Conduent Incorporated

payments associated with one-time unemployment insurance benefits and pandemic SNAP programs. Meanwhile, adjusted EBITDA was $114 million for the quarter, equating to a 10.9% margin, down 170 basis points as compared to prior year, where we benefited from a number of temporary cost savings, as well as higher stimulus volumes. For the full year, EBITDA came in at $487 million, an 11.8% margin, which was slightly above the top end of our guided range. Regarding new business sales in the fourth quarter, our annual recurring revenue signings improved, both year over year and sequentially, up 17% year over year and 28% from Q3. For the full year, we delivered $408 million in annual recurring revenue, in an increase of 16% versus 2020. Now, because of our mix of business, This ARR was delivered with slightly lower TCV than the prior year, both for the quarter and for the full year. As we've talked about before, the mix in the type of business sold can create this variation between ARR and TCV. While both are important, what matters most is the amount of annualized revenue, because one long-term contract can ramp the TCV quite high, irrespective of annual recurring revenue. Finally, in terms of our primary financial metrics, Our net ARR activity metric was positive for the fifth quarter, driven by this improved new business ARR as well as better retention. As always, this number matters in the growth of our base business, and Steve will show you how that will manifest in late 2022 and 2023. Turning our attention to other highlights of our 2021 performance. As many of you know, we closed the sale of our MIDAS suite of solutions to Simpler on February 8th for pre-tax net proceeds of $321 million. The combination of this and the debt refinancing we completed early in the fourth quarter means our capital and liquidity positions remain strong. We have a balanced use of cash plan for those proceeds. Our ability to quickly and seamlessly deliver government payments at scale enabled us to respond to the developing pandemic in 2021 and distribute over $50 billion in government pandemic stimulus payments. We enjoyed the third consecutive year of improvement in client satisfaction and sustained our high and improved level of associate engagement. Finally, we won numerous awards for culture, including Best Place to Work for LGBTQ, diversity, and women in the workplace. So if you turn to slide seven and think about how 2021 went as it relates to operations, our clients, and how we serve them, we're quite proud of how the year went. we received a lot of recognition in those areas. The drivers for some of that recognition is a focus on operational excellence or client-first routines or work around driving better SLA performance and continued uptime, improving our technology environments, as well as focusing on our associates in an inclusive culture. This recognition is based on feedback from clients and industry research firms, as well as outside independent assessments. A couple things to call out that we're quite proud of. As previously mentioned, we were awarded GM Supplier of the Year in 2021. We've also continued to improve our overall client satisfaction scores three years in a row, and we received several other recognition awards overall, in the transportation space most notably. With respect to industry research analysts and their recognition, you can see the various firms that recognized us as a leader across many, if not all, of our business units. And as previously mentioned, we're quite proud of some of the cultural recognition awards. You can read them, but a lot around diversity, our capability in terms of moving people to work from home environments, and recognition for best place to work for both women and LGBTQ associates, as well as for culture in general. I would say that it turned out to be a year beyond our expectations in terms of the outside-in point of view. With all that said, let me hand it over to Steve now and let him take you through the details of our 2021 full-year sales and financial results. Steve?

