CONDUENT Inc - Quarter Report: 2021 September (Form 10-Q)


Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

_______________

(Mark One)


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

For the quarterly period ended: September 30, 2021


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

For the transition period from to

Commission File Number 001-37817

CONDUENT INCORPORATED

(Exact Name of Registrant as specified in its charter)

New York

81-2983623

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

100 Campus Drive,

Suite 200,

Florham Park,

New Jersey

07932

(Address of principal executive offices)

(Zip Code)

(844) 663-2638

(Registrant’s telephone number, including area code)

_________________________________________________

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


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

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Small reporting company

☐

Emerging growth company

☐

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

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


Class		Outstanding at October 31, 2021
Common Stock,	$0.01 par value	212,793,998


						CNDT Q3 2021 Form 10-Q


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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (Form 10-Q) and any exhibits to this Form 10-Q may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” "plan," “intend,” “will,” “aim,” “should,” “could,” “forecast,” “target,” “may,” "continue to," "if,” “growing,” “projected,” “potential,” “likely,” and similar expressions, as they relate to us, are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. In addition, all statements regarding the anticipated effects of the novel coronavirus, or COVID-19, pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, and markets, results of operations and financial condition and anticipated actions to be taken by management to sustain our business during the economic uncertainty caused by the pandemic and related governmental and business actions, as well as other statements that are not strictly historical in nature, are forward looking. These statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied herein as anticipated, believed, estimated, expected or intended or using other similar expressions.

In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Form 10-Q, any exhibits to this Form 10-Q and other public statements we make. Our actual results may vary materially from those expressed or implied in our forward-looking statements. These forward-looking statements are also subject to the significant continuing impact of the COVID-19 pandemic on our business, operations, financial results and financial condition, which is dependent on developments which are highly uncertain and cannot be predicted.

Important factors and uncertainties that could cause our actual results to differ materially from those in our forward-looking statements include, but are not limited to: the significant continuing effects of the ongoing COVID-19 pandemic on our business, operations, financial results and financial condition, which is dependent on developments which are highly uncertain and cannot be predicted; government appropriations and termination rights contained in our government contracts; our ability to renew commercial and government contracts, including contracts awarded through competitive bidding processes; our ability to recover capital and other investments in connection with our contracts; our reliance on third-party providers; our ability to deliver on our contractual obligations properly and on time; changes in interest in outsourced business process services; risk and impact of geopolitical events, natural disasters and other factors (such as pandemics, including coronavirus) in a particular country or region on our workforce, customers and vendors; claims of infringement of third-party intellectual property rights; our ability to estimate the scope of work or the costs of performance in our contracts; the loss of key senior management and our ability to attract and retain necessary technical personnel and qualified subcontractors; increases in the cost of telephone and data services or significant interruptions in such services; our failure to develop new service offerings and protect our intellectual property rights; our ability to modernize our information technology infrastructure and consolidate data centers; the failure to comply with laws relating to individually identifiable information and personal health information; the failure to comply with laws relating to processing certain financial transactions, including payment card transactions and debit or credit card transactions; breaches of our information systems or security systems or any service interruptions; our ability to comply with data security standards; changes in tax and other laws and regulations; risk and impact of potential goodwill and other asset impairments; our significant indebtedness; our ability to obtain adequate pricing for our services and to improve our cost structure; our ability to collect our receivables, including those for unbilled services; a decline in revenues from, or a loss of, or a reduction in business from or failure of significant clients; fluctuations in our non-recurring revenue; our failure to maintain a satisfactory credit rating; our ability to receive dividends or other payments from our subsidiaries; developments in various contingent liabilities that are not reflected on our balance sheet, including those arising as a result of being involved in a variety of claims, lawsuits, investigations and proceedings; conditions abroad, including local economics, political environments, fluctuating foreign currencies and shifting regulatory schemes; changes in government regulation and economic, strategic, political and social conditions; changes in the volatility of our stock price and the risk of litigation following a decline in the price of our stock; the impact of the ongoing COVID-19 pandemic; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Quarterly Report on Form 10-Q as well as in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) and any subsequent Quarterly Report on Form 10-Q and Current Report on Form 8-K. Any forward-looking statements made by us in this Quarterly Report on Form 10-Q speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.


						CNDT Q3 2021 Form 10-Q


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CONDUENT INCORPORATED

FORM 10-Q

September 30, 2021

TABLE OF CONTENTS


		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Income (Loss)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Shareholders' Equity	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Capital Resources and Liquidity	33
	Market Risk Management	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

Part II — Other Information

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6.	Exhibits	38
Signatures		39

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


						CNDT Q3 2021 Form 10-Q


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PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)

CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2021		2020		2021		2020
Revenue	$	1,038	$	1,041	$	3,092	$	3,108

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	776		779		2,335		2,406
Selling, general and administrative (excluding depreciation and amortization)	131		122		382		349
Research and development (excluding depreciation and amortization)	2		—		3		1
Depreciation and amortization	84		112		265		344
Restructuring and related costs	10		20		31		56
Interest expense	12		14		38		46

(Gain) loss on divestitures and transaction costs	—		8		1		14
Litigation costs	—		—		2		20
Loss on extinguishment of debt	—		—		2		—
Other (income) expenses, net	4		(1)		4		—
Total Operating Costs and Expenses	1,019		1,054		3,063		3,236

Income (Loss) Before Income Taxes	19		(13)		29		(128)

Income tax expense (benefit)	8		(6)		17		(21)
Net Income (Loss)	$	11	$	(7)	$	12	$	(107)

Net Earnings (Loss) per Share:
Basic	$	0.04	$	(0.04)	$	0.02	$	(0.54)
Diluted	$	0.04	$	(0.04)	$	0.02	$	(0.54)

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


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CONDUENT INCORPORATED

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Net Income (Loss)	$	11	$	(7)	$	12	$	(107)
Other Comprehensive Income (Loss), Net(1)
Currency translation adjustments, net	(16)		11		(23)		(15)


Unrecognized gains (losses), net	—		1		(1)		—
Changes in benefit plans, net	—		—		(1)		1
Other Comprehensive Income (Loss), Net	(16)		12		(25)		(14)

Comprehensive Income (Loss), Net	$	(5)	$	5	$	(13)	$	(121)

__________

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

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


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	394	$	450
Accounts receivable, net	701		670
Contract assets	159		151
Other current assets	257		306
Total current assets	1,511		1,577
Land, buildings and equipment, net	273		305
Operating lease right-of-use assets	243		246
Intangible assets, net	84		187
Goodwill	1,506		1,528
Other long-term assets	475		413
Total Assets	$	4,092	$	4,256
Liabilities and Equity
Current portion of long-term debt	$	21	$	90
Accounts payable	169		182
Accrued compensation and benefits costs	252		237
Unearned income	111		133
Other current liabilities	434		450
Total current liabilities	987		1,092
Long-term debt	1,384		1,420
Deferred taxes	87		97
Operating lease liabilities	195		207
Other long-term liabilities	114		108
Total Liabilities	2,767		2,924

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

Common stock	2		2
Additional paid-in capital	3,912		3,899
Retained earnings (deficit)	(2,308)		(2,313)
Accumulated other comprehensive loss	(423)		(398)
Total Equity	1,183		1,190
Total Liabilities and Equity	$	4,092	$	4,256

Shares of common stock issued and outstanding	212,672		212,074
Shares of series A convertible preferred stock issued and outstanding	120		120

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


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(in millions)	2021		2020
Cash Flows from Operating Activities:
Net income (loss)	$	12	$	(107)
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization	265		344
Contract inducement amortization	1		2
Deferred income taxes	(7)		(38)

