CONDUENT Inc

Previous wording

The following Management’s Discussion and Analysis ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in seven sections:

Current wording

The following Management’s Discussion and Analysis ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless otherwise noted, the discussion of our results is on a continuing operations basis and does not include discontinued operations. Transactions and other factors significantly impacting our financial condition, results of operations and liquidity are generally discussed in order of magnitude. Our MD&A is presented in seven sections:

Previous wording

We deliver digital business solutions and services spanning the commercial, government and transportation spectrum – creating valuable outcomes for our clients and the millions of people who count on them. We leverage cloud computing, artificial intelligence ("AI"), machine learning, automation and advanced analytics to deliver mission-critical solutions. Through a dedicated global team of approximately 48,000 associates, process expertise and advanced technologies, our solutions and services digitally transform our clients’ operations to enhance customer experiences, improve performance, increase efficiencies and reduce costs.

Current wording

We deliver digital business solutions and services spanning the commercial and government spectrum – creating valuable outcomes for our clients and the millions of people who count on them. We leverage cloud computing, artificial intelligence ("AI"), machine learning, automation and advanced analytics to deliver mission-critical solutions. Through a dedicated global team of approximately 46,000 associates, process expertise and advanced technologies, our solutions and services digitally transform our clients’ operations to enhance customer experiences, improve performance, increase efficiencies and reduce costs.

Previous wording

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

Current wording

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

Previous wording

During the first quarter of 2026 we achieved the following:

Current wording

During the second quarter of 2026 we achieved the following:

Previous wording

While the Company did not experience material impacts to its operating environment or costs from the event itself, the Company incurred and accrued $25 million of non-recurring expenses in the first quarter of 2025 related to the event based on the notification requirements described above. We have made cash disbursements of $25 million through March 31, 2026 related to this matter. Any expense in excess of these amounts up to the coverage limit are anticipated to be covered by the cyber insurance policy that the Company maintains.

Current wording

While the Company did not experience material impacts to its operating environment or costs from the event itself, the Company incurred and accrued $25 million of non-recurring expenses in the first quarter of 2025 related to the event based on the notification requirements described above. We have made cash disbursements of $25 million through June 30, 2026 related to this matter. Any expense in excess of this amount up to the coverage limit have been and are anticipated to be covered by the cyber insurance policy that the Company maintains.

Previous wording

It is possible that future risks and uncertainties resulting from the January 2025 Cyber Event, including those related to impacted data, litigation, reputational harm, and regulatory actions, could adversely affect the Company’s financial condition or results of operations. See also Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (Risk Factors).

Current wording

It is possible that future risks and uncertainties resulting from the January 2025 Cyber Event, including those related to impacted data, litigation, reputational harm, and regulatory actions, could adversely affect the Company’s financial condition or results of operations. See also Note 12 – Contingencies and Litigation contained herein and Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (Risk Factors).

Previous wording

Cost of services for the three months ended March 31, 2026 decreased compared to the prior year period, primarily driven by lower expenses associated with reduced revenues and cost optimization initiatives.

Current wording

Cost of services for the three and six months ended June 30, 2026 decreased compared to the prior year periods, primarily driven by lower expenses associated with reduced revenues and cost optimization initiatives.

Previous wording

SG&A for the three months ended March 31, 2026 decreased year over year, primarily driven by non-recurring items in the first quarter of 2025. These items included the $25 million of direct response costs related to the January 2025 Cyber Event and the $9 million benefit from the recovery of legal costs from one of our insurance carriers related to the previously disclosed State of Texas matter that settled in February 2019. In addition, cost efficiencies in our corporate functions in the current year and lower healthcare costs due to lower U.S. headcount contributed to the decrease. The current year period SG&A included two offsetting items. Separation costs of approximately $4 million related to the departure of our former Chief Executive Officer were offset by an approximate $3 million net benefit related to our 2025 Annual Performance Incentive Plan ("APIP") as described in Note 12 – Preferred Stock and Common Stock.

Current wording

SG&A for the six months ended June 30, 2026 decreased compared to the prior year period, primarily driven by non-recurring items in the first quarter of 2025. These items included the $25 million of direct response costs related to the January 2025 Cyber Event and the $9 million benefit from the recovery of legal costs from one of our insurance carriers related to the previously disclosed State of Texas matter that settled in February 2019. In addition, cost efficiencies in our corporate functions and lower healthcare costs resulting from reduced U.S. headcount contributed to the decrease. The current year period SG&A also included two offsetting items. Separation costs of approximately $4 million related to the departure of our former Chief Executive Officer were offset by an approximate $3 million net benefit related to our 2025 Annual Performance Incentive Plan as described in Note 13 – Preferred Stock and Common Stock.

