing the net Revolver available to be drawn upon to $589 million as of April 16, 2020.

Pursuant to the terms of the State of Texas Agreement, the Company was required to pay the State of Texas $236 million, of which $118 million was paid in 2019 and ~~bank guarantees outstanding from time-to-time to secure our performance~~$118 million paid in January 2020. The case has been dismissed with prejudice with a full release and discharge of ~~contractual obligation to our clients and other corporate obligations.~~the Company. Refer to Note 11 -– Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information.

As of March 31, 2020, our total long-term debt outstanding was $1.7 billion of which $60 million was due within one year. Refer to Note 6 – Debt in the Condensed Consolidated Financial Statements for additional ~~information regarding these guarantees.~~debt information.

In order to provide financial flexibility and finance certain investments and projects, we may continue to utilize external financing arrangements. However, we believe that our cash on hand, projected cash flow from operations, sound balance sheet and revolving line of credit will continue to provide sufficient financial resources to meet our expected business obligations for at least the next twelve months.

Cash Flow Analysis

The following table summarizes our cash flows, as reported in our Condensed Consolidated Statement of Cash Flows in the accompanying Condensed Consolidated Financial Statements:


	Nine Months Ended September 30,										Three Months Ended March 31,
(in millions)	2017			2016			Increase (Decrease)			(in millions)	2020		2019		Better (Worse)
Net cash provided by (used in) operating activities	$	65		$	(38	)	$	103		Net cash provided by (used in) operating activities	$	(192)	$	(49)	$	(143)
Net cash provided by (used in) investing activities	122			(129		)	251			Net cash provided by (used in) investing activities	$	(23)	$	(168)	145
Net cash (used in) provided by financing activities	(111		)	177			(288		)
Net cash provided by (used in) financing activities										Net cash provided by (used in) financing activities	$	130	$	(22)	152

Historically the Company generates the majority of its cash from operating activities in the latter part of the year. As such, the Company expects the second quarter 2020 cash flow from operations to also be negative.

Operating ~~activities:~~activities

The net increase in cash ~~generated from~~used in operating activities ~~was primarily attributable~~of $143 million, compared to ~~improvements in working capital, reduced wind-down payments associated with implementations in California, Montana and New York, partially offset by income-tax payments.~~

~~Investing activities:~~ ~~The increase in cash provided by investing activities~~the prior year period, was primarily related to the ~~following:~~$118 million final payment for the Texas litigation, lower adjusted EBITDA of $27 million and other working capital decreases of $18 million, partially offset by lower net cash income tax payments of $20 million.

~~$116 million increase due to proceeds received on long-term investments driven by the termination of the deferred compensation plan.~~

~~$109 million increase due to proceeds received from 2017 divestitures ($56 million) and payment made to Atos for an adjustment to purchase price related to a divestiture in 2016 ($53 million).~~Investing activities

~~Conduent Form 10-Q~~

~~Financing activities:~~The decrease in cash used in investing activities of $145 million was primarily due to decreased spending for capital expenditures and the absence of acquisition and divestiture payments.

Financing activities

The increase in cash from financing activities was primarily related to the ~~following:~~$150 million draw down from our $750 million revolving credit facility.

~~$351 million decrease due to net transfers to former parent.~~

~~$214 million decrease due to increase in payments of debt.~~

~~$300 million increase due to proceeds on issuance of debt~~.


						CNDT Q1 2020 Form 10-Q

~~Capital Market Activity~~


Table of Contents

On October 10, 2017, we entered into Amendment No. 2 to the Credit Agreement dated December 7, 2016 and amended by Amendment No. 1 dated April 7, 2017. Amendment No. 2 reduced the interest rate on our Term Loan B by 1.0% from 4.0% over LIBOR to 3.0% over LIBOR.

~~On April 7, 2017, we entered into Amendment No. 1 to the Credit Agreement, dated December 7, 2016 which reduced the interest rate on our Term Loan B by 1.5% from 5.5% over LIBOR to 4.0% over LIBOR.~~

~~In January 2017, we borrowed an additional $100 million on Term Loan B with proceeds used for general corporate purposes.~~

~~Refer to Note 6 - Debt, in the Condensed Consolidated Financial Statements for additional information.~~

Market Risk Management

We are exposed to market risk from changes in foreign currency exchange rates which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. ~~These~~We may utilize derivative financial instruments ~~are utilized~~ to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates. We also may hedge the cost to fund material non-dollar entities by buying currencies periodically in advance of the funding date. This is accounted for using derivative accounting.

