CONDUENT Inc: Form 10-Q for the period ended Mar 31, 2025

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:

• Overview;
• Financial Information and Analysis of Results of Operations;
• Metrics;
• Capital Resources and Liquidity;
• Critical Accounting Estimates and Policies;
• Recent Accounting Changes; and
• Non-GAAP Financial Measures.

The MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes.

Overview

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 53,000 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.

Headquartered in Florham Park, New Jersey, we have operations in 24 countries as of March 31, 2025.

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:

• Commercial – Our Commercial segment provides business process services that span our clients' businesses end-to-end from the front-office to the back-office for a variety of commercial industries. These solutions are both cross-industry and industry-specific in nature. Across the Commercial segment, we operate on our clients’ behalf to deliver mission-critical solutions and services to reduce costs, improve efficiencies and enhance performance for our clients and deliver better experiences for their consumers and employees.
• Government – Our Government segment provides government-centric business process services and solutions to U.S. federal, state, local and foreign governments for public assistance, healthcare programs and administration, transaction processing, payment services and case management. In this segment, we help governments respond to changing rules for eligibility and keep pace with increasing citizen expectations, modernize legacy technology systems, combat benefits fraud and shift in response to an evolving regulatory environment.
• Transportation – Our Transportation segment provides government agencies and transportation authorities around the world with systems, support and revenue-generating solutions serving toll and fare collections as well as mobility and digital payments that help streamline operations and increase revenue to government transportation agencies. With an expanded focus on sustainability and enhancing the quality of life for citizens and communities around the world, our solutions help reduce congestion and greenhouse emissions, while creating seamless travel experiences for consumers throughout transportation ecosystems.

Executive Summary

Our intense emphasis on growth, quality, and efficiency, beginning in the first quarter of 2020, resulted in a strengthened foundation. Building on this solid foundation, during 2023, we held an investor briefing outlining our three-year strategy. We continue to execute on this strategy and remain focused on accelerating growth and enhancing value for our stakeholders. We intend to achieve this by doubling down on key themes outlined in the 2023 investor briefing including focusing on key growth areas within each of our businesses, continuing our portfolio rationalization strategy, divesting certain solutions which have either scarcity value outside of Conduent or are capital intensive relative to their growth opportunity, and taking a balanced approach to allocating capital including internal investments in our solutions, pre-paying debt and repurchasing common shares.

We believe this strategy has resulted and will continue to result in a more nimble and faster growing Conduent with modest levels of net leverage, enhanced valuation, and a stronger balance sheet.

2025 is the year in which we intend to complete the remaining commitment of $1 billion of deployable capital through further portfolio rationalization, achieving the financial 2025 exit rate targets we have been anchoring to throughout this 3-year journey, as well as demonstrating revenue growth in the remaining Conduent portfolio of businesses.

During the first quarter of 2025 we achieved the following:

• Began the second phase of our portfolio rationalization strategy to be executed in 2025, focusing on assets that are either capital intensive or have a negative impact on our earnings profile.
• Transitioned the tolling system for New York State to an innovative, cloud-based platform, benefiting both the Tolling Authorities and the millions of motorists who use the state's roadways. The new platform, a first of its kind in the country, enables faster transactions, expanded payment options, simplified account management and improved customer experience. The upgrade included a comprehensive redesign of the state’s tolling website and its mobile app for E-ZPass® and Tolls by Mail customers, giving them more control over managing their accounts. In addition, the New York Tolling Authorities now have an integrated customer service phone number for all toll-related needs, plus additional payment and customer service options. These include the ability for customers to message live agents, pay with Apple Pay or Google Pay, and request information or make changes to their accounts without needing to speak with a representative.
• In our Government segment, we are seeing opportunities at the intersection of two market trends: the increased use of AI and the increased focus on fraud, waste and abuse in government benefits. As communicated previously, one of our AI pilots, in collaboration with Microsoft, leverages traditional rules-based AI combined with GenAI to help prevent account take-over fraud in government benefit payments. We have successfully moved this pilot into production, and, for the past few months, we have been using the solution to prevent fraud in our payments solution. With this solution, we have been able to increase the volume of cases for fraud detection by 150% helping us prevent more fraud.

Cyber Event

On January 13, 2025, the Company experienced an operational disruption and learned that a threat actor gained unauthorized access to a limited portion of the Company’s environment (the "cyber event"). Upon detection, the Company activated its cybersecurity response plan with the help of external cybersecurity experts to contain, assess, and remediate the incident. The Company restored the affected systems and returned to normal operations within days, and in some cases, hours. The disruption did not have a material impact to the Company’s operations.