(Gain) loss from investments	5		(3)
Amortization of debt financing costs	5		5
Loss on extinguishment of debt	2		—
Loss on divestitures and sales of fixed assets, net	1		5
Stock-based compensation	14		14
Allowance for doubtful accounts	(1)		1
Changes in operating assets and liabilities:
Accounts receivable	(34)		(36)
Other current and long-term assets	(59)		(51)
Accounts payable and accrued compensation and benefits costs	5		(5)
Restructuring liabilities	—		3
Other current and long-term liabilities	(57)		(152)
Net change in income tax assets and liabilities	6		7
Net cash provided by (used in) operating activities	158		(11)
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment	(52)		(48)

Cost of additions to internal use software	(49)		(47)

Proceeds from divestitures	4		3
Net cash provided by (used in) investing activities	(97)		(92)
Cash Flows from Financing Activities:
Proceeds from revolving credit facility and other loans	—		152

Payments on debt	(102)		(41)
Payment of contingent consideration related to acquisition	—		(4)
Premium on debt redemption	(2)		—
Taxes paid for settlement of stock-based compensation	(1)		(3)
Dividends paid on preferred stock	(7)		(5)
Net cash provided by (used in) financing activities	(112)		99
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(7)		(5)
Increase (decrease) in cash, cash equivalents and restricted cash	(58)		(9)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	458		505
Cash, Cash Equivalents and Restricted Cash at End of period(1)	$	400	$	496

___________

(1)Includes $6 million and $8 million of restricted cash as of September 30, 2021 and 2020, 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.


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


	Three Months Ended September 30, 2021
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at June 30, 2021	$	2	$	3,907	$	(2,317)	$	(407)	$	1,185
Dividends - preferred stock, $20/share	—		—		(2)		—		(2)
Stock incentive plans, net	—		5		—		—		5
Comprehensive Income (Loss):
Net Income (Loss)	—		—		11		—		11
Other comprehensive income (loss), net	—		—		—		(16)		(16)
Total Comprehensive Income (Loss), Net	—		—		11		(16)		(5)
Balance at September 30, 2021	$	2	$	3,912	$	(2,308)	$	(423)	$	1,183


	Three Months Ended September 30, 2020
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at June 30, 2020	$	2	$	3,896	$	(2,290)	$	(433)	$	1,175
Dividends - preferred stock, $20/share(2)	—		—		(2)		—		(2)
Stock incentive plans, net	—		5		—		—		5
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(7)		—		(7)
Other comprehensive income (loss), net	—		—		—		12		12
Total Comprehensive Income (Loss), Net	—		—		(7)		12		5
Balance at September 30, 2020	$	2	$	3,901	$	(2,299)	$	(421)	$	1,183


	Nine Months Ended September 30, 2021
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at December 31, 2020	$	2	$	3,899	$	(2,313)	$	(398)	$	1,190
Dividends - preferred stock, $60/share	—		—		(7)		—		(7)
Stock incentive plans, net	—		13		—		—		13
Comprehensive Income (Loss):
Net Income (Loss)	—		—		12		—		12
Other comprehensive income (loss), net	—		—		—		(25)		(25)
Total Comprehensive Income (Loss), Net	—		—		12		(25)		(13)
Balance at September 30, 2021	$	2	$	3,912	$	(2,308)	$	(423)	$	1,183


	Nine Months Ended September 30, 2020
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at December 31, 2019	2		3,890		(2,185)		(407)		1,300
Dividends - preferred stock, $60/share (2)	—		—		(7)		—		(7)
Stock incentive plans, net	—		11		—		—		11
Comprehensive Income (Loss):
Net Income (Loss)	—		—		(107)		—		(107)
Other comprehensive income (loss), net	—		—		—		(14)		(14)
Total Comprehensive Income (Loss), Net	—		—		(107)		(14)		(121)
Balance at September 30, 2020	$	2	$	3,901	$	(2,299)	$	(421)	$	1,183

___________

(1)AOCL - Accumulated other comprehensive loss. Refer to Note 10 – Accumulated Other Comprehensive Loss for the components of AOCL.

(2)The preferred dividend for the third quarter of 2020 was accrued but unpaid as of September 30, 2020.

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


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CONDUENT INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Basis of Presentation

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

Description of Business

As one of the largest business process services companies in the world, Conduent delivers 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 services and solutions 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 solutions and payment services.

Basis of Presentation

The unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The year-end Condensed Consolidated Balance Sheet was derived from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Certain reclassifications have been made to prior year information to conform to current year presentation. Intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows have been made. These adjustments consist of normal recurring items. The interim results of operations are not necessarily indicative of the results of the full year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Use of Estimates

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

As of September 30, 2021, the impact of the COVID-19 pandemic, the mitigating impact of the rollout of a vaccine for it and fluctuating cases of new variants of the virus continue to unfold. As a result, many of the Company's estimates and assumptions continue to require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company's estimates may change materially in the future.


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Note 2 – Recent Accounting Pronouncements

The Company's significant accounting policies are described in Note 1–Basis of Presentation and Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Summarized below are the applicable accounting pronouncements adopted or to be adopted subsequent to December 31, 2020.

New Accounting Standards Adopted

Income Taxes: In December 2019, the Financial Accounting Standards Board (FASB) issued final guidance that simplified the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification (ASC) 740, Income Taxes. This final guidance was effective for fiscal years beginning January 1, 2021. The Company adopted the final income taxes guidance as of January 1, 2021. The adoption did not have any material impact on the Company's Condensed Consolidated Financial Statements.

New Accounting Standards To Be Adopted

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


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Note 3 – Revenue

Disaggregation of Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Commercial Industries:
Customer experience management	$	152	$	149	$	459	$	474
Business operations solutions	139		140		418		426
Commercial healthcare solutions	109		106		329		322
Human resource and learning services	109		123		332		388
Total Commercial Industries	509		518		1,538		1,610
Government Services:
Government healthcare solutions	143		153		432		459
Government services solutions	206		195		573		510
Total Government Services	349		348		1,005		969
Transportation:
Roadway charging & management services	79		83		237		232
Transit solutions	60		53		194		181
Curbside management solutions	22		18		60		54
Public safety solutions	17		19		52		56
Commercial vehicles	2		2		6		6
Total Transportation	180		175		549		529




Total Consolidated Revenue	$	1,038	$	1,041	$	3,092	$	3,108

Timing of Revenue Recognition:
Point in time	$	26	$	23	$	83	$	85
Over time	1,012		1,018		3,009		3,023
Total Revenue	$	1,038	$	1,041	$	3,092	$	3,108

Contract Balances

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


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


(in millions)	September 30, 2021		December 31, 2020
Contract Assets (Unearned Income)
Current contract assets	$	159	$	151
Long-term contract assets(1)	8		13
Current unearned income	(111)		(133)
Long-term unearned income(2)	(39)		(29)
Net Contract Assets (Unearned Income)	$	17	$	2
Accounts receivable, net	$	701	$	670

__________

(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 $11 million and $99 million were recognized during the three and nine months ended September 30, 2021, respectively, related to the Company's unearned income at December 31, 2020. Revenues of $20 million and $84 million were recognized during the three and nine months ended September 30, 2020, respectively, related to the Company's unearned income at December 31, 2019. The Company had no material asset impairment charges related to contract assets for the three and nine months ended September 30, 2021 or 2020.

Transaction Price Allocated to the Remaining Performance Obligations

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at September 30, 2021 was approximately $1.3 billion. The Company expects to recognize approximately 76% of this revenue over the next two years and the remainder thereafter.