Recent market and economic events have not caused us to materially modify nor change our financial risk management strategies with respect to our exposures to foreign currency risk. Refer to Note 7 – Financial Instruments in the Condensed Consolidated Financial Statements for additional discussion on our financial risk management.

~~Non-GAAP Financial Measures~~

~~We have reported our financial results in accordance with U.S. GAAP. In addition, we have discussed our results using certain 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. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with 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 our 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 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.

~~A reconciliation of the non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided below.~~

These reconciliations also include the income tax effects for our non-GAAP performance measures in total, to the extent applicable. The income tax effects are calculated under the same accounting principles as applied to our reported pre-tax performance measures under ASC 740, which employs an annual effective tax rate method. The noted income tax effect for our non-GAAP performance measures is effectively the difference in income taxes for reported and adjusted pre-tax income calculated under the annual effective tax rate method. The tax effect of the

~~Conduent Form 10-Q~~

~~non-GAAP adjustments was calculated based upon evaluation of the statutory tax treatment and the applicable statutory tax rate in the jurisdictions in which such charges were incurred.~~

~~Constant Currency~~

To better understand trends in our business, we believe that it is helpful to adjust revenue to exclude the impact of changes in the translation of foreign currencies into U.S. Dollars. We refer to this adjusted revenue as “constant currency.” Currency impact is the difference between actual growth rates and constant currency growth rates.

~~Adjusted Operating Income and Adjusted Operating Margin~~

~~We make adjustments to Pre-Tax Income (Loss) for the following items for the purpose of calculating Adjusted Operating Income and Adjusted Operating Margin.~~

Amortization of intangible assets. The amortization of intangible assets is driven by acquisition activity, which can vary in size, nature and timing as compared to other companies within our industry from period to period.

~~Restructuring and related costs. Restructuring and related costs include restructuring and asset impairment charges as well as costs associated with our strategic transformation program.~~

Separation costs. Separation costs are expenses incurred in connection with the separation from Xerox Corporation into a separate, independent, publicly traded company. These costs primarily relate to third-party investment banking, accounting, legal, consulting and other similar types of services related to the separation transaction as well as costs associated with the operational separation of the two companies.

~~Interest expense. Interest expense includes interest on long-term debt and amortization of debt issuance costs and related party interest.~~

~~Other (income) expenses net. Other (income) expenses, net includes currency (gains) losses, net, litigation matters and all other (income) expenses, net.~~

~~NY MMIS (2017 only). Costs associated with the company not fully completing the State of New York Health Enterprise Platform project.~~

~~HE charge (2017 only). Costs associated with not fully completing the Health Enterprise Medical Platform implementation projects in California and Montana.~~

~~(Gain) loss on sale of asset and businesses.~~

We provide our investors with adjusted operating income and adjusted operating margin information, as supplemental information, because we believe it offers added insight, by itself and for comparability between periods, by adjusting for certain non-cash items as well as certain other identified items which we do not believe are indicative of our ongoing business, and may also provide added insight on trends in our ongoing business.

~~Adjusted Net Income (Loss), Adjusted Earnings per Share and Adjusted Effective Tax Rate~~

~~We make adjustments to Income (Loss) before Income Taxes for the following items for the purpose of calculating Adjusted Net Income (Loss), Adjusted Earnings per Share and Adjusted Effective Tax Rate:~~

~~Amortization of intangible assets.~~

~~Restructuring and related costs.~~

~~Separation costs.~~

~~Other (income) expenses, net.~~

~~NY MMIS (2017 only).~~

~~HE charge (2017 only).~~

~~(Gain) loss on sale of asset and businesses.~~

The Company provides adjusted net income and adjusted EPS financial measures to assist our investors in evaluating our ongoing operating performance for the current reporting period and, where provided, over different reporting periods, by adjusting for certain items which may be recurring or non-recurring and which in our view do not necessarily reflect ongoing performance. We also internally use these measures to assess our operating performance, both absolutely and in comparison to other companies, and in evaluating or making selected compensation decisions.

Management believes that adjusted effective tax rate, provided as supplemental information, facilitates a comparison by investors of our actual effective tax rate with an adjusted effective tax rate which reflects the impact of the items which are excluded in providing adjusted net income, and may provide added insight into our underlying business results and how effective tax rates impact our ongoing business.

~~Conduent Form 10-Q~~

~~Operating Income / Margin Reconciliation:~~

Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
(in millions) Pre Tax Income (Loss) Revenue Margin Pre Tax Income (Loss) Revenue Margin
GAAP as Reported⁽¹⁾
$ 13
$ 1,480
0.9 % $ 2
1,596
0.1 %
Adjustments:
Amortization of intangible assets 60
63

NY MMIS 1
—

Restructuring and related costs 22
8

HE charge (3 )
—

Separation costs 2
15

Interest expense 35
1

Related party interest —
10

(Gain) loss on sale of asset and businesses (16 ) —

Other (income) expenses, net (3 ) (2 ) —

Adjusted Operating Income/Margin $ 111
$ 1,480
7.5 % $ 97
$ 1,596
6.1 %

(1) Pre-Tax Income (Loss) and revenue from continuing operations.