As part of its ongoing investigation, the Company determined that the threat actor exfiltrated a set of files associated with a limited number of the Company’s clients. Due to the complexity of the files, the Company engaged cybersecurity data mining experts to evaluate the exfiltrated data and was recently informed of its nature, scope and validity, confirming that the data sets contained a significant number of individuals’ personal information associated with our clients’ end-users. The Company is continuing to further analyze and document the precise and detailed impact of the data exfiltrated, and clients are being informed as appropriate in order to determine next steps as required by federal and state law. To the Company’s knowledge, the exfiltrated data has not been released on the dark web or otherwise publicly.

While the Company did not experience material impacts to its operating environment or costs from the event itself, the Company has incurred and accrued material non-recurring expenses in the first quarter related to the event based on potential notification requirements. The Company maintains a cyber insurance policy and has also notified federal law enforcement authorities of the incident.

It is possible that future risks and uncertainties resulting from the 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 II, Item 1A (Risk Factors).

Financial Information and Analysis of Results of Operations

(in millions)

Revenue

Revenue for the three months ended March 31, 2025 decreased compared to the prior year period, approximately 54% of which was due to the impact of the Benefit Wallet Transfer and the sales of the Curbside Management and Public Safety Solutions and Casualty Claims Solutions businesses. Excluding the divestitures impact, lost business and lower Commercial volumes contributed to the decrease and were partially offset by new business ramp, particularly in our Commercial and Transportation segments.

Cost of Services (excluding depreciation and amortization)

Cost of services for the three months ended March 31, 2025 decreased, compared to the prior year period, primarily due to the impact of the Benefit Wallet Transfer and the sales of the Curbside Management and Public Safety Solutions and Casualty Claims Solutions businesses. Excluding the divestitures impact, lower expenses on lower revenues and cost optimizations contributed to the decline.

Selling, General and Administrative ("SG&A") (excluding depreciation and amortization)

SG&A for the three months ended March 31, 2025 increased, compared to the prior year periods, primarily driven by $25 million of direct response costs related to the cyber event. This was partially offset by a $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 as well as cost efficiencies in our corporate functions.

Depreciation and Amortization

Depreciation and amortization for the three months ended March 31, 2025 decreased, compared to the prior year period due to the impact of fully amortized assets still in use and the sales of the Curbside Management and Public Safety Solutions and Casualty Claims Solutions businesses.

Restructuring and Related Costs

We engage in a series of restructuring programs related to optimizing our employee base, reducing our real estate footprint, exiting certain activities, outsourcing certain internal functions, consolidating our data centers and engaging in other actions designed to reduce our cost structure and improve productivity. The following are the components of our Restructuring and related costs:

(in millions)

Refer to Note 6 – Restructuring Programs and Related Costs to the Condensed Consolidated Financial Statements for additional information regarding our restructuring programs.

Interest Expense

Interest expense represents interest on long-term debt and the amortization of debt issuance costs. Interest expense for the three months ended March 31, 2025 decreased, compared to the prior year periods primarily due to the 2024 voluntary prepayments of the entire Term Loan B balance outstanding and a portion of the Term Loan A balance with proceeds from divestitures.

(Gain) Loss on Divestitures and Transaction Costs

The completion of the first tranche of the BenefitWallet Transfer in the first quarter of 2024 resulted in a gain of $164 million for the three months ended March 31, 2024. Additionally, professional fees and other costs related to certain consummated and non-consummated transactions considered by the Company are included in this financial statement line item for all periods.

Litigation Settlements (Recoveries), Net

Litigation settlements (recoveries), net for the three months ended March 31, 2025 and 2024 were not material.

Income Taxes

The effective tax rate for the three months ended March 31, 2025 was 9.0%, compared to 21.9% for the three months ended March 31, 2024. The March 31, 2025 rate was lower than the U.S. statutory rate of 21%, due primarily 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, 2024 was higher than the U.S. statutory rate of 21% due primarily to incremental tax from geographic mix of income and state taxes partially offset by tax benefit from valuation allowance and audit settlement reserve releases.

Excluding the impact of amortization, restructuring, divestiture, reserves for the Direct response costs - cyber event, valuation allowances and discrete tax items, the normalized effective tax rate for the three months ended March 31, 2025 was 23.9%. The normalized effective tax rate for the three months ended March 31, 2024 was 22.2%, due primarily to excluding the impact of the BenefitWallet Transfer, restructuring costs, amortization of intangible assets, litigation reserve, audit settlement reserve release, valuation allowance and other discrete tax items. The normalized effective tax rate for the three months ended March 31, 2025 was higher than the rate for the three months ended March 31, 2024 due primarily to the geographic mix of income.