Previous wording

Depreciation and amortization for the three months ended March 31, 2026 was substantially unchanged compared to the prior year period.

Current wording

Depreciation and amortization for the three and six months ended June 30, 2026 decreased compared to the prior year periods due to lower capital investments.

Previous wording

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

Current wording

Restructuring and related costs for the three and six months ended June 30, 2026 increased compared to the prior year periods due to the 2026 Restructuring Program noted above. Refer to Note 6 – Restructuring Programs and Related Costs to the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

Previous wording

Interest expense represents interest on long-term debt and the amortization of debt issuance costs. Interest expense for the three months ended March 31, 2026 was unchanged, compared to the prior year period due to comparable average debt balances and interest rates.

Current wording

Interest expense represents interest on long-term debt and the amortization of debt issuance costs. Interest expense for the three and six months ended June 30, 2026 increased slightly, compared to the prior year periods due to higher average outstanding debt balances under our Credit Facility.

Previous wording

(Gain) loss on divestitures and transaction costs include professional fees and other costs related to consummated and certain other non-consummated transactions considered by the Company related to its portfolio rationalization activities. The amount of these costs for the three months ended March 31, 2026 was unchanged, compared to the prior year period.

Current wording

(Gain) loss on divestitures and transaction costs include professional fees and other costs related to consummated and certain other non-consummated transactions considered by the Company related to its portfolio rationalization activities. These costs exclude costs directly related to the pending divestitures of our Transit and Tolling businesses, which have been reclassified to Income (loss) from discontinued operations, net of tax. The remaining amount of these costs for the three and six months ended June 30, 2026 declined, compared to the prior year periods, due to reduced portfolio rationalization activities.

Previous wording

Litigation settlements (recoveries), net for the three months ended March 31, 2026 and 2025 were not material.

Current wording

Litigation settlements (recoveries), net for the six months ended June 30, 2026 and 2025 were not material.

Previous wording

Other (income) expenses, net for the three months ended March 31, 2026 and 2025 primarily include interest income on cash investments, accounts receivable factoring fees and foreign currency transaction losses (gains).

Current wording

Other (income) expenses, net for the six months ended June 30, 2026 and 2025 primarily include interest income on cash investments, accounts receivable factoring fees and foreign currency transaction losses (gains).

Previous wording

The effective tax rate for the three months ended March 31, 2026 was (21.5)%, compared to 9.0% for the three months ended March 31, 2025. The March 31, 2026 rate was lower than the U.S. statutory rate of 21%, primarily due to geographic mix of income, valuation allowances recorded on net deferred tax assets and discrete tax items. The effective tax rate for the three months ended March 31, 2025 was lower than the U.S. statutory rate of 21%, primarily due to incremental tax from geographic mix, valuation allowances recorded on net deferred tax assets and discrete tax items.

Current wording

The effective continuing operations tax rate for the three months ended June 30, 2026 was (20.8)%, compared to 2.7% for the three months ended June 30, 2025. The June 30, 2026 rate was lower than the U.S. statutory rate of 21%, primarily due to valuation allowances, geographic mix of income and discrete taxes. The effective tax rate for the three months ended June 30, 2025 was lower than the U.S. statutory rate of 21%, primarily due to valuation allowances and geographic mix of income.

Previous wording

Excluding the impact of restructuring, former CEO separation costs, divestiture-related transaction costs, other expenses, amortization, valuation allowances and discrete tax items, the normalized effective tax rate for the three months ended March 31, 2026 was 25.7%. The normalized effective tax rate for the three months ended March 31, 2025 was largely consistent at 23.9%, primarily due to excluding the impact of amortization, restructuring, divestitures, reserves for the Direct response costs - cyber event, valuation allowances and discrete tax items.

Current wording

Excluding the impact of restructuring, former CEO departure costs, divestiture-related transaction costs, other expenses, amortization, valuation allowances and discrete tax items, the normalized effective tax rate for the six months ended June 30, 2026 was 24.0%. The normalized effective tax rate for the six months ended June 30, 2025 was 24.9%, primarily due to excluding the impact of amortization, restructuring, divestitures, reserves for the Direct response costs - cyber event, valuation allowances and discrete tax items.