Note 4 – Segment Reporting

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

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

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

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


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Transportation: The 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, the Company delivers mission-critical mobility and payment solutions that improve automation, interoperability and decision-making to streamline operations, increase revenue and reduce congestion while creating safer communities and seamless travel experiences for consumers.

Other includes the Company's Student Loan business, which the Company exited in the third quarter of 2018.

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

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


	Three Months Ended September 30,
(in millions)	Commercial Industries		Government Services		Transportation		Other		Unallocated Costs		Total
2021
Revenue	$	509	$	349	$	180	$	—	$	—	$	1,038
Segment profit (loss)	$	29	$	125	$	16	$	—	$	(94)	$	76

2020
Revenue	$	518	$	348	$	175	$	—	$	—	$	1,041
Segment profit (loss)	$	32	$	122	$	26	$	6	$	(98)	$	88


	Nine Months Ended September 30,
(in millions)	Commercial Industries		Government Services		Transportation		Other		Unallocated Costs		Total
2021
Revenue	$	1,538	$	1,005	$	549	$	—	$	—	$	3,092
Segment profit (loss)	$	93	$	322	$	54	$	—	$	(259)	$	210

2020
Revenue	$	1,610	$	969	$	529	$	—	$	—	$	3,108
Segment profit (loss)	$	99	$	282	$	56	$	9	$	(258)	$	188


(in millions)	Three Months Ended September 30,			Nine Months Ended September 30,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)		2021		2020		2021		2020
Income (Loss) Before Income Taxes		$	19	$	(13)	$	29	$	(128)
Reconciling items:
Amortization of acquired intangible assets		31		60		103		180
Restructuring and related costs		10		20		31		56
Interest expense		12		14		38		46

(Gain) loss on divestitures and transaction costs		—		8		1		14
Litigation costs		—		—		2		20
Loss on extinguishment of debt		—		—		2		—
Other (income) expenses, net		4		(1)		4		—
Segment Pre-tax Income (Loss)		$	76	$	88	$	210	$	188

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


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Note 5 – Restructuring Programs and Related Costs

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 Company's operational efficiency improvement initiatives has reduced the Company's real estate footprint across all geographies and segments resulting in lease right-of-use asset impairments and other related costs. Also included in Restructuring and related costs are incremental, non-recurring costs related to the consolidation of the Company's data centers, which totaled $4 million and $8 million for the three months ended September 30, 2021 and 2020, respectively, and $19 million and $16 million for the nine months ended September 30, 2021 and 2020, respectively. Management continues to evaluate the Company's businesses, and in the future, there may be additional provisions for new plan initiatives and/or changes in previously recorded estimates as payments are made, or actions are completed.

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

A summary of the Company's restructuring program activity during the nine months ended September 30, 2021 and 2020 is as follows:


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2020	$	3	$	3	$	—	$	6
Provision	2		23		7		32
Changes in estimates	—		(4)		—		(4)
Total Net Current Period Charges(1)	2		19		7		28
Charges against reserve and currency	(4)		(21)		(7)		(32)
Accrued Balance at September 30, 2021	$	1	$	1	$	—	$	2


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2019	$	15	$	6	$	—	$	21
Provision	13		19		15		47
Changes in estimates	1		2		—		3
Total Net Current Period Charges(1)	14		21		15		50
Charges against reserve and currency	(22)		(24)		(15)		(61)

Accrued Balance at September 30, 2020	$	7	$	3	$	—	$	10

__________

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

In addition, the Company recorded professional support costs associated with the implementation of certain strategic transformation programs of $1 million and $2 million for the three months ended September 30, 2021 and 2020, respectively, and $3 million and $6 million for the nine months ended September 30, 2021 and 2020, respectively.


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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Commercial Industries	$	1	$	4	$	3	$	11
Government Services	—		—		—		1
Transportation	—		(1)		—		2

Unallocated Costs(1)	8		15		25		36
Total Net Restructuring Charges	$	9	$	18	$	28	$	50

__________

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

Note 6 – Debt

Long-term debt was as follows:


(in millions)	September 30, 2021		December 31, 2020
Term loan A due December 2022	$	585	$	654
Term loan B due December 2023	810		816

Senior notes due 2024	—		34
Finance lease obligations	18		20
Other loans	5		4
Principal debt balance	1,418		1,528
Debt issuance costs and unamortized discounts	(13)		(18)
Less: current maturities	(21)		(90)
Total Long-term Debt	$	1,384	$	1,420

As of September 30, 2021, the Company had no outstanding borrowings under its $750 million Senior Revolving Credit Facility in effect as of September 30, 2021 (Prior Revolver). However, the Company has utilized $10 million of the Prior Revolver to issue letters of credit. The net Prior Revolver available to be drawn upon as of September 30, 2021 was $740 million.

On May 1, 2021, the Company redeemed all the previously outstanding $34 million 10.50% Senior Notes due 2024 and incurred $2 million of loss on extinguishment of debt.

On October 15, 2021, the Company closed on a debt refinancing and extended its maturity profile. As described in Note 17 - Subsequent Event, the Term Loan A due 2022 and the Term Loan B due 2023 (collectively, the 2016 Credit Facilities) were repaid and the Prior Revolver was terminated. Under the applicable accounting rules, since the 2016 Credit Facilities were refinanced on a long-term basis before the issuance of these Condensed Consolidated Financial Statements, the Company has classified a portion of the current maturities related to the 2016 Credit Facilities to long-term debt as of September 30, 2021.

At December 31, 2020, the Company was in compliance with all debt covenants related to the borrowings in the table above. As a result of the October 2021 refinancing, the Company’s financial covenants have been waived until March 31, 2022.


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Note 7 – Financial Instruments

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

At September 30, 2021 and December 31, 2020, the Company had outstanding forward exchange contracts with gross notional values of $147 million and $180 million, respectively. At September 30, 2021, approximately 72% of these contracts mature within three months, 11% in three to six months, 13% in six to twelve months and 4% in greater than twelve months. Most of these foreign currency derivative contracts are designated as cash flow hedges and did not have a material impact on the Company's balance sheet, income statement or cash flows for the periods presented.

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

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.

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

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


(in millions)	September 30, 2021		December 31, 2020
Assets:
Foreign exchange contract - forward	$	1	$	2
Total Assets	$	1	$	2
Liabilities:
Foreign exchange contracts - forward	$	2	$	—
Total Liabilities	$	2	$	—

Summary of Other Financial Assets and Liabilities

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


	September 30, 2021				December 31, 2020
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
Long-term debt	$	1,384	$	1,372	$	1,420	$	1,378

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


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

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 participating in defined benefit pension plans that have been amended to freeze future service accruals were transitioned to an enhanced defined contribution plan. In these plans, employees are permitted to contribute a portion of their salaries and bonuses to the plans. Historically, the Company matched a portion of employee contributions. Beginning in 2019, the Company suspended its match to the 401(k) plan for all U.S. salaried employees and extended the suspension to all U.S. hourly employees in the second quarter of 2020. However, the Company match was reinstated for all U.S. employees in November of 2020.

The Company recognized an expense related to its defined contribution plans of $6 million and $1 million for the three months ended September 30, 2021 and 2020, respectively. The Company recognized an expense related to its defined contribution plans of $16 million and $2 million for the nine months ended September 30, 2021 and 2020, respectively. The balance sheet and income statement impacts of any remaining defined benefit plans are immaterial for all periods presented in these Consolidated Condensed Financial Statements.