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
(in millions) Pre Tax Income (Loss) Revenue Margin Pre Tax Income (Loss) Revenue Margin
GAAP as Reported⁽¹⁾
$ (20 ) $ 4,529
(0.4 )% $ (86 ) 4,894
(1.8 )%
Adjustments:
Goodwill impairment 182
200

Amortization of intangible assets 10
—

NY MMIS 76
57

Restructuring and related costs (8 )
—

HE charge 8
34

Interest expense 105
3

Related party interest —
30

(Gain) loss on sale of asset and businesses (41 ) 1

Other (income) expenses, net (24 ) 6
—

Adjusted Operating Income/Margin $ 288
$ 4,529
6.4 % $ 245
$ 4,894
5.0 %

(1) Pre-Tax Income (Loss) and revenue from continuing operations.

~~Conduent Form 10-Q~~

~~Effective Tax Rate Reconciliation:~~

Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
(in millions) Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate
GAAP as Reported From Continuing Operations $ 13
$ 30
230.8 % $ 2
$ 1
50.0 %
Non-GAAP adjustments⁽¹⁾
63
17
84
33

Termination of COLI plan —
(19 ) —
—

Adjusted⁽²⁾
$ 76
$ 28
36.8 % $ 86
$ 34
39.5 %

(1) Refer to Net Income (Loss) reconciliation for details.
(2) The tax impact of Adjusted Pre-Tax Income (Loss) from continuing operations is calculated under the same accounting principles applied to the As Reported Pre-Tax Income, which employs an annual effective tax rate method to the results.

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
(in millions) Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate Pre-Tax Income (Loss) Income Tax (Benefit) Expense Effective Tax Rate
GAAP as Reported From Continuing Operations $ (20 ) $ 11
(55.0 )% $ (86 ) $ (54 ) 62.8 %
Non-GAAP adjustments⁽¹⁾
203
72
298
104

Termination of COLI plan —
(19 ) —
—

Adjusted⁽²⁾
$ 183
$ 64
35.0 % $ 212
$ 50
23.6 %

(1) Refer to Net Income (Loss) reconciliation for details.
(2) The tax impact of Adjusted Pre-Tax Income (Loss) from continuing operations is calculated under the same accounting principles applied to the As Reported Pre-Tax Income, which employs an annual effective tax rate method to the results.

~~Net Income (Loss) and EPS Reconciliation:~~

Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
(in millions, except earnings per share) Net Income (Loss) EPS Net Income (Loss) EPS
GAAP as Reported From Continuing Operations $ (17 ) $ (0.09 ) $ 1
$ 0.01
Adjustments:
Amortization of intangible assets 60
63

NY MMIS 1
—

Restructuring and related costs 22
8

HE charge (3 ) —

Separation costs 2
15

(Gain) loss on sale of asset and businesses (16 ) —

Other (income) expenses, net (3 ) (2 )
Less: Income tax adjustments⁽¹⁾
2
(33 )
Adjusted Net Income (Loss) and EPS $ 48
$ 0.22
$ 52
$ 0.24

(shares)
Weighted average common shares outstanding 204
203
Restricted stock and performance shares 3
3
8% Convertible preferred stock —
5
Adjusted Weighted Average Shares Outstanding⁽²⁾
207
211
(1) Reflects the income tax (expense) benefit of the adjustments. Refer to the Effective Tax Rate reconciliation details.
(2) Average shares for the 2017 calculation of adjusted EPS excludes 5 million shares associated with our Series A convertible preferred stock and includes the impact of the preferred stock quarterly dividend of $2 million for the three months ended September 30, 2017. Average shares for the 2016 calculation of adjusted EPS includes 5 million shares associated with our Series A convertible preferred stock and excludes the impact of the preferred stock quarterly dividend.

