CNDT — Q2 2026 Financial Report Analysis

Revenue fell 12% as Conduent lost its biggest commercial client, and profit slipped further while the company sells off its transportation arm

Conduent runs outsourced back-office and customer-service work for companies and state governments: call centres, benefits and Medicaid processing, payments, claims handling. In the second quarter of 2026 (April to June) revenue from the businesses it is keeping fell 11.9% to $531 million, from $603 million a year earlier. The 10-Q gives one main reason: "contract losses, including the loss of the largest Commercial segment customer, and lower volumes, partially offset by new business ramp." Adjusted EBITDA (earnings before interest, tax, depreciation and amortization, also leaving out restructuring and other one-off items; the profit measure management steers by) fell to $16 million from $23 million. The bottom-line net loss widened to $116 million from $40 million, as restructuring costs and a write-down on the tolling business sale added to the operating weakness.

This is also the first quarter reported without the Transportation segment. Conduent agreed in May and June to sell its Public Transit business (to Modaxo, for $164 million) and its Tolling business (to Quarterhill, for $70 million in cash plus 7% of Quarterhill's shares). Both are now reported as "discontinued operations", meaning their results sit on a separate line below the main income statement, and all the prior-year figures in this report have been restated to exclude them. Transit closed on October 1, 2026; Tolling is expected to close before the end of 2026.

At a glance

• Revenue down 11.9% to $531 million. The decline sped up: from the six-month figures, the first quarter fell about 5% ($587M vs $618M). The second quarter was the first to show the full effect of losing the largest commercial client.
• Adjusted EBITDA margin of 3.0%, down from 3.8%. For every $100 of revenue, about $3 was left before interest, tax, depreciation and one-offs. Full-year guidance of $140–170 million needs roughly $74–104 million in the second half, against $16 million this quarter.
• $722 million of debt against $228 million of cash. Conduent drew another $183 million on its revolving credit line in July. The line's commitments were due to step down to $187 million in October, and the company has since extended part of it to October 30 while it negotiates a refinancing.

Key figures (continuing operations unless noted)

Conduent doesn't report an operating income line. The operating margin above is pre-tax loss from continuing operations plus interest expense ($-57M + $13M = $-44M), divided by revenue. Restructuring costs are included.

Where the revenue went

Conduent now has two segments. Commercial serves private-sector clients (59.5% of revenue). Government serves states and federal agencies (40.5%).

The call-centre business lost a quarter of its revenue in a year, and that is where the largest-client loss shows up. The platform-based BPaaS line held flat. On profit, Commercial segment profit was unchanged at $7 million on $49 million less revenue, helped by "cost efficiencies implemented in the second half of the prior year, including lower fixed technology overhead". The 10-Q also cites "negative discrete impacts from penalties and unfavorable price adjustments" in the quarter. Commercial adjusted EBITDA was $24 million (7.6% margin) against $27 million (7.4%).

Government segment profit fell to $39 million from $49 million, and its adjusted EBITDA margin to 23.7% from 25.2%. Part of that comes from the comparison itself. The 10-Q points to "reserves recorded in the current year and a favorable reserve reversal recognized in the second quarter of 2025". A reserve is money set aside for an expected cost; reversing one adds profit back. So last year's quarter was flattered and this year's was penalised.

Unallocated corporate costs (shared IT and head office) fell to $66 million from $73 million, but they still more than wipe out the two segments' combined $46 million profit.