In 2021, the Organization for Economic Cooperation and Development released model rules for a 15% global minimum tax, known as Pillar Two. This alternative minimum tax is treated as a period cost beginning in 2024 and does not have a material impact on the Company's financial results of operations for the current period. The Company continues to monitor legislative developments, as well as additional guidance from countries that have enacted legislation.

Operations Review of Segment Revenue and Profit

Our financial performance is based on Segment Profit (Loss) and Segment Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") for the following three segments:

• Commercial;
• Government; and
• Transportation.

Divestitures include our BenefitWallet Portfolio and our Casualty Claims Solutions businesses (both of which were reclassified from our Commercial segment) and our Curbside Management and Public Safety Solutions businesses (which was reclassified from our Transportation segment).

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 our reportable segments.

Results of our financial performance were:

(in millions)

(in millions)

Commercial Segment

Revenue

Commercial revenue for the three months ended March 31, 2025 declined compared to the prior year period, driven by lower volumes, partially offset by new business ramp outpacing lost business.

Segment Profit and Adjusted EBITDA

Commercial segment profit and adjusted EBITDA for the three months ended March 31, 2025 decreased compared to the prior year period primarily due to lower volumes and a higher proportion of fixed technology overhead, partially offset by cost efficiencies. Commercial segment profit also benefited from the impact of lower depreciation due to the prior year write-off of internal use software and fully amortized assets.

Government Segment

Revenue

Government revenue for the three months ended March 31, 2025 decreased, compared to the prior year periods, primarily driven by lost business in our Government Healthcare business and some discrete negative impacts from the establishment of reserves for service level disputes.

Segment Profit and Adjusted EBITDA

Government segment profit and adjusted EBITDA for the three months ended March 31, 2025 decreased compared to the prior year period primarily due to the revenue drivers mentioned above partially offset by cost efficiencies and lower expenses driven by our fraud prevention activities in our Government Services business resulting from the investments we have been making in AI.

Transportation Segment

Revenue

Transportation revenue for the three months ended March 31, 2025 declined compared to the prior year period, primarily due to the non-retained portion of a Tolling contract offset by incremental revenue in the retained portion of the same contract related to the go-live of our congestion charging back office solution, as well as reduced activities from our smaller projects.

Segment Profit and Adjusted EBITDA

Transportation segment profit and adjusted EBITDA for the three months ended March 31, 2025 increased due to the absence of costs to transition the non-retained portion of a Tolling contract, partially offset by the revenue drivers mentioned above.

Divestitures

Revenue, Segment Profit and Adjusted EBITDA

The decrease in revenue, segment profit and Adjusted EBITDA for the three months ended March 31, 2025 as compared to the prior year period was due to the transfer of the BenefitWallet portfolio, and the sale of the Curbside Management and Public Safety Solutions businesses and Casualty Claims Solutions businesses in 2024.

Unallocated Costs

Unallocated Costs for the three months ended March 31, 2025 increased compared to the prior year periods primarily due to the Direct response costs - cyber event, partially offset by a $9 million recovery of legal costs from one of our insurance carriers related to the previously disclosed State of Texas matter that settled in February 2019 as well as cost efficiencies in our corporate functions.

Metrics

Metrics

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 Net ARR Activity below. The metrics for all periods presented below have been recast to remove the activity related to the BenefitWallet Portfolio and the Curbside Management and Public Safety Solutions businesses.

Signings

Signings are defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. Total Contract Value ("TCV") is the estimated total contractual revenue related to signed contracts. TCV signings is defined as estimated future revenues from contracts signed during the period, including renewals of existing contracts. Due to the inconsistency of when existing contracts end, quarterly and yearly comparisons are not a good measure of renewal performance. New business Annual Contract Value ("ACV") is calculated as TCV divided by the contract term, in months, multiplied by 12 for an annual measure.

Signing information for the three months ended March 31, 2025 and 2024 is as follows:

($ in millions)

(1) Recurring revenue signings are for new business contracts longer than one year.

(2) Non-recurring revenue signings are for contracts shorter than one year.

(3) Adjusted to remove new business signings of the Curbside Management and Public Safety Solutions businesses and Casualty Claims Solutions business.

The total new business pipeline at the end of March 31, 2025 and 2024 was $3.2 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. Beginning in the first quarter of 2025, we transitioned our measure of sales pipeline from TCV to ACV to align with our primary sales metric. This extends past the next twelve-month period to include total pipeline, excluding the impact of divested business as required.