Note 10 – Accumulated Other Comprehensive Loss (AOCL)

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


(in millions)	Currency Translation Adjustments		Gains (Losses) on Cash Flow Hedges		Defined Benefit Pension Items		Total
Balance at December 31, 2020	$	(400)	$	3	$	(1)	$	(398)
Other comprehensive income (loss)	(23)		(1)		(1)		(25)


Balance at September 30, 2021	$	(423)	$	2	$	(2)	$	(423)


(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)	(15)		—		1		(14)


Balance at September 30, 2020	$	(423)	$	3	$	(1)	$	(421)

__________

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


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Note 11 – Contingencies and Litigation

As more fully discussed below, the Company is involved in a variety of claims, lawsuits, investigations and proceedings concerning a variety of matters, including: governmental entity contracting, servicing and procurement law; intellectual property law; employment law; commercial and contracts law; the Employee Retirement Income Security Act (ERISA); and other laws and regulations. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing its litigation and regulatory matters using available information. The Company develops its view on estimated losses in consultation with outside counsel handling its defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments in any of these matters cause a change in the Company's determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts in excess of any accrual for such matter or matters, this could have a material adverse effect on the Company's results of operations, cash flows and financial position in the period or periods in which such change in determination, judgment or settlement occurs. The Company believes it has recorded adequate provisions for any such matters as of September 30, 2021. Litigation is inherently unpredictable, and it is not possible to predict the ultimate outcome of these matters and such outcome in any such matters could be in excess of any amounts accrued and could be material to the Company's results of operations, cash flows or financial position in any reporting period.

Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates when the Company undertakes an obligation to guarantee the performance of others if specified triggering events occur. Nonperformance under a contract could trigger an obligation of the Company. These potential claims include actions based upon alleged exposures to products, real estate, intellectual property such as patents, environmental matters and other indemnifications. The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Company's Consolidated Financial position or liquidity. As of September 30, 2021, the Company had accrued its estimate of liability incurred under its indemnification arrangements and guarantees.

Litigation Against the Company

Employees’ Retirement System of the Puerto Rico Electric Power Authority et al v. Conduent Inc. et al.: On March 8, 2019, a putative class action lawsuit alleging violations of certain federal securities laws in connection with our statements and alleged omissions regarding our financial guidance and business and operations was filed against us, our former Chief Executive Officer, and our former Chief Financial Officer in the United States District Court for the District of New Jersey. The complaint seeks certification of a class of all persons who purchased or otherwise acquired our securities from February 21, 2018 through November 6, 2018, and also seeks unspecified monetary damages, costs, and attorneys’ fees. We moved to dismiss the class action complaint in its entirety. In June 2020, the court denied the motion to dismiss and allowed the claims to proceed. We intend to defend the litigation vigorously. The Company maintains insurance that may cover any costs arising out of this litigation up to the insurance limits, and subject to meeting certain deductibles and to other terms and conditions thereof. The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves.


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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 to plaintiffs, which sale closed in February 2019. Under the terms of the sale agreement, CBS received approximately $23 million of notes from plaintiffs (Notes). The lawsuit alleges various causes of action in connection with the acquisition, including: indemnification for breach of representation and warranty; indemnification for breach of contract; and fraud. Plaintiffs allege that their obligation to mitigate damages and their contractual right of set-off permits them to withhold and deduct from any amounts that are owed to CBS under the Notes, and plaintiffs seek a judgement that they have no obligation to pay the Notes. On August 20, 2020, Conduent filed a counterclaim against Skyview LLC (Skyview) seeking the outstanding balance on the Notes, the amounts owed for the Jamaica deferred closing, and other transition services agreement and late rent payment obligations. Conduent also moved to dismiss Skyview’s claims in 2020. In May 2021, the court denied the motion and allowed the claims to proceed. Conduent denies all of the plaintiffs' allegations, believes that it has strong defenses to all of plaintiffs’ claims and it intends to defend the litigation vigorously. The Company is not able to determine or predict the ultimate outcome of this proceeding or reasonably provide an estimate or range of estimate of the possible outcome or loss, if any, in excess of currently recorded reserves.

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 as to Buck only, and only with respect to plaintiff's 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. Nasrawi 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; 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.


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Conduent Business Services, LLC v. Cognizant Business Services Corporation: On April 12, 2017, CBS filed a lawsuit against Cognizant Business Services Corporation (Cognizant) in the Supreme Court of New York County, New York. The lawsuit relates to the Amended and Restated Master Outsourcing Services Agreement effective as of October 24, 2012, and the service delivery contracts and work orders thereunder, between CBS and Cognizant, as amended and supplemented (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. In its answer, Cognizant asserted two counterclaims for breach of contract seeking recovery of damages in excess of $47 million, which includes amounts alleged not paid to Cognizant under the Contract and an alleged $25 million termination fee. Cognizant's second amended counterclaim increased Cognizant's damages to $89 million. 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.

Other Matters

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 (Department) and the Consumer Financial Protection Bureau (CFPB) that some third-party student loans under outsourcing arrangements for various financial institutions required adjustments. With the exception of an inquiry the Illinois Attorney General's Office recently commenced, the Company has resolved the investigations the CFPB and several state agencies commenced and continues to work with the Department and the U.S. Department of Justice to resolve all outstanding issues, including a number of operational projects that XES discovered and 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 which fines, penalties or other liabilities are sought from XES. Nor is the Company able to predict the likely outcome of these matters, should any such matter be commenced, or reasonably provide an estimate or range of estimates of any loss in excess of currently recorded reserves. The Company could, in future periods, incur judgments or enter into settlements to resolve these potential matters for amounts in excess of current reserves and there could be a material adverse effect on the Company's results of operations, cash flows and financial position in the period in which such change in judgment or settlement occurs.

Other Contingencies

Certain contracts, primarily in the Company's Government Services and Transportation segments, require the Company to provide a surety bond or a letter of credit as a guarantee of performance. As of September 30, 2021, the Company had $553 million of outstanding surety bonds used to secure its performance of contractual obligations with its clients and $94 million of outstanding letters of credit issued to secure the Company's performance of contractual obligations to its clients as well as other corporate obligations. In general, the Company would only be liable for the amount of these guarantees in the event of default in the Company's performance of its obligations under each contract. The Company believes it has sufficient capacity in the surety markets and liquidity from its cash flow and its various credit arrangements to allow it to respond to future requests for proposals that require such credit support.


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Note 12 – Preferred Stock

Series A Preferred Stock

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

Note 13 – Earnings (Loss) per Share

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data in whole dollars and shares in thousands)	2021		2020		2021		2020
Net Income (Loss)	$	11	$	(7)	$	12	$	(107)
Dividend - Preferred Stock	(2)		(2)		(7)		(7)
Adjusted Net Income (Loss) Available to Common Shareholders	$	9	$	(9)	$	5	$	(114)

Weighted Average Common Shares Outstanding - Basic	212,633		209,244		212,438		209,958
Common Shares Issuable With Respect To:

Restricted Stock And Performance Units / Shares	7,184		—		7,239		—
Weighted Average Common Shares Outstanding - Diluted	219,817		209,244		219,677		209,958

Net Earnings (Loss) per Share:
Basic	$	0.04	$	(0.04)	$	0.02	$	(0.54)
Diluted	$	0.04	$	(0.04)	$	0.02	$	(0.54)

The following securities were not included in the computation of diluted earnings per share as they were either contingently issuable shares or shares that if included would have been anti-dilutive (shares in thousands):
Restricted stock and performance shares/units	3,606		16,196		2,229		16,196

Convertible preferred stock	5,393		5,393		5,393		5,393
Total Anti-Dilutive and Contingently Issuable Securities	8,999		21,589		7,622		21,589


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Note 14 – Supplementary Financial Information