Thanks, Cliff. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let's turn to slide eight and discuss our key sales growth and retention metrics. While overall TCV was down 8% for the full year, we are pleased with the almost $1.8 billion in new business signings for the year, showing strong client support for our offerings and capabilities. New business annual recurring revenue was up 16%, with all three segments contributing near double-digit growth year over year. Non-recurring revenue grew 61% in the year, a function of pandemic snap volumes in the government segment, but also commercial NRR bookings, which more than doubled in 2021 as compared to 2020. During the fourth quarter, a handful of new business signings slipped into 2022. With that said, we expect to have strong sales in Q1 2022. You'll see in our sales metrics slide in the appendix that average contract length was 3.4 years as compared to 4.8 years in 2020, a function of our deal mix across the segments. We continue to evolve our integrated sales model to optimize the balance between near-term and long-term revenue needs. And in 2022, we are changing our sales compensation models to further incentivize these outcomes. Therefore, in 2022, we are moving our primary sales metric to annual contract value from total contract value. We will continue to report total contract value, but the shift to annual contract value defined as total contract value divided by deal term, will remove some of the variation caused by the differences in deal lengths between our commercial and government and transportation businesses. The net ARR activity metric, our combined measure of wins, losses, pricing effects, and other contractual changes, was positive for the fifth quarter. As a reminder, this trailing 12-month measure does not predict the timing of revenue, but is based on the timing of notification. A full definition of this metric is covered in the appendix of our presentation. Finally, with respect to renewals, we had an extremely busy and strong fourth quarter. Several larger clients renewed their agreements, demonstrating their satisfaction and a strong commitment to Conduent as their business process partner. Overall renewal TCV for 2021 was 2.8 billion, which was similar to 2020. As we have noted in prior calls, individual quarters can have significant variation due to timing of renewals. Now let's turn to slide nine and discuss our full year 2021 P&L metrics. We finished the year with results coming in around the midpoint of our guidance range. Revenue for 2021 was 4.14 billion as compared to 4.16 billion in 2020. Throughout the year and continuing into Q4, pandemic snap volumes in our government segment exceeded our assumptions from earlier in the year and contributed a meaningful tailwind to our results. I'll talk more about this when I cover our segment results. Adjusted EBITDA was 487 million for the full year 2021 as compared to 480 million in 2020. And our adjusted EBITDA margin at 11.8% was up 30 basis points year over year as compared to 2020. This was slightly above the high end of our outlook and was again benefited by the tailwind in pandemic snap volumes in our government segment. As I outlined in our Q3 call, adjusted EBITDA margins declined sequentially during the fourth quarter and our Q4 adjusted EBITDA margin was 10.9% as the pandemic snap volumes tapered. Finally, when comparing 2021 to 2020, the other significant driver around adjusted EBITDA beyond the general impact of mix was the benefit of temporary cost savings in 2020. Now let's turn to slide 10 and go over the segment results. For the full year, Commercial segment revenues declined 4% year over year, which was a significant improvement to last year's year over year compare. New business ramp improved over 2020, but this was offset with runoff of lost business. For the government segment, full year 2021 revenue grew 2.9% as compared to 2020. This included an incremental 74 million over 2020 from both pandemic SNAP and unemployment insurance. As noted earlier, these higher than anticipated tailwinds, especially in pandemic SNAP, exceeded our assumptions from earlier in the year. Transportation segment revenues grew 3.8% year over year in 2021 as compared to 2020. New business ramp was significantly stronger in 2021, benefiting from contributions from some of the larger deals we have talked about in recent earnings. The transportation segment also benefited from returns in tolling volumes, transit projects, and parking volumes, although the latter two have still not yet fully returned to normalized levels. In terms of adjusted EBITDA and margin, the commercial segment declined 7% year over year, and the adjusted EBITDA margin of 11.6% was down 30 basis points year over year. This was driven by revenue mix and temporary cost savings that benefited 2020. In the government segment, adjusted EBITDA grew by 10.8% and the adjusted EBITDA margin of 33.4% was up 240 basis points year over year, driven by higher margins on increased pandemic SNAP volumes. For the transportation segment, adjusted EBITDA declined 6.8% year-over-year as compared to 2020, and the adjusted EBITDA margin of 14.6% was down 170 basis points year-over-year. This was driven by revenue mix as well as temporary cost savings that benefited 2020. Let's turn to slide 11 and discuss the balance sheet and cash flow. Adjusted free cash flow for the full year finished at 89 million, which represented an 18% conversion from adjusted EBITDA. This was slightly below our expectations of a full year conversion of around 20%. In 2021, we repaid approximately $32 million of payroll taxes deferred from 2020, primarily related to the CARES Act. Excluding the impact of this, 2021 adjusted free cash flow conversion as a percentage of adjusted EBITDA would have been approximately 25%. Capital expenditure was 4.4% of revenue in the quarter and 3.6% of revenue for the full year at 147 million. This was slightly below the revised guidance range during our Q3 earnings update of approximately 150 million. Our adjusted net leverage ratio remained at two turns which is the low end of our preferred range of two to two and a half terms. And we had $420 million of cash on hand at the end of 2021. As we reported in our Q3 earnings update, we completed the refinancing of our debt on October 15th, extending our maturities for our revolving credit facility and term loan A to 2026, our term loan B to 2028, and our senior secured notes to 2029. Finally, on February 11th this year, we repaid the $100 million of debt drawn under our revolving credit facility. That concludes our prepared remarks on 2021, and I'm now going to hand it back to Cliff to set out some of the key elements of our game plan in 2022 and 2023. Cliff? Thanks, Steve.

Let's turn to slide 13 and we'll discuss how we're thinking about our priorities as we move into 2022 and beyond. We think this is particularly important as you examine our continuation strategy for base business growth and the trajectory timeline. So what we're trying to depict here in the priority slide is more or less a game plan of what you can expect us to accomplish over the course of the next two years. It's all about profitable growth and continuing this journey. And as you've already seen, or you will see when you normalize out the one-time stimulus effects, we're already growing in 2022. We now need to improve on that trajectory as well as driving margin expansion. There are untapped opportunities that this slide is meant to demonstrate to you. Profitable growth is key, but we're not going to take our eye off the ball of what we've accomplished heretofore. We want to continue to sustain that hard-fought foundation. critical to client retention, and new business sales. Whether it's around automation, tech modernization, consolidating our data centers while we modernize, or creating a shared service for operations, all that work will continue to reap rewards into the future. At the same time, we believe there are some adjacencies that are not only opportunistic and synergistic, but quite unique to what we can accomplish here at Conduent. Whether it's this mid-market opportunity of customer experience as a service, whether it's integrating our claims capability across our unique environments in commercial healthcare and workers' compensation, whether it's a continuation of opportunistic geographic expansion into countries like Australia and others, or whether it's payments and analytics, beginning with our transportation business, where we have a unique payment capability, we believe our unique solutions and services as well as our diverse portfolio is key. Again, of particular importance, we think this payments capability can provide breakthrough opportunities for both us and our clients. Meanwhile, there are still divestiture opportunities on the margins of the portfolio where we don't see the same synergies for growth. All that said, we've got to deliver into those adjacencies through continued work with partners and penetrating our current client base. Where in the commercial segment, for example, we have lots of product penetration opportunities. Finally, further integrating our sales team with our account management teams in order to leverage our sizable client base will add a lot of value. In a nutshell, that's our game plan. This is not more of the same. While it is sustaining what we've built, it's also expanding into the opportunities that we believe are adjacent. Selling better and faster and continuing to retain those clients that we've onboarded with a much improved platform with superior stability and security. Now I'm going to hand it back to Steve to talk about how that translates into our 2022 guidance and additionally provide an outlook as to how we see 2023 shaping up. So Steve, back to you.