CONDUENT Inc [CNDT] Filings

10-Q 1 cndt-20220630.htm 10-Q cndt-20220630


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

_______________

(Mark One)


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

For the quarterly period ended: June 30, 2022


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

For the transition period from to

Commission File Number 001-37817

CONDUENT INCORPORATED

(Exact Name of Registrant as specified in its charter)

New York

81-2983623

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

100 Campus Drive,

Suite 200,

Florham Park,

New Jersey

07932

(Address of principal executive offices)

(Zip Code)

(844) 663-2638

(Registrant’s telephone number, including area code)

_________________________________________________

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


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

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Small reporting company

☐

Emerging growth company

☐

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

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


Class		Outstanding at July 31, 2022
Common Stock,	$0.01 par value	215,795,311


						CNDT Q2 2022 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 "Litigation Reform Act"). 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 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 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; volatility of our stock price and the risk of litigation following a decline in the price of our stock; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Quarterly Report on Form 10-Q as well as in our 2021 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 because of new information, subsequent events or otherwise, except as required by law.


						CNDT Q2 2022 Form 10-Q


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CONDUENT INCORPORATED

FORM 10-Q

June 30, 2022

TABLE OF CONTENTS


		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Income (Loss)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Shareholders' Equity	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23


Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35

Part II — Other Information

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36
Signatures		37

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


						CNDT Q2 2022 Form 10-Q


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PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)

CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data)	2022		2021		2022		2021
Revenue	$	928	$	1,026	$	1,895	$	2,054

Operating Costs and Expenses
Cost of services (excluding depreciation and amortization)	727		772		1,482		1,559
Selling, general and administrative (excluding depreciation and amortization)	113		125		215		251
Research and development (excluding depreciation and amortization)	2		1		3		1
Depreciation and amortization	53		86		114		181
Restructuring and related costs	11		8		20		21
Interest expense	18		13		37		26

(Gain) loss on divestitures and transaction costs	3		(1)		(160)		1
Litigation settlements (recoveries), net	(3)		1		(31)		2
Loss on extinguishment of debt	—		2		—		2
Other (income) expenses, net	(1)		—		—		—
Total Operating Costs and Expenses	923		1,007		1,680		2,044

Income (Loss) Before Income Taxes	5		19		215		10

Income tax expense (benefit)	5		7		79		9
Net Income (Loss)	$	—	$	12	$	136	$	1

Net Income (Loss) per Share:
Basic	$	(0.01)	$	0.05	$	0.61	$	(0.02)
Diluted	$	(0.01)	$	0.04	$	0.60	$	(0.02)

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


						CNDT Q2 2022 Form 10-Q


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CONDUENT INCORPORATED

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Net Income (Loss)	$	—	$	12	$	136	$	1
Other Comprehensive Income (Loss), Net(1)
Currency translation adjustments, net	(40)		4		(45)		(7)


Unrecognized gains (losses), net	—		—		(1)		(1)
Changes in benefit plans, net	—		(1)		—		(1)
Other Comprehensive Income (Loss), Net	(40)		3		(46)		(9)

Comprehensive Income (Loss), Net	$	(40)	$	15	$	90	$	(8)

__________

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

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


						CNDT Q2 2022 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in millions, except share data in thousands)	June 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	519	$	415
Accounts receivable, net	684		699
Assets held for sale	—		184
Contract assets	155		154
Other current assets	239		228
Total current assets	1,597		1,680
Land, buildings and equipment, net	263		281
Operating lease right-of-use assets	212		231
Intangible assets, net	43		52
Goodwill	1,310		1,339
Other long-term assets	475		453
Total Assets	$	3,900	$	4,036
Liabilities and Equity
Current portion of long-term debt	$	30	$	30
Accounts payable	166		198
Accrued compensation and benefits costs	219		243
Unearned income	73		82
Liabilities held for sale	—		29
Other current liabilities	407		443
Total current liabilities	895		1,025
Long-term debt	1,272		1,383
Deferred taxes	105		75
Operating lease liabilities	173		184
Other long-term liabilities	88		95
Total Liabilities	2,533		2,762