The components of Other assets and Other liabilities were as follows:


(in millions)	September 30, 2021		December 31, 2020
Other Current Assets
Prepaid expenses	$	96	$	73
Income taxes receivable	42		48
Value-added tax (VAT) receivable	16		21
Restricted cash	6		8
Current portion of capitalized cloud computing implementation costs, net	10		8

Other	87		148
Total Other Current Assets	$	257	$	306
Other Current Liabilities
Accrued liabilities	$	232	$	229
Litigation related accruals	64		73
Current operating lease liabilities	71		81
Restructuring liabilities	2		1
Income tax payable	18		16
Other taxes payable	14		16
Other	33		34
Total Other Current Liabilities	$	434	$	450
Other Long-term Assets
Internal use software, net	$	177	$	163
Deferred contract costs, net	73		76
Product software, net	90		72
Cloud computing implementation costs, net	31		33
Other	104		69
Total Other Long-term Assets	$	475	$	413
Other Long-term Liabilities
Deferred payroll tax related to the CARES Act(1)	$	24	$	24
Income tax liabilities	16		15
Unearned income	39		29
Restructuring liabilities	—		5
Other	35		35
Total Other Long-term Liabilities	$	114	$	108

__________

(1)The CARES Act allowed for deferred payment of the employer-paid portion of social security taxes through the end of 2020, with 50% due on December 31, 2021 and the remainder due on December 31, 2022. The current portion of this liability is included in Accrued compensation and benefits costs.


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Note 15 – Related Party Transactions

In the normal course of business, the Company provides services to, and purchases from, certain related parties with the same shareholders. The services provided to these entities included those related to human resources, end-user support and other services and solutions. The purchases from these entities included office equipment and related services and supplies. In addition, we have a receivable related to certain income tax matters with our former parent company, Xerox 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).

Transactions with related parties were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Revenue from related parties	$	3	$	6	$	12	$	19
Purchases from related parties	$	6	$	8	$	22	$	22

The Company's receivable and payable balances with related party entities were not material as of September 30, 2021 and December 31, 2020.

Note 16 – Goodwill

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


(in millions)	Commercial Industries		Government Services		Transportation		Total
Balance at December 31, 2020	$	837	$	623	$	68	$	1,528
Foreign currency translation	(11)		(4)		(7)		(22)
Balance at September 30, 2021	$	826	$	619	$	61	$	1,506

Gross goodwill	$	2,379	$	1,373	$	641	$	4,393
Accumulated impairment	(1,553)		(754)		(580)		(2,887)
Balance at September 30, 2021	$	826	$	619	$	61	$	1,506

In the first, second and third quarters of 2021, 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, the Company concluded that it is not more likely than not that the fair values of any of its reporting units were less than their carrying values. Consequently, the Company determined that it was not necessary to perform an interim impairment test for any of its reporting units.

To the extent the COVID-19 pandemic continues to disrupt the economic environment, such as a decline in the performance of the 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.


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Note 17 – Subsequent Event

On October 15, 2021, the Company closed on a debt refinancing and extended its maturity profile. The debt refinancing transactions were as follows:


(in millions)	Amount		Interest Rate
Term Loan A due 2026	$	265	LIBOR + 1.75 to 2.75%
Term Loan B due 2028	515		LIBOR * + 4.25%
Secured Notes due 2029	520		6.00	%
Total new debt excluding revolving credit facility	$	1,300
Revolving Credit Facility maturing 2026	$	550	LIBOR + 1.75 to 2.75%

___

* subject to a floor of 50 basis points

Upon closing the debt refinancing, $100 million was borrowed under the new Revolving Credit Facility (Revolver). The net proceeds of the Term Loan A due 2026, Term Loan B due 2028, Secured Notes due 2029 and $100 million of borrowing under the Revolver were used to repay borrowings under the 2016 Credit Facilities that were outstanding on October 15, 2021. The amounts repaid were $587 million for Term Loan A due 2022 and $810 million for Term Loan B due 2023. As a part of the transactions, the Prior Revolver was terminated.


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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.

Overview

We are a leading provider of business process services with expertise in transaction-intensive processing, analytics and automation. We serve as a trusted business partner in both the front office and back office, enabling personalized, seamless interactions on a massive scale that improve end-user experience.

Headquartered in Florham Park, New Jersey, we have a team of approximately 61,000 associates as of September 30, 2021, servicing customers from service centers in 24 countries.

Our reportable segments correspond to how we organize and manage the business and are aligned to the industries in which our clients operate.

We organize and manage our businesses through three reportable segments.

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

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

•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.

Executive Summary

We continue to transform our business through an intense focus on growth, quality, and efficiency – utilizing a programmatic and project management approach. Beginning in the first quarter of 2020 and through the third quarter of 2021, we have expanded the focus of our project portfolio to include both efficiency and growth initiatives, aimed to position the company to pivot to revenue growth and margin expansion over time.

We intend to drive portfolio focus, operating discipline, sales and delivery excellence and innovation, complemented by tightly aligned investments to achieve this mission and purpose. Our strategy is designed to deliver value by delivering profitable growth, expanding operating margins and deploying a disciplined capital allocation strategy. During the three and nine months ended September 30, 2021, our strategy is showing results, including the following:

•Revenue of $1,038 million and $3,092 million for the three and nine months ended September 30, 2021, respectively, was substantially unchanged.

•Positive net income of $11 million and $12 million for the three and nine months ended September 30, 2021, respectively, as compared to net loss of $7 million and $107 million for the same periods in the prior year.

•Net Annual Recurring Revenue (ARR) activity metric (as defined in "Metrics") of $132 million, a 25% improvement over the second quarter of 2021. This metric continues to be positive for the fourth consecutive quarter.


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•New business signings results:

◦New business total contract value (TCV) signings of $344 million and $1,475 million for the three and nine months ended September 30, 2021, respectively, representing a decrease of 26% and an increase of 4%, respectively, compared to the same periods of the prior year.

◦Annual recurring revenue signings of $87 million and $297 million for the three and nine months ended September 30, 2021, respectively, representing a decrease of 9% and an increase of 15%, respectively, compared to the same periods of the prior year.

•The Company has shown year-over-year operational progress, including an improvement to technology platform uptime, improvements in associate satisfaction survey results and increases in performance incentives from customers.

•Subsequent to September 30, 2021, the Company closed on a debt refinancing and extended its maturity profile.

COVID-19 Pandemic

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 address the potential impact to our business over the near-term, our Business Continuity team established a proactive plan in the first quarter of 2020 that has continued into the third quarter of 2021, 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.

•At the end of 2020, approximately 75% of our workforce had been shifted to work-from-home. In 2021, we have started a slow and measured approach to bringing associates back to Conduent offices, as appropriate. This is an ongoing phased process and is based on the specific COVID-19 conditions in certain geographies, as well as business requirements.

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

As the world increasingly becomes vaccinated, we will evolve our approach to various initiatives or take additional actions to meet the needs of our employees, customers and their end-users and the Company to continue to provide our mission-critical services and solutions.


