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CONDUENT Inc (CNDT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue of $767M missed S&P consensus ($792M*) by 3.2%, while adjusted diluted EPS of $(0.09) beat consensus ($(0.105)*) and adjusted EBITDA margin improved to 5.2% .
  • Management lowered FY25 adjusted revenue guidance to $3.05–$3.10B (from $3.10–$3.20B in Q2) and maintained adjusted EBITDA margin guidance at 5.0%–5.5% .
  • Timing headwinds from the U.S. federal government shutdown slowed RFPs/approvals, pushing milestones and some deals, but did not affect underlying revenue streams; strong Transportation growth and AI-driven efficiencies supported margin expansion .
  • Liquidity remained ample with ~$264M cash and ~$198M unused revolver; Conduent repurchased ~4.7M shares in Q3 and completed a credit facility refinancing that paid off Term Loan A, extending maturities .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA of $40M and margin of 5.2% improved year-over-year (+110 bps) and sequentially, landing “in line with guidance” .
  • Transportation segment revenue grew 14.9% YoY on strong international transit equipment sales; margin rose 250 bps, with wins in Richmond and ongoing momentum in Abu Dhabi, Israel, Greece, and the Bay Area .
  • AI initiatives delivered tangible cost and fraud reduction (government segment margin +210 bps YoY), and management highlighted a new AI experience center and early software licensing proof points beyond services: “we aren’t strictly a services company” .

What Went Wrong

  • Revenue declined year-over-year (Adjusted Revenue down 1.8%), driven by Commercial volume declines in the largest client and Government implementations timing/cancelation; Commercial adjusted revenue fell 4.7% YoY .
  • Operating cash flow was negative ($39M) and adjusted free cash flow was negative ($54M), impacted by delayed federal approvals and post-implementation stabilization; contract assets rose to $168M with >$100M expected to bill by end of Q1 2026 .
  • FY25 adjusted revenue guidance was cut ($3.05–$3.10B vs. $3.10–$3.20B prior), reflecting timing variability from reduced federal workforce and the shutdown .

Financial Results

Quarterly trend (oldest → newest)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$751 $754 $767
Adjusted Revenue ($USD Millions)$751 $754 $767
GAAP Diluted EPS ($)$(0.33) $(0.26) $(0.30)
Adjusted Diluted EPS ($)$(0.13) $(0.13) $(0.09)
Adjusted EBITDA ($USD Millions)$37 $37 $40
Adjusted EBITDA Margin (%)4.9% 4.9% 5.2%
Cash from Operations ($USD Millions)$(58) $(15) $(39)
Adjusted Free Cash Flow ($USD Millions)$(74) $(30) $(54)

Q3 2025 actual vs S&P Global consensus

MetricActualConsensusVariance
Revenue ($USD Millions)$767 $792*$(25)* (−3.2%)*
Primary EPS ($)$(0.09) $(0.105)*+$0.015*
Primary EPS – # of Estimates—2*—
Revenue – # of Estimates—2*—

Values marked with * retrieved from S&P Global.

Segment breakdown (Q3 2025)

SegmentAdjusted Revenue ($M)YoY ChangeAdjusted EBITDA ($M)Margin (%)YoY Margin Change
Commercial$367 (4.7)% $37 10.1% +100 bps
Government$238 (6.7)% $61 25.6% +210 bps
Transportation$162 +14.9% $4 2.5% +250 bps
Unallocated Costs——$(62) ——

KPIs and operating metrics

KPIQ1 2025Q2 2025Q3 2025
New Business Signings ACV ($M)$109 $150 $111
Net ARR Activity (TTM, $M)$116 $63 $25
New Business TCV ($M)——$246
Qualified ACV Pipeline ($B)——$3.4
Share Repurchases (Shares, M)—~2.7 ~4.7
Cash Balance ($M)$293 $294 $264
Unused Revolver ($M)——$198
Contract Assets ($M)—$138 $168; >$100 expected to bill by end Q1 2026

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Revenue ($B)FY 2025$3.10–$3.20 $3.05–$3.10 Lowered
Adjusted EBITDA Margin (%)FY 20255.0%–5.5% 5.0%–5.5% Maintained
Adjusted Free Cash FlowFY 2025Not specifiedDependent on timing of federal approvals and post-implementation milestones Qualitative update