Contingencies (See Note 12)
Series A convertible preferred stock	142		142

Common stock	2		2
Additional paid-in capital	3,918		3,910
Retained earnings (deficit)	(2,220)		(2,351)
Accumulated other comprehensive loss	(475)		(429)
Total Equity	1,225		1,132
Total Liabilities and Equity	$	3,900	$	4,036

Shares of common stock issued and outstanding	215,705		215,381
Shares of series A convertible preferred stock issued and outstanding	120		120

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


						CNDT Q2 2022 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(in millions)	2022		2021
Cash Flows from Operating Activities:
Net income (loss)	$	136	$	1
Adjustments required to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization	114		181
Contract inducement amortization	1		—
Deferred income taxes	32		(6)


Amortization of debt financing costs	2		4
Loss on extinguishment of debt	—		2
(Gain) loss on divestitures and sales of fixed assets, net	(166)		1
Stock-based compensation	9		9

Changes in operating assets and liabilities:
Accounts receivable	(2)		4
Other current and long-term assets	(85)		(48)
Accounts payable and accrued compensation and benefits costs	(37)		(21)

Other current and long-term liabilities	(17)		(31)
Net change in income tax assets and liabilities	8		7
Net cash provided by (used in) operating activities	(5)		103
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment	(51)		(39)

Cost of additions to internal use software	(32)		(32)

Proceeds from divestitures	325		2
Net cash provided by (used in) investing activities	242		(69)
Cash Flows from Financing Activities:

Payments on revolving credit facility	(100)		—
Payments on debt	(16)		(79)

Premium on debt redemption	—		(2)
Taxes paid for settlement of stock-based compensation	—		(1)
Dividends paid on preferred stock	(5)		(5)
Net cash provided by (used in) financing activities	(121)		(87)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(6)		(2)
Increase (decrease) in cash, cash equivalents and restricted cash	110		(55)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	420		458
Cash, Cash Equivalents and Restricted Cash at End of period(1)	$	530	$	403

___________

(1)Includes $11 million and $6 million of restricted cash as of June 30, 2022 and 2021, respectively, that were included in Other current assets on their respective Condensed Consolidated Balance Sheets.

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


						CNDT Q2 2022 Form 10-Q


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CONDUENT INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)


	Three Months Ended June 30, 2022
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at March 31, 2022	$	2	$	3,912	$	(2,217)	$	(435)	$	1,262
Dividends - preferred stock, $20/share	—		—		(3)		—		(3)
Stock incentive plans, net	—		6		—		—		6
Comprehensive Income (Loss):
Net Income (Loss)	—		—		—		—		—
Other comprehensive income (loss), net	—		—		—		(40)		(40)
Total Comprehensive Income (Loss), Net	—		—		—		(40)		(40)
Balance at June 30, 2022	$	2	$	3,918	$	(2,220)	$	(475)	$	1,225


	Three Months Ended June 30, 2021
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at March 31, 2021	$	2	$	3,902	$	(2,326)	$	(410)	$	1,168
Dividends - preferred stock, $20/share	—		—		(3)		—		(3)
Stock incentive plans, net	—		5		—		—		5
Comprehensive Income (Loss):
Net Income (Loss)	—		—		12		—		12
Other comprehensive income (loss), net	—		—		—		3		3
Total Comprehensive Income (Loss), Net	—		—		12		3		15
Balance at June 30, 2021	$	2	$	3,907	$	(2,317)	$	(407)	$	1,185


	Six Months Ended June 30, 2022
(in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		AOCL(1)		Shareholders' Equity
Balance at December 31, 2021	$	2	$	3,910	$	(2,351)	$	(429)	$	1,132
Dividends - preferred stock, $40/share	—		—		(5)		—		(5)
Stock incentive plans, net	—		8		—		—		8
Comprehensive Income (Loss):
Net Income (Loss)	—		—		136		—		136
Other comprehensive income (loss), net	—		—		—		(46)		(46)
Total Comprehensive Income (Loss), Net	—		—		136		(46)		90
Balance at June 30, 2022	$	2	$	3,918	$	(2,220)	$	(475)	$	1,225


	Six Months Ended June 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, $40/share	—		—		(5)		—		(5)
Stock incentive plans, net	—		8		—		—		8
Comprehensive Income (Loss):
Net Income (Loss)	—		—		1		—		1
Other comprehensive income (loss), net	—		—		—		(9)		(9)
Total Comprehensive Income (Loss), Net	—		—		1		(9)		(8)
Balance at June 30, 2021	$	2	$	3,907	$	(2,317)	$	(407)	$	1,185

___________

(1)AOCL - Accumulated other comprehensive loss. Refer to Note 11 – Accumulated Other Comprehensive Loss for the components of AOCL.