Previous wording

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

Current wording

Our financial performance is based on Segment Profit (Loss) for the following two segments:

Previous wording

Commercial revenue for the three months ended March 31, 2026 decreased by 10% compared to the prior year period, primarily driven by contract losses and lower volumes, partially offset by new business ramp.

Current wording

Commercial revenue for the three and six months ended June 30, 2026 decreased, compared to the prior year periods, primarily driven by contract losses, including our largest customer, and lower volumes, partially offset by new business ramp.

Previous wording

Commercial segment profit and adjusted EBITDA for the three months ended March 31, 2026 increased, compared to the prior year period, primarily driven by cost efficiencies implemented in the second half of the prior year, including lower fixed technology overhead, partially offset by the revenue drivers noted above.

Current wording

Commercial segment profit for the six months ended June 30, 2026 increased, compared to the prior year period, while Adjusted EBITDA remained relatively flat. The increase in segment profit was primarily driven by cost efficiencies implemented in the second half of the prior year, including lower fixed technology overhead, partially offset by the revenue drivers and discrete negative impacts from penalties and unfavorable price adjustments noted above.

Previous wording

Government segment profit and adjusted EBITDA for the three months ended March 31, 2026 increased, compared to the prior year period, primarily due to the revenue drivers noted above, as well as cost efficiencies and continued lower expenses in our Government Services business.

Current wording

Government segment profit and Adjusted EBITDA for the six months ended June 30, 2026 increased, compared to the prior year period, primarily due to cost efficiencies and continued lower expenses in our Government Services business, partially offset by the revenue drivers noted above.

Previous wording

Unallocated Costs for the three months ended March 31, 2026 were favorable, compared to the prior year period, primarily driven by the absence of non-recurring items recognized in the prior year, including direct response costs related to the January 2025 Cyber Event and the recovery of legal costs from an insurance carrier related to the previously disclosed State of Texas matter, as well as cost efficiencies in our corporate functions.

Current wording

Unallocated Costs for the three and six months ended June 30, 2026 were favorable, compared to the prior year period, primarily driven by the absence of non-recurring items recognized in the prior year, including direct response costs related to the January 2025 Cyber Event and the recovery of legal costs from an insurance carrier related to the previously disclosed State of Texas matter, as well as cost efficiencies in our corporate functions.

Previous wording

We use metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies and evaluate forward-looking projections and trends affecting our business. We disclose these metrics to provide transparency in our performance trends. We present certain key metrics, including Signings and ACV Activity as defined below.

Current wording

We use metrics to evaluate our business, determine the allocation of our resources, make decisions regarding corporate strategies and evaluate forward-looking projections and trends affecting our business. We disclose these metrics to provide transparency in our performance trends. We present certain key metrics, including Signings and ACV Activity as defined below. All amounts exclude our Discontinued Operations.

Previous wording

Signing information for the three months ended March 31, 2026 and 2025 is as follows:

Current wording

Signings information for the three and six months ended June 30, 2026 and 2025 is as follows:

Previous wording

The total new business pipeline as of March 31, 2026 and 2025 was $3.5 billion and $3.2 billion, respectively. Total new business pipeline is defined as total new business ACV pipeline of deals at or beyond the qualified prospect stage. This extends past the next twelve-month period to include total pipeline.

Current wording

The total new business pipeline as of June 30, 2026 and 2025 was $3.0 billion and $2.7 billion, respectively. Total new business pipeline is defined as total new business ACV pipeline of deals at or beyond the qualified prospect stage. This extends past the next twelve-month period to include total pipeline.

Previous wording

As of March 31, 2026 and December 31, 2025, total cash and cash equivalents were $228 million and $233 million, respectively. We also have a $357 million Revolving Credit Facility (the "Facility") (reducing to $187 million in October 2026 and maturing in August 2028) for our various cash needs. As of March 31, 2026 we had $144 million outstanding borrowings under the Facility and an additional $23 million was used for letters of credit. The net amount available under the Facility as of March 31, 2026, was $190 million and the amount of borrowings at each quarter-end may be limited by our leverage covenant.