~~Conduent Form 10-Q~~

Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
(in millions, except earnings per share) Net Income (Loss) EPS Net Income (Loss) EPS
GAAP as Reported From Continuing Operations $ (31 ) $ (0.19 ) $ (32 ) $ (0.16 )
Adjustments:
Amortization of intangible assets 182
200

NY MMIS 10
—

Restructuring and related costs 76
57

HE charge (8 ) —

Separation costs 8
34

(Gain) loss on sale of asset and businesses (41 ) 1

Other (income) expenses, net (24 ) 6

Less: Income tax adjustments⁽¹⁾
(53 ) (104 )
Adjusted Net Income (Loss) and EPS $ 119
$ 0.54
$ 162
$ 0.77

(shares)
Weighted average common shares outstanding 204
203
Restricted stock and performance shares 3
3
8% Convertible preferred stock —
5
Adjusted Weighted Average Shares Outstanding⁽²⁾
207
211
(1) Reflects the income tax (expense) benefit of the adjustments. Refer to the Effective Tax Rate reconciliation details.
(2) Average shares for the 2017 calculation of adjusted EPS excludes 5 million shares associated with our Series A convertible preferred stock and includes the impact of the preferred stock quarterly dividend of $7 million for the nine months ended September 30, 2017. Average shares for the 2016 calculation of adjusted EPS includes 5 million shares associated with our Series A convertible preferred stock and excludes the impact of the preferred stock quarterly dividend.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the “Market Risk Management” section in Item 2 of this ~~Quarterly Report on~~ Form 10-Q is hereby incorporated by reference in answer to this Item.

ITEM 4 — CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of our principal executive officer and principal financial officer, or persons performing similar functions, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act"), as of the end of the period covered by this ~~report.~~Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this ~~report,~~Form 10-Q, our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act, ~~as amended,~~ is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms relating to ~~Conduent Incorporated,~~the Company, including our consolidated subsidiaries, and was accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in Internal ~~Controls~~Control Over Financial Reporting

~~In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no~~

No change ~~identified~~ in our internal control over financial reporting ~~that~~ occurred during the ~~last fiscal~~ quarter ended March 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Conduent Form 10-Q~~

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

The information set forth under Note 11 – Contingencies and Litigation in the Condensed Consolidated Financial Statements of this ~~Quarterly Report on~~ Form 10-Q is incorporated herein by reference in answer to this Item.


						CNDT Q1 2020 Form 10-Q


Table of Contents

ITEM 1A — RISK FACTORS

Reference is made to the Risk Factors set forth in Part I, Item 1A of our ~~2016~~2019 Annual ~~Report. There have been no material changes~~Report on Form 10-K. Below are additions to our risk factors as previously reported in our ~~2016~~2019 Annual ~~Report.~~Report on Form 10-K.

Supplemental Risk Factor

In light of recent developments relating to the COVID-19 pandemic, the Company is supplementing the risk factors previously disclosed in Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on February 27, 2020, to include the following risk factor:

Our business has been and will continue to be negatively impacted by the ongoing coronavirus pandemic.

Beginning in late 2019, the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease 2019, or COVID-19, has evolved into a global pandemic and has spread to most regions of the world.

As a result of the COVID-19 pandemic, we have experienced and can be expected to continue to experience disruptions to our business, our operations, the delivery of our services and customer demand for our services and business offerings, including:

•Social distancing, shelter-in-place and stay-at-home requirements and guidance of national, regional, state and local governments have required that substantial services being performed by us for our customers be shifted to work-from-home alternatives, which have created added burdens, risks and costs, including but not limited to: the added cost and uncertainty created by a significant change in our delivery model; delays and disruptions resulting from organizing and implementing work-from-home solutions, particularly in our lower cost geographies, such as India and the Philippines, which have not in the past generally permitted or accommodated work-from-home alternatives; customer protocols not allowing, without express customer waiver or permission, work-from-home alternatives, due to sensitivity of customer data, inclusion of personally identifiable information, cybersecurity and data security concerns, and other factors; delays and disruptions in providing customer services which may adversely affect our reputation and may in the future result in failure to satisfy customer contract requirements and other noncompliance issues; challenges in and cost of equipping work-from-home solutions with appropriate technology equipment and software, with suitable security protections; potential for increased cybersecurity and other data security issues; compliance with legal, regulatory, industry and customer standards and specifications; and increased logistical issues resulting from unexpected shift in service delivery model. As a result of these and other factors related to work-from-home solutions, we have experienced and can be expected to continue to experience delays and disruptions and an adverse impact on our business, operations, costs, satisfaction of customer requirements and operating results and financial condition.

•The COVID-19 pandemic has impacted and may be expected to continue to adversely impact customer demand for our services and business offerings. Many of our customers have experienced and will continue to experience substantial disruption in their own operations. In addition, many of our governmental and non-governmental customers have been allocating resources and management attention away from the ordinary conduct of their business and toward responding to COVID-19 related emergent events. Our sales and marketing personnel are also largely required to perform their services via virtual or other telecommunication alternatives, rather than in-person interactions. The COVID-19 pandemic has also resulted in greater customer uncertainty in their short-term and longer-term needs. In addition, under certain contracts we earn revenues based on the number of transactions processed, such as, for example, certain transportation and credit card processing arrangements where the number of transactions has decreased due to the COVID-19 pandemic. These and other pandemic-related factors have and will continue to adversely impact revenues, sales, new business opportunities, pricing and our sales pipeline.