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Financial Review of Operations


	Three Months Ended September 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
Revenue	$	1,038	$	1,041	$	(3)	—	%

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	776		779		(3)		—	%
Selling, general and administrative (excluding depreciation and amortization)	131		122		9		7	%
Research and development (excluding depreciation and amortization)	2		—		2		n/m
Depreciation and amortization	84		112		(28)		(25)	%
Restructuring and related costs	10		20		(10)		(50)	%
Interest expense	12		14		(2)		(14)	%

(Gain) loss on divestitures and transaction costs	—		8		(8)		(100)	%
Litigation costs	—		—		—		n/m
Loss on extinguishment of debt	—		—		—		n/m
Other (income) expenses, net	4		(1)		5		n/m
Total Operating Costs and Expenses	1,019		1,054		(35)

Income (Loss) Before Income Taxes	19		(13)		32
Income tax expense (benefit)	8		(6)		14
Net Income (Loss)	$	11	$	(7)	$	18


	Nine Months Ended September 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
Revenue	$	3,092	$	3,108	$	(16)	(1)	%

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	2,335		2,406		(71)		(3)	%
Selling, general and administrative (excluding depreciation and amortization)	382		349		33		9	%
Research and development (excluding depreciation and amortization)	3		1		2		200	%
Depreciation and amortization	265		344		(79)		(23)	%
Restructuring and related costs	31		56		(25)		(45)	%
Interest expense	38		46		(8)		(17)	%

(Gain) loss on divestitures and transaction costs	1		14		(13)		(93)	%
Litigation costs	2		20		(18)		(90)	%
Loss on extinguishment of debt	2		—		2		n/m
Other (income) expenses, net	4		—		4		n/m
Total Operating Costs and Expenses	3,063		3,236		(173)

Income (Loss) Before Income Taxes	29		(128)		157
Income tax expense (benefit)	17		(21)		38
Net Income (Loss)	$	12	$	(107)	$	119


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Revenue

Revenue for the three months ended September 30, 2021 was substantially unchanged, compared to the prior year period, primarily due to lesser impacts of the COVID-19 pandemic across our Transportation and Commercial Industries segments, increased volumes in our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business. These increases were offset by lost business from prior years.

Revenue for the nine months ended September 30, 2021 decreased by less than 1%, compared to the prior year period, primarily due to lost business from prior years and the effect of the COVID-19 pandemic across our Commercial Industries and our Transportation segments, which had only a minimal impact on the first quarter of 2020. These unfavorable impacts were largely offset by increased volumes in our Government Services segment, primarily increased payments activity because of Federal stimulus, and the ramp of new business.

Cost of Services (excluding depreciation and amortization)

Cost of services for the three months ended September 30, 2021 was substantially unchanged compared to the prior year period, which tracked to the small change in Revenue.

Cost of services for the nine months ended September 30, 2021 decreased slightly, compared to the prior year period, driven by lost business from prior years as well as increased operational efficiency, which led to reductions in information technology, labor and real estate costs. Also contributing to the decline were lower costs to support volume loss resulting from the effect of the COVID-19 pandemic.

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

SG&A for the three and nine months ended September 30, 2021 increased, compared to the prior year periods, driven by an increase in certain employee-related compensation costs and growth in the sales organization and higher recruiting expenses, partially offset by lower medical benefit costs in the third quarter of 2021.

Depreciation and Amortization

Depreciation and amortization for the three and nine months ended September 30, 2021 decreased, compared to the prior year periods, primarily due to a portion of certain customer relationship intangible assets being fully amortized in the first quarter of 2021.

Restructuring and Related Costs

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:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Severance and related costs	$	—	$	4	$	2	$	14
Data center consolidation	4		8		19		16
Termination, asset impairment and other costs	5		6		7		20
Total net current period charges	9		18		28		50
Consulting and other costs(1)	1		2		3		6
Restructuring and related costs	$	10	$	20	$	31	$	56

___________

(1)Represents professional support costs associated with certain strategic transformation programs.

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


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Interest Expense

Interest expense represents interest on long-term debt and the amortization of debt issuance costs. The decreases in Interest expense for the three and nine months ended September 30, 2021, compared to the prior year periods, was driven primarily by lower interest rates, a lower Term Loan A due 2023 principal balance and the May 1, 2021 repayment of the previously outstanding $34 million Senior Notes due 2024. Additionally, the three and nine months ended September 30, 2020 included interest expense attributable to the $150 million drawdown on our Senior Revolving Credit Facility (Prior Revolver) in March 2020, which was repaid in December 2020. Refer to Note 6 – Debt in the Condensed Consolidated Financial Statements for additional information. Additionally, refer to Note 17 - Subsequent Event for additional information about the refinancing of our debt on October 15, 2021.

(Gain) Loss on Divestitures and Transaction Costs

These costs consist of professional fees and other costs related to certain consummated and non-consummated transactions considered by the Company.

Litigation Costs

Net litigation costs for the nine months ended September 30, 2021 primarily consist of reserves for various matters that are subject to litigation; the nine months ended September 30, 2020 amount also included costs related to certain reimbursement matters with our former parent company, Xerox Corporation.

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

Income Taxes

The effective tax rate for the three months ended September 30, 2021 was 38.3%, compared to 46.2% for the three months ended September 30, 2020. The September 30, 2021 rate was higher than the U.S. statutory rate of 21%, primarily due to the geographic mix of income, permanent book-tax differences and valuation allowances, partially offset by a benefit attributable to the 2020 return to provision adjustment. The effective tax rate for the three months ended September 30, 2020 was higher than the U.S. statutory rate of 21%, primarily due to the geographic mix of income, the election of the high tax exception for Global Intangible Low Tax Income (GILTI), an increase in US federal tax credits and a benefit attributable to the 2019 return to provision adjustment, partially offset by audit adjustments.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring costs, the normalized effective tax rate for the three months ended September 30, 2021 was 30.4%. The normalized effective tax rate for the three months ended September 30, 2020 was 23.0%, predominately due to excluding the impact of discrete tax adjustments, the true-up for divestitures, amortization of intangible assets and the restructuring cost. The normalized effective tax rate for the three months ended September 30, 2021 was higher than the three months ended September 30, 2020 rate predominantly due to earnings mix.

The effective tax rate for the nine months ended September 30, 2021 was 58.5% compared with 16.4% for the nine months ended September 30, 2020. The September 30, 2021 rate was higher than the U.S. statutory rate of 21% primarily due to the geographic mix of income, permanent book-tax differences, valuation allowances, and tax audit reserves, partially offset by tax credits. The September 30, 2020 rate was lower than the U.S. statutory rate of 21%, primarily due to geographic mix of income, increases in valuation allowances, audit adjustments and tax charges recognized on the vesting of employee equity awards, partially offset by an increase in US federal tax credits and a benefit attributable to the 2019 return to provision adjustment.

Excluding the impact of discrete tax adjustments, amortization of intangible assets and restructuring costs, the normalized effective tax rate for the nine months ended September 30, 2021 was 26.8%. The normalized effective tax rate for the nine months ended September 30, 2020 was 27.4%, predominantly due to excluding the impact of true up for divestitures, amortization of intangible assets and restructuring costs and discrete tax items. The normalized effective tax rate for the nine months ended September 30, 2021 was lower than the nine months ended September 30, 2020 rate predominantly due to the geographic mix of income.


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The Company believes it is reasonably possible that unrecognized tax benefits of approximately $14 million will reverse within 12 months due to an anticipated audit settlement.

Operations Review of Segment Revenue and Profit

Our financial performance is based on Segment Profit/(Loss) and Segment Adjusted EBITDA for the following three segments:

•Commercial Industries,

•Government Services, and

•Transportation.

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

We continue to modernize a significant portion of our infrastructure with new systems and processes and consolidate our data centers as part of our transformation initiatives. 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, 2020 for additional information.