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


						CNDT Q2 2022 Form 10-Q


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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 diversified business process services companies in the world, Conduent delivers mission-critical solutions and services on behalf of businesses and governments – creating exceptional outcomes for its clients and the millions of people who count on them. Through its dedicated people, processes and technologies, Conduent's services and solutions enhance customer experience, increase efficiencies, reduce costs and improve performance for most Fortune 100 companies and more than 500 government entities.

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, 2021. 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, 2021.

The Company has evaluated subsequent events through August 2, 2022 and no material subsequent events were identified.

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.

Although as of June 30, 2022, many government-imposed restrictions have been lightened or removed, the future impact of the COVID-19 pandemic continues to be highly uncertain. 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.


						CNDT Q2 2022 Form 10-Q


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Contingencies and Litigation

The Company is currently involved in various claims and legal proceedings. At least quarterly, it reviews the status of each significant matter and assesses its potential financial exposure considering all available information including, but not limited to, the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information and events pertaining to a particular matter. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. The estimated losses are recorded within Litigation settlements (recoveries), net in the Company's income statement. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation and may revise its estimates. These revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial position. The Company's policy is to expense legal defense costs related to such matters as incurred. These costs are recorded within Selling, general and administrative expenses in the Company's income statement. Any insurance recoveries for litigation settlements and defense costs are recorded when such recoveries are deemed probable and collectability is reasonably assured. Such recoveries are recorded in the same financial statement line as the related costs to which the recoveries relate.

Refer to Note 12 – Contingencies and Litigation to the Condensed Consolidated Financial Statements for additional information regarding loss contingencies.

Goodwill

For acquired businesses, the Company records the acquired assets and assumed liabilities based on their relative fair values at the date of acquisitions (commonly referred to as the purchase price allocation). Goodwill represents the excess of the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. For the Company’s business acquisitions, the purchase price is allocated to identifiable intangible assets separate from goodwill if they are from contractual or other legal rights, or if they could be separated from the acquired business and sold, transferred, licensed, rented or exchanged.

The Company tests goodwill for impairment annually or more frequently if an event or change in circumstances indicate the asset may be impaired. Impairment testing for goodwill is done at the reporting unit level.

As of January 1, 2022, the Company underwent an internal reorganization in its Commercial reportable segment resulting in the previous four Commercial operating segments being combined into one single operating segment and reporting unit, led by a single segment manager.

The Company considered the reorganization in the first quarter of 2022 a triggering event and performed an interim qualitative goodwill impairment assessment of the reporting units before and after the reorganization and concluded no impairment existed at the time of the change.

Additionally, as part of the reorganization in the first quarter of 2022, certain clients were reassigned from the Government Services reportable segment to the Commercial reportable segment (refer to Note 4 – Segment Reporting to the Condensed Consolidated Financial Statements for additional information). This change resulted in less than 1% of goodwill being reallocated between the reporting units within the two reportable segments.

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, 2021.

New Accounting Standards Adopted

The Company has not adopted any new accounting standards in 2022 that had a material impact on its Consolidated Financial Statements.


						CNDT Q2 2022 Form 10-Q


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New Accounting Standards To Be Adopted

The Company has considered all recent accounting standards issued, but not yet effective, and does not expect any to have a material impact on its Consolidated Financial Statements.

Note 3 – Revenue

Disaggregation of Revenue

During the first quarter of 2022, certain clients were reclassified from the Government Services segment to the Commercial segment. Additionally, revenue for the Midas business divested in the first quarter of 2022 has been reclassified from the Commercial segment to the Divestitures segment. These changes have no impact on the timing of revenue recognition. All prior periods presented have been revised to reflect these changes.