Net ARR Activity

Net ARR Activity is a metric that is defined as Projected Annual Recurring Revenue ("ARR") for contracts signed in the prior 12 months, less the annualized impact of any client losses, contractual volume and price changes, and other known impacts for which the Company was notified in that same time period, which could positively or negatively impact results. The metric annualizes the net impact to revenue. Timing of revenue impact varies and may not be realized within the forward 12-month timeframe. The metric is for indicative purposes only. This metric excludes non-recurring revenue signings. This metric is not indicative of any specific 12-month timeframe.

The Net ARR activity metric for the trailing twelve months for each of the prior five quarters was as follows:

(in millions)

Capital Resources and Liquidity

As of March 31, 2025 and December 31, 2024, total cash and cash equivalents were $277 million and $366 million, respectively. We also have a $550 million revolving line of credit for our various cash needs, of which $10 million was used for letters of credit. The net amount available to be drawn upon under our revolving line of credit as of March 31, 2025, was $540 million.

As of March 31, 2025, our total principal debt outstanding was $657 million, of which $26 million was due within one year. Refer to Note 7 – Debt in the Condensed Consolidated Financial Statements for additional debt information.

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.

Cash Flow Analysis

The following table summarizes our cash flows, as reported in our Condensed Consolidated Statement of Cash Flows in the accompanying Condensed Consolidated Financial Statements:

(in millions)

Operating activities

The net increase in cash used in operating activities of $21 million, compared to the prior year period, was primarily due to a $22 million United States federal tax refund related to the 2018 tax year received in the first quarter of 2024.

Investing activities

Investing cash flow decreased by $160 million mainly due to $164 million of proceeds received from the BenefitWallet Portfolio transfer in the first quarter of 2024.

Financing activities

The decrease in cash used in financing activities was due to the voluntary prepayment of $164 million of debt using the proceeds received from the BenefitWallet Portfolio transfer in the first quarter of 2024. Additionally, the prior year included $17 million of treasury stock purchases under the program that was completed in September 2024.

Sales of Accounts Receivable

We have entered into a factoring agreement in the normal course of business as part of our cash and liquidity management, to sell certain accounts receivable without recourse to a third-party financial institution. The transactions under this agreement are treated as sales and are accounted for as reductions in accounts receivable because the agreement transfers effective control over, and risk related to, the receivables to the buyer. Cash proceeds from this arrangement are included in cash flow from operating activities in the Condensed Consolidated Statements of Cash Flows.

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, 2025 and 2024 was $3 million and $(8) million, respectively.

Material Cash Requirements from Contractual Obligations

We believe our balances of cash and cash equivalents, which totaled $277 million as of March 31, 2025, along with cash generated by operations and amounts available for borrowing under our revolving credit facility, will be sufficient to satisfy our cash requirements over the next 12 months and beyond.

At March 31, 2025, 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, 2024 for additional information on our material cash requirements.

Critical Accounting Estimates and Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying Condensed Consolidated Financial Statements and notes thereto.

There have been no significant changes during the three months ended March 31, 2025 to our critical accounting estimates and policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

Recent Accounting Changes

See Note 2 – Recent Accounting Pronouncements for information on accounting standards adopted during the current year, as well as recently issued accounting standards not yet required to be adopted and the expected impact of the adoption of these accounting standards.

Non-GAAP Financial Measures

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.

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.

A reconciliation of the non-GAAP financial measures Adjusted EBITDA and EBITDA Margin to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP are provided in the Segment Performance Review above.

Adjusted EBITDA and Adjusted EBITDA Margin

We use adjusted EBITDA and adjusted EBITDA Margin as an additional way of assessing certain aspects of our operations that, when viewed with the U.S. GAAP results and the accompanying reconciliations to corresponding U.S. GAAP financial measures, provide a more complete understanding of our on-going business. Adjusted EBITDA Margin is adjusted EBITDA divided by revenue. Adjusted EBITDA represents income (loss) before interest, income taxes, depreciation and amortization and contract inducement amortization adjusted for the following items:

• Amortization of acquired intangible assets. The amortization of acquired intangible assets is driven by acquisition activity, which can vary in size, nature and timing as compared to other companies within our industry and from period to period.
• Restructuring and related costs. Restructuring and related costs include restructuring and asset impairment charges as well as costs associated with our strategic transformation program.
• Goodwill impairment. This represents goodwill impairment charges arising from annual or interim goodwill testing.
• (Gain) loss on divestitures and transaction costs. This represents (gain) loss on divested businesses and transaction costs.
• Litigation settlements (recoveries), net. This represents settlements or recoveries for various matters subject to litigation.
• Loss on extinguishment of debt. This represents write-off of debt issuance costs related to prepayments of debt.
• Direct response costs - cyber event. This represents costs related to investigating, remediating and responding to the cyber event that occurred in January 2025.
• Other charges (credits). This includes Other (income) expenses, net on the Condensed Consolidated Statements of Income (Loss) and other adjustments.