Results of financial performance by segment were:


	Three Months Ended September 30,
(in millions)	Commercial Industries			Government Services			Transportation			Other			Unallocated Costs			Total
2021
Revenue	$	509		$	349		$	180		$	—		$	—		$	1,038
Segment profit (loss)	$	29		$	125		$	16		$	—		$	(94)		$	76
Segment depreciation and amortization	$	24		$	8		$	9		$	—		$	13		$	54
Adjusted EBITDA	$	53		$	133		$	25		$	—		$	(81)		$	130

% of Total Revenue	49.0		%	33.7		%	17.3		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	10.4		%	38.1		%	13.9		%	—		%	—		%	12.5		%

2020
Revenue	$	518		$	348		$	175		$	—		$	—		$	1,041
Segment profit (loss)	$	32		$	122		$	26		$	6		$	(98)		$	88
Segment depreciation and amortization	$	24		$	6		$	9		$	—		$	14		$	53
Adjusted EBITDA	$	56		$	128		$	35		$	6		$	(84)		$	141

% of Total Revenue	49.8		%	33.4		%	16.8		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	10.8		%	36.8		%	20.0		%	—		%	—		%	13.5		%


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	Nine Months Ended September 30,
(in millions)	Commercial Industries			Government Services			Transportation			Other			Unallocated Costs			Total
2021
Revenue	$	1,538		$	1,005		$	549		$	—		$	—		$	3,092
Segment profit (loss)	$	93		$	322		$	54		$	—		$	(259)		$	210
Segment depreciation and amortization	$	76		$	21		$	26		$	—		$	40		$	163
Adjusted EBITDA	$	169		$	343		$	80		$	—		$	(219)		$	373

% of Total Revenue	49.7		%	32.5		%	17.8		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	11.0		%	34.1		%	14.6		%	—		%	—		%	12.1		%

2020
Revenue	$	1,610		$	969		$	529		$	—		$	—		$	3,108
Segment profit (loss)	$	99		$	282		$	56		$	9		$	(258)		$	188
Segment depreciation and amortization	$	79		$	19		$	27		$	—		$	41		$	166
Adjusted EBITDA	$	178		$	301		$	83		$	2		$	(217)		$	347

% of Total Revenue	51.8		%	31.2		%	17.0		%	—		%	—		%	100.0		%
Adjusted EBITDA Margin	11.1		%	31.1		%	15.7		%	—		%	—		%	11.2		%


(in millions)	Three Months Ended September 30,			Nine Months Ended September 30,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)		2021		2020		2021		2020
Income (Loss) Before Income Taxes		$	19	$	(13)	$	29	$	(128)
Reconciling items:
Amortization of acquired intangible assets		31		60		103		180
Restructuring and related costs		10		20		31		56
Interest expense		12		14		38		46

(Gain) loss on divestitures and transaction costs		—		8		1		14
Litigation costs		—		—		2		20
Loss on extinguishment of debt		—		—		2		—
Other (income) expenses, net		4		(1)		4		—
Segment Pre-tax Income (Loss)		$	76	$	88	$	210	$	188
Segment depreciation and amortization (including contract inducements)		$	54	$	53	$	163	$	166
CA MMIS charge (credit)		—		—		—		(7)

Adjusted EBITDA		$	130	$	141	$	373	$	347

Commercial Industries Segment

Revenue

Commercial Industries revenue for the three months ended September 30, 2021 decreased, compared to the prior year period, due to lost business from prior years, partially offset by higher volumes as the impacts from COVID-19 were less in the third quarter of 2021 as many regions continued to loosen restrictions.

Commercial Industries revenue for the nine months ended September 30, 2021 decreased, compared to the prior year period, due to COVID-19 related volume declines in our Business Operations Solutions service offering and reduced revenue from our HSA offering "Benefit Wallet" (within our HRLS business) as a result of Federal Reserve initiated interest rate reductions, as well as lost business from prior years.


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Segment Profit and Adjusted EBITDA

Decreases in the Commercial Industries segment profit and adjusted EBITDA margin for the three months ended September 30, 2021, compared to the prior year period, were mainly driven by revenue declines, the dynamics of a challenging labor market in both North America and Europe and the impact of temporary cost savings in the third quarter of 2020.

Commercial Industries segment profit and adjusted EBITDA margin decreased for the nine months ended September 30, 2021, compared to the prior year period, mainly driven by overall revenue declines and the dynamics of a challenging labor market in both North America and Europe, partially offset by the result of progress in our efficiency initiatives and one-time contract exit costs in the second quarter of 2020.

Government Services Segment

Revenue

Government Services revenue for the three months ended September 30, 2021 were substantially unchanged, compared to the prior year period. COVID-19 related volume increases were largely offset by lost business from prior years. The increased volumes from the COVID-19 pandemic were largely driven by the increases in the Supplemental Nutrition Assistance Program (SNAP) volumes and Pandemic SNAP volumes. The legislation for two Federal stimulus programs (Pandemic SNAP and additional unemployment insurance) ended in September 2021. However, some residual revenue from these programs is expected to continue into the fourth quarter of 2021.

Government Services revenue for the nine months ended September 30, 2021 increased, compared to the prior year period, primarily driven by COVID-19 related volume increases. These increases were partially offset by lost business from prior years. The increased volumes from the COVID-19 pandemic was largely driven by the increases in the SNAP volumes and Pandemic SNAP volumes, an increase in the number of citizens to which we distribute unemployment insurance benefits and additional unemployment insurance benefit distributions as a result of Federal stimulus. Within the unemployment benefit business, we generate revenue based on the amount of spending by card holders.

Segment Profit and Adjusted EBITDA

Increases in the Government Services segment profit and adjusted EBITDA margin for the three and nine months ended September 30, 2021, compared to the prior year period, were mainly driven by increased COVID-19 related volume increases at strong margins and expense reductions resulting from progress in our efficiency initiatives.

Transportation Segment

Revenue

Transportation revenue for the three and nine months ended September 30, 2021 increased, compared to the prior year period, primarily driven by the impact of loosening of numerous COVID-19 related restrictions, particularly in the United States, and the ramp of new business, partially offset by lost business from prior years.

Segment Profit and Adjusted EBITDA

Transportation segment profit and adjusted EBITDA margin decreased for the three and nine months ended September 30, 2021, compared to the prior year period, mainly driven by the impact of legacy lost business in the quarter and temporary cost savings in the prior year that more than offset progress in our efficiency initiatives.


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Other

Segment Profit (Loss) and Adjusted EBITDA

The segment profit for the nine months ended September 30, 2020 was primarily due to an adjustment to the then remaining California Medicaid Management Information System settlement liability of $7 million as a result of the contract expiring in March 2020. This benefit was excluded from adjusted EBITDA for segment reporting purposes due to its non-recurring nature.

Unallocated Costs

Unallocated Costs for the three months ended September 30, 2021 decreased, compared to the prior year period primarily due to lower employee medical expenses and a one-time unfavorable COVID-19 related item in the third quarter of 2020. Unallocated Costs for the nine months ended September 30, 2021 were substantially unchanged compared to the prior year period. This was primarily driven by increases in certain employee costs, partially offset by progress in our efficiency initiatives.

Metrics

Signings

Signings are defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. TCV is the estimated total contractual revenue related to signed contracts. TCV signings is defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. Due to the inconsistency of when existing contracts end, quarterly and yearly comparisons are not a good measure of renewal performance.

For the three months ended September 30, 2021, the Company signed $344 million of new business, representing a 26% decrease compared to the prior year period. Renewal TCV for the three months ended September 30, 2021 was $276 million.

For the nine months ended September 30, 2021, the Company signed $1,475 million of new business, representing a 4% increase compared to the prior year period. Renewal TCV for the nine months ended September 30, 2021 was $1,374 million.