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Commercial:
Customer experience management	$	145	$	146	$	306	$	307
Business operations solutions	126		137		277		279
Commercial healthcare solutions	88		92		178		186
Human resource and learning services	111		113		221		228
Total Commercial	470		488		982		1,000
Government Services:
Government healthcare solutions	143		140		288		289
Government services solutions	136		196		277		361
Total Government Services	279		336		565		650
Transportation:
Roadway charging & management services	81		75		157		158
Transit solutions	57		70		106		134
Curbside management solutions	22		20		41		38
Public safety solutions	17		18		33		35
Commercial vehicles	2		2		4		4
Total Transportation	179		185		341		369

Divestitures	—		17		7		35


Total Consolidated Revenue	$	928	$	1,026	$	1,895	$	2,054

Timing of Revenue Recognition:
Point in time	$	26	$	25	$	45	$	57
Over time	902		1,001		1,850		1,997
Total Revenue	$	928	$	1,026	$	1,895	$	2,054

Contract Balances

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


						CNDT Q2 2022 Form 10-Q


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


(in millions)	June 30, 2022		December 31, 2021
Contract Assets (Unearned Income)
Current contract assets	$	155	$	154
Long-term contract assets(1)	14		8
Current unearned income	(73)		(82)
Long-term unearned income(2)	(46)		(48)
Net Contract Assets	$	50	$	32
Accounts receivable, net	$	684	$	699

__________

(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 $18 million and $53 million were recognized during the three and six months ended June 30, 2022, respectively, related to the Company's unearned income at December 31, 2021. Additionally, the Company recognized $7 million of revenue related to the unearned income of the divested Midas business for the six months ended June 30, 2022. Such amount was included in Liabilities Held for Sale on the December 31, 2021 consolidated balance sheet.

Revenues of $30 million and $88 million were recognized during the three and six months ended June 30, 2021 related to the Company's unearned income at December 31, 2020.

The Company had no material asset impairment charges related to contract assets for the three and six months ended June 30, 2022 or 2021.

Transaction Price Allocated to the Remaining Performance Obligations

Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied at June 30, 2022 was approximately $1.0 billion. The Company expects to recognize approximately 73% 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). 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.

In the first quarter of 2022, the Company realigned certain clients between reportable segments to reflect how the Company currently manages its business. Certain clients were reclassified from the Government Services reportable segment to the Commercial reportable segment to align with a product view of the business. Additionally, in the first quarter of 2022, in order to provide greater visibility into the profitability of the Company's segments, certain real estate costs that were previously included in Unallocated Costs have been allocated to each of the reportable segments.

As described in Note 5 – Assets/Liabilities Held for Sale and Divestiture, the Company sold its Midas Suite of patient safety, quality and advanced analytics solutions to a third party in the first quarter of 2022. Accordingly, the results of this disposed business, which had previously been reported in the Commercial segment have been reclassified to the Divestitures segment. All prior periods presented have been recast to reflect these changes.

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


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Commercial: The Commercial segment provides business process services and customized solutions to clients in a variety of industries. Across the Commercial 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.

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.

Divestitures includes the Company's Midas Suite of patient safety, quality and advanced analytics solutions which it sold to a third party in the first quarter of 2022. Refer to Note 5 – Assets/Liabilities Held for Sale and Divestiture for additional information.

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 June 30,
(in millions)	Commercial		Government Services		Transportation		Divestitures		Unallocated Costs		Total
2022
Revenue	$	470	$	279	$	179	$	—	$	—	$	928
Segment profit (loss)	$	22	$	70	$	16	$	—	$	(72)	$	36

2021
Revenue	$	488	$	336	$	185	$	17	$	—	$	1,026
Segment profit (loss)	$	19	$	110	$	17	$	7	$	(79)	$	74


	Six Months Ended June 30,
(in millions)	Commercial		Government Services		Transportation		Divestitures		Unallocated Costs		Total
2022
Revenue	$	982	$	565	$	341	$	7	$	—	$	1,895
Segment profit (loss)	$	50	$	145	$	24	$	2	$	(131)	$	90