Current wording

As of June 30, 2026 and December 31, 2025, total cash and cash equivalents were $228 million and $233 million, respectively. We also have a $357 million Revolving Credit Facility (the "Facility") (reducing to $187 million in October 2026 and maturing in August 2028) for our various cash needs. As of June 30, 2026 we had $144 million outstanding borrowings under the Facility and an additional $23 million was used for letters of credit. The net amount available under the Facility as of June 30, 2026, was $190 million and the amount of borrowings at each quarter-end may be limited by our leverage covenant. Subsequent to the balance sheet date, in July 2026, the Company borrowed $183 million under its Revolving Credit Facility and there are no plans to utilize the funds at this time.

Previous wording

As of March 31, 2026, our total principal debt outstanding was $725 million, of which $23 million was due within one year. We have the intent and ability to refinance the amount outstanding under the Facility on a long-term basis; therefore all amounts outstanding as of March 31, 2026 are classified as long-term on our Condensed Consolidated Balance Sheets. Refer to Note 6 – Debt in the Condensed Consolidated Financial Statements for additional debt information.

Current wording

As of June 30, 2026, our total principal debt outstanding was $722 million, of which $21 million was due within one year. We have the intent and ability to refinance the amount outstanding under the Facility on a long-term basis; therefore, all amounts outstanding as of June 30, 2026 are classified as long-term on our Condensed Consolidated Balance Sheets. Refer to Note 7 – Debt in the Condensed Consolidated Financial Statements for additional debt information.

Previous wording

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 our revolving line of credit will continue to provide sufficient financial resources to meet our expected business obligations for at least the next twelve months.

Current wording

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 (considering the impacts of the sale of our Transportation businesses), sound balance sheet and our revolving line of credit will continue to provide sufficient financial resources to meet our expected business obligations for at least the next twelve months.

Previous wording

The net improvement in cash used in operating activities of $50 million, compared to the prior year period, was primarily due to improved Adjusted EBITDA and favorable working capital results, which included, among other things, net timing differences in payment of variable compensation of $14 million, which benefited the first quarter of 2026. These were partially offset by January 2025 Cyber Event related payments.

Current wording

The net improvement in cash used in operating activities of $72 million, compared to the prior year period, was primarily due to favorable working capital results, which included, among other things, the effects of the natural evolution of some of our long-term projects in the Government and former Transportation segments whereby milestones have been achieved and contractual amounts billed and collected. This was partially offset by lower Adjusted EBITDA and higher January 2025 Cyber Event-related payments.

Previous wording

Investing cash flow decreased slightly from the prior year due to planned reductions in capital expenditures.

Current wording

Investing cash usage increased from the prior year due to the absence of the $50 million cash received in the prior year related to the non-interest bearing note from the Curbside Management and Public Safety Solutions divestiture. This was partially offset by planned reductions in capital expenditures.

Previous wording

The increase in cash provided by financing activities was due to a net $35 million usage of the Facility for various cash needs.

Current wording

The increase in cash provided by financing activities was due to a net $35 million draw-down of the Facility for various cash needs in the current year as well as the absence of Treasury stock purchases and the repurchase of the noncontrolling interest in an Australian entity, both of which were made in the prior year.

Previous wording

The net impact from the sales of accounts receivable on net cash provided by (used in) operating activities for the three months ended March 31, 2026 and 2025 was $(8) million and $3 million, respectively.

Current wording

The net impact from the sales of accounts receivable on net cash provided by (used in) operating activities for the six months ended June 30, 2026 and 2025 was $(1) million and $(11) million, respectively.

Previous wording

At March 31, 2026, the Company’s material cash requirements include debt, leases and estimated purchase commitments. See Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2025 for additional information on our material cash requirements.

Current wording

At June 30, 2026, the Company’s material cash requirements include debt, leases and estimated purchase commitments. See Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2025 for additional information on our material cash requirements.

Previous wording

There have been no significant changes during the three months ended March 31, 2026 to our critical accounting estimates and policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

Current wording

There have been no significant changes during the six months ended June 30, 2026 to our critical accounting estimates and policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

Previous wording

We report our financial results in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). In addition, within this Form 10-Q Part I Item 2 we have discussed our financial results using non-GAAP measures.

Current wording

We report our financial results in accordance with U.S. GAAP. In addition, within this Form 10-Q Part I Item 2 we have discussed our financial results using non-GAAP measures for our Continuing Operations only, unless otherwise noted.

Previous wording

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

Current wording

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