	Three Months Ended September 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
New business TCV	$	344	$	468	$	(124)	(26)	%
Renewals TCV	276		745		(469)		(63)	%
Total Signings	$	620	$	1,213	$	(593)	(49)	%

Annual recurring revenue signings(1)	$	87	$	96	$	(9)	(9)	%
Non-recurring revenue signings(2)	$	70	$	58	$	12	21	%


	Nine Months Ended September 30,				2021 vs. 2020
($ in millions)	2021		2020		$ Change		% Change
New business TCV	$	1,475	$	1,415	$	60	4	%
Renewals TCV	1,374		2,172		(798)		(37)	%
Total Signings	$	2,849	$	3,587	$	(738)	(21)	%

Annual recurring revenue signings(1)	$	297	$	258	$	39	15	%
Non-recurring revenue signings(2)	$	349	$	178	$	171	96	%

___________

(1)Recurring revenue signings are for new business contracts longer than one year.

(2)Non-recurring revenue signings are for contracts shorter than one year.


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The total new business pipeline at the end of September 30, 2021 and 2020 was $21.0 billion and $22.0 billion, respectively. Total new business pipeline is defined as total new business TCV pipeline of deals in all sell stages. This extends past the next twelve-month period to include total pipeline, excluding the impact of divested business as required.

Net ARR Activity

The Net ARR Activity metric is defined as Projected Annual Recurring Revenue for contracts signed in the prior 12 months, less the annualized impact of any client losses, contractual volume and price changes, and other known impacts for which the company was notified in that same time period, which could positively or negatively impact results. The metric annualizes the net impact to revenue. Timing of revenue impact varies and may not be realized within the forward 12-month timeframe. The metric is for indicative purposes only. This metric excludes COVID-related volume impacts and non-recurring revenue signings. This metric is not indicative of any specific 12-month timeframe.

The Net ARR activity metric for the trailing twelve months for each of the prior four quarters was as follows:


(in millions)	Net ARR Activity metric
September 30, 2021	$	132
June 30, 2021	106
March 31, 2021	87
December 31, 2020	60

Capital Resources and Liquidity

As of September 30, 2021 and December 31, 2020, total cash and cash equivalents were $394 million and $450 million, respectively. Under the Prior Revolver, the Company also had $750 million available for its various cash needs, of which $10 million was used for letters of credit. The net amount available to be drawn upon under our Prior Revolver as of September 30, 2021, was $740 million. See Note 17 - Subsequent Event for information about the refinancing of our debt, including replacement of our Prior Revolver.

As of September 30, 2021, our total debt outstanding was $1.4 billion of which $21 million was due within one year. Refer to Note 6 – Debt in the Condensed Consolidated Financial Statements for additional 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 the extended maturity profile of our debt resulting from the refinancing described in Note 17 - Subsequent Event 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,
(in millions)	2021		2020		Better (Worse)
Net cash provided by (used in) operating activities	$	158	$	(11)	$	169
Net cash provided by (used in) investing activities	$	(97)	$	(92)	(5)
Net cash provided by (used in) financing activities	$	(112)	$	99	(211)


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Operating activities

The net improvement in cash used in operating activities of $169 million, compared to the prior year period, was primarily related to the absence of the 2020 Texas Litigation payment and improved Adjusted EBITDA, partly offset by higher cash used related to product software and deferred contract costs for new business activities and higher net income tax payments.

Investing activities

The increase in cash used in investing activities of $5 million was primarily due to increased spending related to modernizing our infrastructure and productivity tools.

Financing activities

The increase in cash used in financing activities was primarily related to the absence of the March 2020 $150 million draw down from our Prior Revolver, which was subsequently repaid in December 2020. Additionally, we repaid the previously outstanding $34 million of Senior Notes due 2024 on May 1, 2021 and made higher scheduled payments on Term loans of $27 million in 2021.

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. We may utilize derivative financial instruments 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, including the effects of the COVID-19 pandemic, 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.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the “Market Risk Management” section in Item 2 of this Form 10-Q is hereby incorporated by reference in answer to this Item. During the reporting period, there have been no material changes to the quantitative and qualitative disclosures regarding our market risk set forth in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 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 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, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms relating to 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.


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(b) Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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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 Form 10-Q is incorporated herein by reference in answer to this Item.

ITEM 1A — RISK FACTORS

Reference is made to the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020. Below are additions to our risk factors as previously reported in our 2020 Annual Report.

The terms of our indebtedness may restrict our current and future operations, particularly our ability to incur debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations.

The terms of our indebtedness include a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests. These may restrict our and our subsidiaries’ ability to take some or all of the following actions:

•incur or guarantee additional indebtedness or sell disqualified or preferred stock;

•pay dividends on, make distributions in respect of, repurchase or redeem capital stock;

•make investments or acquisitions;

•sell, transfer or otherwise dispose of certain assets;

•create liens;

•enter into sale/leaseback transactions;

•enter into agreements restricting the ability to pay dividends or make other intercompany transfers;

•consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;

•enter into transactions with affiliates;

•prepay, repurchase or redeem certain kinds of indebtedness;

•issue or sell stock of our subsidiaries; and/or

•significantly change the nature of our business.

As a result of all of these restrictions, we may be:

•limited in how we conduct our business and pursue our strategy;

•unable to raise additional debt financing to operate during general economic or business downturns; or

•unable to compete effectively or to take advantage of new business opportunities.

A breach of any of the restrictive covenants, if applicable, could result in an event of default under the terms of this indebtedness. If an event of default occurs, the lenders would have the right to accelerate the repayment of such debt and the event of default or acceleration may result in the acceleration of the repayment of any other of our debt to which a cross-default or cross-acceleration provision applies. Furthermore, under this indebtedness we have pledged our assets as collateral as security for our repayment obligations. If we were unable to repay any amount of this indebtedness when due and payable, the lenders could proceed against the collateral that secures this indebtedness. In the event our creditors accelerate the repayment of our borrowings, we may not have sufficient assets to repay such indebtedness, which could materially adversely affect our results of operations and financial condition.


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In addition, our credit facility bears interest at a rate that varies depending on LIBOR. On July 27, 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. The announcement indicates that LIBOR will not continue to exist on the current basis. More recently, on March 5, 2021 the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative. Specifically, this will occur immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and immediately after June 30, 2023, in the case of the remaining US dollar settings. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, announced a recommendation to replace U.S. dollar LIBOR with a new index calculated based on overnight transactions under short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate ("SOFR"). However, there is currently no definitive successor reference rate to LIBOR and various industry organizations are still working to develop workable transition mechanisms and whether or not SOFR attains market traction as a LIBOR replacement tool remains in question at this time. LIBOR related changes may negatively impact costs of borrowings under our credit facilities, which could have an adverse effect on our results of operations.

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

(a)Sales of Unregistered Securities during the Quarter ended September 30, 2021

During the quarter ended September 30, 2021, 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 September 30, 2021

None.


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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.
						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.
						Incorporated by reference to Exhibit 3.2 to Registrants Current Report on Form 8-K dated December 23, 2016.

4.4(g)						Indenture dated as of October 15, 2021, among Conduent Incorporated, Conduent Business Services, LLC., Conduent State & Local Solutions, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee.

10.6(f)						Credit Agreement, dated as of October 15, 2021, among Conduent Incorporated, Conduent Business Services, LLC, Conduent State & Local Solutions, Inc., Affiliated Computer Services International, B.V., the Guarantors party thereto from time to time, the Lenders and L/C Issuers party thereto from time to time and Bank of America, N.A., as Administrative Agent.

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.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.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).


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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/ STEPHEN WOOD
			Stephen Wood Chief Financial Officer (Principal Financial Officer)

Date: November 4, 2021


						CNDT Q3 2021 Form 10-Q