What the headline numbers hide

• The cash improvement relied on billing milestones, not earnings. Operating cash flow for the first half was -$1 million against -$73 million a year ago. (This cash-flow figure includes the Transportation businesses being sold.) Management credits "favorable working capital", including long-term Government and Transportation projects where "milestones have been achieved and contractual amounts billed and collected". Contract assets show it: these are work done but not yet billable. $65 million moved into billed receivables in the half, against $22 million a year earlier, and the balance fell to $13 million from $57 million. That pool can only be drawn down once. Second-quarter free cash flow, after $15 million of capital spending, was still -$8 million.
• Even the adjusted figures show a loss. Adjusted EPS of -$0.18 leaves out $20 million of restructuring, $2 million of divestiture costs, $1 million of litigation and $1 million of intangible amortization. It also strips out a $19 million tax adjustment. On the company's own adjusted basis, continuing operations lost $26 million in the quarter.
• Tax made the loss bigger. Conduent booked a $12 million tax expense on a $57 million pre-tax loss, an effective rate of -20.8%. The 10-Q attributes this to "valuation allowances, geographic mix of income and discrete taxes". In plain terms, the company pays tax in profitable countries but cannot count future tax savings from its US losses, because it isn't confident of having enough future profit to use them. A year earlier the tax line was a $1 million benefit.
• The first-half comparison is flattered by last year's one-offs. The six-month continuing net loss narrowed slightly to $91 million from $98 million. That is mostly because the first half of 2025 carried $25 million of costs from the January 2025 cyberattack, partly offset by a $9 million insurance recovery on an old Texas legal matter. This year's first half also had about $4 million of separation costs for the former CEO and a roughly $3 million bonus-plan benefit, which mostly cancel out.
• Profitability got worse within the year. Adjusted EBITDA was $66 million for the half and $16 million in Q2, so about $50 million came in Q1, an 8.5% margin. Q2 fell to 3.0%. Restructuring charges also rose to $20 million from $8 million.
• The tolling sale came with a write-down. Discontinued operations lost $47 million in the quarter. That includes a $31 million pre-tax write-down of the Tolling business to its expected sale value, with no tax benefit recorded. Equity fell to $526 million from $685 million at year-end.
• No buybacks, and new-business sales slowed. Share count edged up and there were no buybacks, so per-share figures track the business. New-business contract value signed fell 11%. Total signings rose 19%, but only because renewals rose 32%. The company's new trailing-12-month ACV measure, which replaces its old Net ARR figure this quarter, was $364 million, roughly flat against $361 million a year earlier. Renewals keep existing revenue rather than replacing what was lost.
• Guidance was rebased, so it can't be compared directly. In May, with Transportation still included, the outlook was $2.8–2.9 billion of revenue and $160–190 million of adjusted EBITDA, plus a 2027 outlook of "flat to positive" revenue and $190–220 million EBITDA. The August outlook, for continuing operations only, is $2.15–2.25 billion and $140–170 million. The 2027 outlook was not repeated in the August release. The revenue cut (about $650 million at midpoints) is larger than Transportation's first-half revenue of $269 million doubled. That suggests the remaining business was trimmed too, though the company doesn't give that bridge.

Debt, the credit line and the sales

Principal debt was $722 million at June 30: $520 million of senior notes due 2029, $144 million drawn on the revolving credit line, $46 million of finance leases and $12 million of other debt. Against that sat $228 million of cash. The 10-Q describes the revolver as $357 million, "reducing to $187 million in October 2026 and maturing in August 2028". It also notes quarter-end borrowings "may be limited by our leverage covenant", which is a cap on debt relative to earnings. After the quarter, in July, Conduent borrowed another $183 million on the line, with "no plans to utilize the funds at this time". The 10-Q gives no reason. Holding extra cash in hand before the commitments shrink would fit.

Two later filings fill in more:

• Transit closed on October 1, 2026. Conduent received $140 million in cash at closing. The buyer is holding back $22 million, released later if conditions are met, and $15 million of cash went across with the business. The company says the net proceeds of about $125 million will repay the revolver.
• Lenders extended part of the revolver. An October 14, 2026 amendment moved the maturity of the commitments due October 15 to October 30, 2026. The company and its lenders "are finalizing the refinancing of its revolving credit facilities". How that refinancing turns out is the main balance-sheet event to watch.

There are also $570 million of surety bonds and $123 million of letters of credit. These are guarantees that clients require on large contracts. Of these, $473 million of bonds and $89 million of letters are expected to transfer to the buyers, which frees up bonding capacity.

Takeaway: The business Conduent is keeping is shrinking faster than in the first quarter (-11.9% vs about -5%), and its margin is thin (3.0% adjusted EBITDA). Full-year guidance needs second-half adjusted EBITDA of roughly $74–104 million, against $16 million this quarter, so it depends almost entirely on the restructuring savings arriving on time. The sale proceeds go to the lenders, not to growth.

What to watch next

Management's plan has three parts. The first is the 2026 Restructuring Program: $30–50 million of costs, completion by mid-2027, and "at least $100 million in annual savings". The second is closing the Tolling sale before year-end. The third is converting a new-business pipeline that grew to $3.0 billion from $2.7 billion. The CEO says Q2 results "do not yet reflect the full impact of the actions underway".

Our read is that the third quarter (10-Q due around early-to-mid November, based on last year's November 7 filing) answers three questions:

1. Does revenue decline stop speeding up? The largest-client loss is now fully in the base. If the year-on-year decline stays near 12%, guidance of $2.15–2.25 billion gets hard to reach.
2. Does adjusted EBITDA move back toward Q1's ~$50 million a quarter? It needs to average about $37–52 million in each of Q3 and Q4 to hit the full-year range. Anything near Q2's $16 million would make a guidance cut likely.
3. How does the refinancing turn out? Watch the size, cost and covenants of the new revolver, and how much of the $125 million Transit proceeds and the Tolling cash actually reduce debt.

The deal values add context. Transportation was sold for about $248 million in total consideration ($234 million in cash plus about $14 million in Quarterhill shares). Conduent's equity on the balance sheet is $526 million. After these sales the company is smaller, more focused on call centres, business processing and government healthcare, and dependent on cost cuts to turn its segment profit into positive net income.