						CNDT Q1 2020 Form 10-Q


Table of Contents

•Further, our management has been focused on mitigating the impact of the COVID-19 pandemic, which has required and will continue to require a substantial investment of time and resources across our enterprise. This has resulted and can be expected to continue to result in a diversion of management attention, resources and previously planned investments away from strategic, transformational and technology initiatives which had been intended to improve customer demand, new business opportunities, business retention, service delivery, potential divestitures or acquisitions, and the overall profitability of our business and we cannot predict how long this may continue.

•Our government contracts are often subject to a government entity’s right to change the scope of work or to terminate their project for funding reasons or at their convenience. Due to the COVID-19 pandemic and its current and future impact on governments, budgets and resources, we may experience government contracts’ reductions or terminations.

•We are a leading provider of business processing services concentrated on transaction-intensive processing including financial transactions. If we fail to satisfy a customer’s requirements or specifications, we could incur additional costs to address such dissatisfaction or on account of such deficiency as well as receive notice of termination. The COVID-19 pandemic has had and can be expected to continue to have an impact on compliance and non-interruption of service under certain customer contractual requirements, and certain customer relationships can be expected to be adversely impacted, in addition to our incurring added costs in response to any deficiency.

•The COVID-19 pandemic may have had and may continue to have an adverse impact on the operations, financial results and finances of many of our customers, which could impact customer payment cycles and payments due from customers.

•We rely on third parties to provide technology, other services and products we need to operate our business. Delays or interruption in the operations of third parties on which we rely may result in disruptions in our own operations and fulfillment of our customers’ requirements.

•The economic downturn could also result in the carrying value of our goodwill or other intangible assets exceeding their fair value, which could require us to recognize further asset impairment.

•We also cannot predict the impact of remote working arrangements on our internal systems and normal administrative services.

•To the extent we draw under our credit facility, our debt would increase. Such increase in our level of debt could adversely affect our financial results or ability to incur additional debt and could negatively impact our credit ratings. In addition, as a result of the risks described above, we may be required to raise additional debt or equity financing, and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects, our credit ratings, and the outlook for our industry as a whole. If, as a result of COVID-19, credit agencies downgrade our credit ratings, or general market conditions were to ascribe higher risk to our credit rating levels, our access to capital and cost of debt financing may be negatively impacted and certain of our existing commercial agreements may require us to post collateral; the continuing impact of the COVID-19 pandemic could also negatively impact our compliance with our financial covenants under our credit facilities. In addition, the terms of future debt agreements could include more restrictive covenants.

•The trading prices for our common shares and the securities of other companies in our industry have been highly volatile as a result of the COVID-19 pandemic and a recession, depression or other sustained adverse market event resulting from the COVID-19 pandemic could materially and adversely affect the financial markets, the value of our common shares and our ability to obtain equity or debt financing on favorable or acceptable terms.


						CNDT Q1 2020 Form 10-Q


Table of Contents

The COVID-19 pandemic continues to rapidly evolve, and additional material impacts and disruptions are likely to occur. These and other factors, which may worsen, can be expected to have a material adverse impact on our business, operations, financial results and capital resources. The ultimate impact of the COVID-19 pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted, including the duration of the pandemic, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions taken to contain COVID-19 or address its impact in the short and long term, among others. We do not yet know and cannot predict the full extent of potential impacts on our business, our services and business offerings or our operating results and financial condition.

Please also refer to the complete Item 1A of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2020 for additional risks and uncertainties facing the Company, any of which risks and uncertainties can be expected to be further heightened by the COVID-19 pandemic and have a material adverse effect on the Company’s business, prospects, financial condition, results of operations and capital resources.

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


~~(a)~~	~~Sales of Unregistered Securities during the Quarter ended September 30, 2017~~ (a)Sales of Unregistered Securities during the Quarter ended March 31, 2020

During the quarter ended ~~September 30, 2017,~~March 31, 2020, the Company did not issue any securities in transactions that were not registered under the Securities Act of 1933, as amended.

(b)Issuer Purchases of Equity Securities during the Quarter ended March 31, 2020

None.