Earnings Call Themes & Trends

TopicQ1 2025 (Prior)Q2 2025 (Prior)Q3 2025 (Current)Trend
AI/Tech initiativesLaunched GenAI “Conni”; fraud prevention tool; Maven deployments Expanded AI with Fairmarkit; EBT account lock; recognition awards AI reducing fraud/expenses; language tools; agent assist; AI experience center; beginning software licensing; launched GenAI reportable-event detection (Azure OpenAI) Intensifying deployment; shift toward IP/software monetization
Macro/Govt shutdown“Good start” despite macro uncertainty; segments insulated Guided on stable macro backdrop Reduced federal workforce and shutdown delaying RFPs/approvals; affects timing, not revenue streams Timing headwinds increased in Q3
Transportation momentumNYC congestion relief; Italy EMV transit “Accelerated performance” in Transportation +14.9% revenue; equipment sales strength; new wins (Richmond, Bay Area, Abu Dhabi, Israel, Greece) Strengthening
Portfolio rationalization/capitalReinforced >$1B deployable capital plan Efforts ongoing; expect margin/cash flow benefits 87% of $1B target achieved; more updates by Q4 Progressing toward target
CybersecurityJanuary 2025 cyber event; costs noted Continued references; non-GAAP adjustments Ongoing mitigation; direct response costs included in adjustments Normalizing; impacts treated in non-GAAP
Debt & Liquidity——Revolver amended; Term Loan A prepaid; added $93M performance L/C; $264M cash; $198M unused revolver Improved flexibility and runway

Management Commentary

  • CEO on performance and AI: “Adjusted EBITDA and Adjusted EBITDA Margin improved both year over year and sequentially… We also deployed AI enhancements… delivering greater efficiency for clients and further streamlining our internal operations” .
  • CEO on positioning: “We aren’t strictly a services company, but a service technology integrated business… beginning to actually license some of our software with built-in AI to our clients” .
  • CFO on sales and segments: “We signed $111M of new business ACV… Transportation generated another quarter of strong growth… decline was driven by our commercial and government segments” .
  • CFO on cash flow timing: Awaiting federal contract amendments and post-implementation stabilization; contract assets $168M with >$100M expected to bill by end of Q1 2026 .
  • CEO on transportation pipeline: “Richmond Pay-by-Plate… additional work in the Bay Area… Abu Dhabi and Israel… recent transit win in Greece” .

Q&A Highlights

  • Pipeline conversion and shutdown: Near-term closings slowed by federal shutdown and approvals (e.g., CMS), but management expects timing resolution without changing revenue recognition model .
  • Measuring AI impact: Government fraud initiatives are reducing expenses and showing up in the P&L; commercial AI targets CX, language, indexing/claims automation; contracting economics handled case-by-case .
  • Cost actions and stranded costs: Initial stranded costs from divestitures largely addressed; phase two portfolio actions expected into 2026 with continued spans/layers and real estate optimization .
  • Contract clauses: No structural changes to contracts despite shutdown, given revenue streams are primarily state/local; timing is the key issue .
  • Sales talent: New business development and leadership upgrades targeted in Q4 to impact 2026 pipeline feeding and client penetration .

Estimates Context

  • Q3 2025 print vs consensus: Revenue missed ($767M vs $792M*), while adjusted EPS beat (−$0.09 vs −$0.105*) and margin expanded to 5.2% .
  • Forward quarter: Q4 2025 consensus revenue ~$793.5M* and EPS −$0.085*, implying modest sequential growth despite guidance reduction; Transportation and AI efficiencies may support margins, but timing headwinds could keep revenue estimates conservative .
  • Post-print revisions: Expect reductions to FY25 adjusted revenue estimates in line with guidance ($3.05–$3.10B), with margin expectations unchanged at 5.0%–5.5% .
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Revenue miss and guidance cut reflect timing headwinds (shutdown/approvals) rather than demand; margin expansion and cost discipline remain intact .
  • Transportation momentum is a bright spot with double-digit growth and broad-based wins; watch international transit equipment sales mix and margin trajectory .
  • AI initiatives are transitioning from pilots to production and early software licensing, underpinning margin/efficiency gains and a potentially more IP-driven revenue mix .
  • Working capital conversion is the critical near-term swing factor; >$100M of contract assets expected to bill by end of Q1 2026 if federal operations normalize .
  • Balance sheet flexibility improved via refinancing; ~$198M unused revolver and ~$264M cash provide cushion during milestone delays .
  • Commercial segment headwinds concentrated in one large client; ex-that client, top 25 accounts grew YoY, suggesting underlying health as sales model/talent upgrades take hold .
  • Near-term trading: Focus on catalysts tied to easing shutdown, milestone billings, Transportation announcements, and visible AI/software deals; medium-term thesis depends on consistent revenue stabilization plus sustained margin gains and portfolio actions .