2021
Revenue	$	1,000	$	650	$	369	$	35	$	—	$	2,054
Segment profit (loss)	$	43	$	195	$	38	$	16	$	(158)	$	134


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(in millions)	Three Months Ended June 30,				Six Months Ended June 30,
Segment Profit (Loss) Reconciliation to Pre-tax Income (Loss)	2022		2021		2022		2021
Income (Loss) Before Income Taxes	$	5	$	19	$	215	$	10
Reconciling items:
Amortization of acquired intangible assets	3		32		9		72
Restructuring and related costs	11		8		20		21
Interest expense	18		13		37		26

(Gain) loss on divestitures and transaction costs	3		(1)		(160)		1
Litigation settlements (recoveries), net	(3)		1		(31)		2
Loss on extinguishment of debt	—		2		—		2
Other (income) expenses, net	(1)		—		—		—
Segment Pre-tax Income (Loss)	$	36	$	74	$	90	$	134

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

Note 5 – Assets/Liabilities Held for Sale and Divestiture

Assets/Liabilities Held for Sale

As of December 31, 2021, the sale of the Midas Suite of patient safety, quality and advanced analytics solutions to Symplr Software, Inc. had not yet closed. Accordingly, the assets and liabilities of this portfolio, collectively referred to as the Disposal Group, were reclassified as held for sale and measured at the lower of carrying value or fair value less costs to sell. As described below, the sale closed in the first quarter of 2022 and the assets and liabilities held for sale have been removed from the Company's Condensed Consolidated Balance Sheet.

Divestiture

On February 8, 2022, the Company completed the sale of its Midas Suite of patient safety, quality and advanced analytics solutions to Symplr Software, Inc. The Company received $321 million of cash consideration for this divestiture, subject to customary working capital adjustments. The working capital adjustments were settled during the second quarter of 2022 and were not material. The divestiture generated a pre-tax gain of $166 million, which is included in (Gain) loss on divestitures and transaction costs. The Company recorded approximately $62 million of income taxes in connection with the divestiture. The revenue generated by this business was $7 million for the six months ended June 30, 2022 and $17 million and $35 million, respectively, for the three and six months ended June 30, 2021. There was no revenue generated by this business for the three months ended June 30, 2022.

Note 6 – 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 $3 million and $8 million for the three months ended June 30, 2022 and 2021, respectively, and $7 million and $15 million for the six months ended June 30, 2022 and 2021, 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.


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A summary of the Company's restructuring program activity during the six months ended June 30, 2022 and 2021 is as follows:


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2021	$	5	$	1	$	—	$	6
Provision	2		11		6		19
Changes in estimates	(1)		—		—		(1)
Total Net Current Period Charges(1)	1		11		6		18
Charges against reserve and currency	(5)		(11)		(6)		(22)
Accrued Balance at June 30, 2022	$	1	$	1	$	—	$	2


(in millions)	Severance and Related Costs		Termination and Other Costs		Asset Impairments		Total
Accrued Balance at December 31, 2020	$	3	$	3	$	—	$	6
Provision	2		16		4		22
Changes in estimates	—		(3)		—		(3)
Total Net Current Period Charges(1)	2		13		4		19
Charges against reserve and currency	(2)		(15)		(4)		(21)

Accrued Balance at June 30, 2021	$	3	$	1	$	—	$	4

__________

(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 $1 million for the three months ended June 30, 2022 and 2021, respectively, and $2 million and $2 million for the six months ended June 30, 2022 and 2021, respectively.

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 June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Commercial	$	1	$	2	$	1	$	2
Government Services	—		—		—		—
Transportation	—		—		—		—
Divestitures	—		—		—		—
Unallocated Costs(1)	9		5		17		17
Total Net Restructuring Charges	$	10	$	7	$	18	$	19

__________

(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 7 – Debt

Long-term debt was as follows:


(in millions)	June 30, 2022		December 31, 2021
2021 Term loan A due 2026	$	258	$	265
2021 Term loan B due 2028	513		515
2021 Senior notes due 2029	520		520
2021 Revolving credit facility maturing 2026	—		100
Finance lease obligations	13		16
Other	23		24
Principal debt balance	1,327		1,440
Debt issuance costs and unamortized discounts	(25)		(27)
Less: current maturities	(30)		(30)
Total Long-term Debt	$	1,272	$	1,383


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During the first quarter of 2022, the Company repaid $