~~(b)~~			~~Issuer Purchases of Equity Securities during the Quarter ended September 30, 2017~~			CNDT Q1 2020 Form 10-Q

~~None~~.34


Table of Contents

ITEM 6 — EXHIBITS



3.1		Restated Certificate of Incorporation of Registrant filed with the Department of the State of New York on December 31, ~~2016~~2016..
		Incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K dated December 23, 2016.

3.2		Amended and Restated By-Laws of Registrant as amended through December 31, ~~2016~~2016..
		Incorporated by reference to Exhibit 3.2 to Registrants Current Report on Form 8-K dated December 23, 2016.

~~10.1(d)~~ *10.6(a)(vi)		~~Amendment No. 2 to Credit~~Form of Restricted Stock Unit Award Agreement ~~dated as of April 7, 2017, among Conduent Incorporated, Conduent Business Services, LLS, Affiliated Computer Services International B.V. and Conduent Finance, Inc.,~~2020 under the ~~Lenders from time to time party thereto and JPMorgan Chase Bank, N/A., as Administrative Agent~~PIP..
		~~Incorporated by reference to Registrant's Current Report on Form 8-K, filed October 10, 2017.~~
*10.6(a)(vii)
~~10.6(h)~~	~~Executive Change in Control Severance Plan, dated as~~Form of ~~October 1, 2017~~Performance Restricted Stock Unit Award Agreement 2020 under the PIP..
		~~Incorporated by reference to Registrant's Current Report on Form 8-K, filed October 4, 2017.~~
31(a)
~~31(a)~~	Certification of CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a)..
31(b)		Certification of CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.CAL~~
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase.
~~101.INS~~101.LAB		~~XBRL Instance Document.~~
~~101.LAB~~	Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase.
101.SCH		Inline XBRL Taxonomy Extension Schema Linkbase.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*		Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

~~Conduent~~


						CNDT Q1 2020 Form 10-Q


Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



CONDUENT INCORPORATED (Registrant)

~~By:~~		/S~~/ ALLAN~~ C~~OHEN~~
By:	~~Allan Cohen~~ /S/ MARIO A. POMPEO
	Mario A. Pompeo Vice President and Chief Accounting Officer (Principal Accounting Officer)

Date: ~~November 8, 2017~~May 7, 2020

~~Conduent Form 10-Q~~


						CNDT Q1 2020 Form 10-Q


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



						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		78
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		1823
			Capital Resources and Liquidity		2330
			Market Risk Management		2431
			~~Non-GAAP Financial Measures~~Item 3.	24
~~Item 3.~~	Quantitative and Qualitative Disclosures About Market Risk	2831
Item 4.			Controls and Procedures		2831

Part II — Other Information

Item 1.			Legal Proceedings		2931
Item 1A.			Risk Factors		2932
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		2934
~~Item 6.~~	~~Exhibits~~	29
~~Signatures~~Item 6.			30Exhibits		35
Signatures						36



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



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


	Three Months Ended March 31,
(in millions, except per share data)	2020		2019
Revenue	$	1,051	$	1,158

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	832		906
Selling, general and administrative (excluding depreciation and amortization)	116		127
Research and development (excluding depreciation and amortization)	1		3
Depreciation and amortization	117		115
Restructuring and related costs	7		16
Interest expense	17		20
Goodwill impairment	—		284
(Gain) loss on divestitures and transaction costs	4		14
Litigation costs (recoveries), net	6		12
Other (income) expenses, net	2		(1)
Total Operating Costs and Expenses	1,102		1,496

Income (Loss) Before Income Taxes	(51)		(338)

Income tax expense (benefit)	(2)		(30)
Net Income (Loss)	$	(49)	$	(308)

Net Income (Loss) per Share:
Basic	$	(0.24)	$	(1.49)
Diluted	$	(0.24)	$	(1.49)



	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions, except per-share data)	2017			2016			2017			2016
Revenues
Revenue	$	1,470		$	1,585		$	4,497		$	4,856
Related party	10			11			32			38
Total Revenues	1,480			1,596			4,529			4,894

Cost of services	1,210			1,319			3,742			4,079
Related party cost of services	9			9			24			28
Gross Margin	261			268			763			787

Operating Costs and Expenses
Research and development	4			7			11			25
Selling, general and administrative	144			164			466			517
Restructuring and related costs	22			8			76			57
Amortization of intangible assets	60			63			182			200
Interest expense	35			1			105			3
Related party interest	—			10			—			30
Separation costs	2			15			8			34
(Gain) loss on sale of asset and businesses	(16		)	—			(41		)	1
Other (income) expenses, net	(3		)	(2		)	(24		)	6
Total Operating Costs and Expenses	248			266			783			873

Income (Loss) before Income Taxes	13			2			(20		)	(86		)
Income tax expense (benefit)	30			1			11			(54		)
(Loss) Income from Continuing Operations	(17		)	1			(31		)	(32		)
Income from discontinued operations, net of tax	—			—			4			—
Net (Loss) Income	$	(17	)	$	1		$	(27	)	$	(32	)

Basic Earnings (Loss) per Share:
Continuing operations	$	(0.09	)	$	0.01		$	(0.19	)	$	(0.16	)
Discontinued operations	—			—			0.02			—
Total Basic (Loss) Income per Share	$	(0.09	)	$	0.01		$	(0.17	)	$	(0.16	)

Diluted Earnings (Loss) per Share:
Continuing operations	$	(0.09	)	$	0.01		$	(0.19	)	$	(0.16	)
Discontinued operations	—			—			0.02			—
Total Diluted (Loss) Income per Share	$	(0.09	)	$	0.01		$	(0.17	)	$	(0.16	)


(in millions, except share data in thousands)	September 30, 2017			December 31, 2016			(in millions, except share data in thousands)	March 31, 2020		December 31, 2019
Assets							Assets
Cash and cash equivalents	$	468		$	390		Cash and cash equivalents	$	395	$	496
Accounts receivable, net	1,380			1,286			Accounts receivable, net	690		652
Net receivable from former parent company	31			—
Contract assets							Contract assets	169		155
Other current assets	233			241			Other current assets	318		283
Total current assets	2,112			1,917			Total current assets	1,572		1,586
Land, buildings and equipment, net	249			283			Land, buildings and equipment, net	321		342
Operating lease right-of-use assets							Operating lease right-of-use assets	265		271
Intangible assets, net	959			1,144			Intangible assets, net	366		426
Goodwill	3,899			3,889			Goodwill	1,486		1,502
Other long-term assets	328			476			Other long-term assets	384		387
Total Assets	$	7,547		$	7,709		Total Assets	$	4,394	$	4,514

Liabilities and Equity							Liabilities and Equity
Short-term debt and current portion of long-term debt	$	71		$	28
Current portion of long-term debt							Current portion of long-term debt	$	60	$	50
Accounts payable	147			164			Accounts payable	168		198
Accrued compensation and benefits costs	221			269			Accrued compensation and benefits costs	151		174
Unearned income	184			206			Unearned income	109		108
Net payable to former parent company	—			124
Other current liabilities	591			611			Other current liabilities	535		647
Total current liabilities	1,214			1,402			Total current liabilities	1,023		1,177
Long-term debt	1,991			1,913			Long-term debt	1,596		1,464
Pension and other benefit liabilities	151			172
Deferred taxes	605			619			Deferred taxes	108		111
Operating lease liabilities							Operating lease liabilities	224		229
Other long-term liabilities	132			173			Other long-term liabilities	81		91
Total Liabilities	4,093			4,279			Total Liabilities	3,032		3,072

Contingencies (See Note 11)							Contingencies (See Note 11)
Series A Convertible Preferred Stock	142			142
Series A convertible preferred stock							Series A convertible preferred stock	142		142

Common Stock	2			2
Additional paid-in-capital	3,834			3,812
Retained deficit	(34		)	—
Common stock							Common stock	2		2
Additional paid-in capital							Additional paid-in capital	3,891		3,890
Retained earnings (deficit)							Retained earnings (deficit)	(2,236)		(2,185)
Accumulated other comprehensive loss	(490		)	(526		)	Accumulated other comprehensive loss	(437)		(407)
Total Equity	3,312			3,288			Total Equity	1,220		1,300
Total Liabilities and Equity	$	7,547		$	7,709		Total Liabilities and Equity	$	4,394	$	4,514

Shares of common stock issued and outstanding	210,372			202,875			Shares of common stock issued and outstanding	209,058		211,511
Shares of Series A convertible preferred stock issued and outstanding	120			120
Shares of series A convertible preferred stock issued and outstanding							Shares of series A convertible preferred stock issued and outstanding	120		120



(in millions)	Severance and Related Costs			Lease Cancellation and Other Costs			Asset Impairments			Total
Accrued Balance at December 31, 2016	$	15		$	5		$	1		$	21
Restructuring provision	38			33			4			75
Reversals of prior accruals	(5		)	(2		)	—			(7		)
Net Current Period Charges	33			31			4			68
Payments and asset impairments	(34		)	(9		)	(6		)	(49		)
Accrued Balance at September 30, 2017	$	14		$	27		$	(1	)	$	40



(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings			AOCL⁽¹⁾			Former Parent Company Investment		Conduent Shareholders' Equity
Balance at December 31, 2016	$	2	$	3,812	$	—		$	(526	)	$	—	$	3,288
Comprehensive (loss) income, net	—		—		(27		)	36			—		9
Cash dividends paid - preferred stock⁽²⁾	—		—		(7		)	—			—		(7		)
Stock option and incentive plans, net	—		22		—			—			—		22
Balance at September 30, 2017	$	2	$	3,834	$	(34	)	$	(490	)	$	—	$	3,312



	Three Months Ended September 30,									Nine Months Ended September 30,
(in millions)	Revenue		% of Total Revenue		Segment Profit (Loss)			Segment Profit (Loss)%		Revenue		% of Total Revenue		Segment Profit (Loss)			Segment Profit (Loss)%
2017
Commercial Industries	$	864	58	%	$	53		6.1	%	$	2,663	59	%	$	114		4.3	%
Public Sector	540		37	%	59			10.9	%	1,629		36	%	179			11.0	%
Other	76		5	%	1			1.3	%	237		5	%	(7		)	(3.0	)%
Total	$	1,480	100	%	$	113		7.6	%	$	4,529	100	%	$	286		6.3	%

2016
Commercial Industries	$	923	58	%	$	42		4.6	%	$	2,869	59	%	$	103		3.6	%
Public Sector	584		37	%	78			13.4	%	1,734		35	%	217			12.5	%
Other	89		5	%	(23		)	(25.8	)%	291		6	%	(75		)	(25.8	)%
Total	$	1,596	100	%	$	97		6.1	%	$	4,894	100	%	$	245		5.0	%



	Three Months Ended September 30, 2017							Three Months Ended September 30, 2016
(in millions)	Pre Tax Income (Loss)			Revenue		Margin		Pre Tax Income (Loss)			Revenue		Margin
GAAP as Reported⁽¹⁾	$	13		$	1,480	0.9	%	$	2		1,596		0.1	%
Adjustments:
Amortization of intangible assets	60							63
NY MMIS	1							—
Restructuring and related costs	22							8
HE charge	(3		)					—
Separation costs	2							15
Interest expense	35							1
Related party interest	—							10
(Gain) loss on sale of asset and businesses	(16		)					—
Other (income) expenses, net	(3		)					(2		)	—
Adjusted Operating Income/Margin	$	111		$	1,480	7.5	%	$	97		$	1,596	6.1	%

(1) Pre-Tax Income (Loss) and revenue from continuing operations.



	Nine Months Ended September 30, 2017							Nine Months Ended September 30, 2016
(in millions)	Pre Tax Income (Loss)			Revenue		Margin		Pre Tax Income (Loss)			Revenue		Margin
GAAP as Reported⁽¹⁾	$	(20	)	$	4,529	(0.4	)%	$	(86	)	4,894		(1.8	)%
Adjustments:
Goodwill impairment	182							200
Amortization of intangible assets	10							—
NY MMIS	76							57
Restructuring and related costs	(8		)					—
HE charge	8							34
Interest expense	105							3
Related party interest	—							30
(Gain) loss on sale of asset and businesses	(41		)					1
Other (income) expenses, net	(24		)					6			—
Adjusted Operating Income/Margin	$	288		$	4,529	6.4	%	$	245		$	4,894	5.0	%

(1) Pre-Tax Income (Loss) and revenue from continuing operations.



	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016
(in millions, except earnings per share)	Net Income (Loss)			EPS			Net Income (Loss)			EPS
GAAP as Reported From Continuing Operations	$	(17	)	$	(0.09	)	$	1		$	0.01
Adjustments:
Amortization of intangible assets	60						63
NY MMIS	1						—
Restructuring and related costs	22						8
HE charge	(3		)				—
Separation costs	2						15
(Gain) loss on sale of asset and businesses	(16		)				—
Other (income) expenses, net	(3		)				(2		)
Less: Income tax adjustments⁽¹⁾	2						(33		)
Adjusted Net Income (Loss) and EPS	$	48		$	0.22		$	52		$	0.24

(shares)
Weighted average common shares outstanding				204						203
Restricted stock and performance shares				3						3
8% Convertible preferred stock				—						5
Adjusted Weighted Average Shares Outstanding⁽²⁾				207						211
(1) Reflects the income tax (expense) benefit of the adjustments. Refer to the Effective Tax Rate reconciliation details.
(2) Average shares for the 2017 calculation of adjusted EPS excludes 5 million shares associated with our Series A convertible preferred stock and includes the impact of the preferred stock quarterly dividend of $2 million for the three months ended September 30, 2017. Average shares for the 2016 calculation of adjusted EPS includes 5 million shares associated with our Series A convertible preferred stock and excludes the impact of the preferred stock quarterly dividend.