Adjusted EBITDA is not intended to represent cash flows from operations, operating income (loss) or net income (loss) as defined by U.S. GAAP as indicators of operating performance. Management cautions that amounts presented in accordance with Conduent's definition of adjusted EBITDA and adjusted EBITDA Margin may not be comparable to similar measures disclosed by other companies because not all companies calculate adjusted EBITDA and adjusted EBITDA Margin in the same manner.

We are exposed to market risk from foreign currency exchange rates which could affect operating results, financial position and cash flows. We manage our exposure to this market risk through our regular operating and financing activities and, when appropriate, using derivative financial instruments. We utilized derivative financial instruments to hedge economic exposures, as well as reduce earnings and cash flow volatility resulting from shifts in market rates. We also hedge the cost to fund material non-dollar entities by buying currencies periodically in advance of the funding date. This is accounted for using derivative accounting.

Recent market events have not caused us to materially modify or change our financial risk management strategies with respect to our exposures to foreign currency risk. Refer to Note 8 – Financial Instruments in the Condensed Consolidated Financial Statements for additional discussion on our financial risk management.

During the reporting period, there have been no material changes to the quantitative and qualitative disclosures regarding our market risk set forth in our Annual Report on Form 10-K for the year ended December 31, 2024.

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of our principal executive officer and principal financial officer, or persons performing similar functions, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms relating to the Company, including our consolidated subsidiaries, and was accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Reference is made to the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to our risk factors as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2024, except as set forth below.

Our data systems, information systems and network infrastructure have been, and may in the future be, subject to hacking or other cybersecurity threats and other service interruptions, which could expose us to liability, impair our reputation or temporarily render us unable to fulfill our service obligations under our contracts.

As a leader in business process solutions, we leverage cloud computing, AI, machine learning and advanced analytics. We act as a trusted business partner in both front-office and back-office platforms, providing interactions on a substantial scale with our customers and other third-parties. Our customers include global commercial clients and government clients who depend upon our operational efficiency, non-interruption of service, and accuracy and security of information. We also use third-party providers such as subcontractors, software vendors, utility providers and network providers, upon whom we rely to support our business process solutions, to deliver uninterrupted, secure service. As part of our business process solutions, we also develop system software platforms necessary to support our customers’ needs, with significant ongoing investment in developing and operating customer-appropriate operating systems, databases and system software solutions. We also receive, process, transmit and store substantial volumes of information relating to identifiable individuals, both in our role as a solution provider and as an employer, and we are subject to numerous laws, rules and regulations in the United States (both federal and state) and foreign jurisdictions designed to protect both individually identifiable information as well as personal health information. We also receive, process and implement financial transactions, and disburse funds, on behalf of both commercial and government customers, which activity includes receiving debit and credit card information to process payments due to our customers as well as disbursing funds to payees of our customers. As a result of these and other business process solutions, the integrity, security, accuracy and non-interruption of our systems and information technology and that of our third-party providers and our interfaces with our customers are extremely important to our business, operating results, growth, prospects and reputation.

We have in the past been, and remain, susceptible to breach of security systems which may result and has resulted in unauthorized access to our facilities and those of our customers and/or access to and exfiltration of the information we and our customers are trying to protect. Cybersecurity failure might be caused by computer hacking, compromised credentials, malware, computer viruses, worms, trojans, ransomware and other destructive software, “cyber-attacks” and other malicious activity, as well as natural disasters, power outages, terrorist attacks and similar events. Operational or business delays may also result from the disruption of network or information systems and subsequent remediation activities.

Because the techniques used to obtain unauthorized access are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we or our third-party service providers may be unable to anticipate these techniques or implement sufficient preventative measures. Unauthorized access, hacking, malware, phishing, viruses, worms, trojans, ransomware and other “cyber-attacks” have become more prevalent, have occurred in our systems in the past, and may occur in our systems in the future. Our cyber practices and cybersecurity systems may prove to be inadequate and result in the disruption, failure, misappropriation or corruption of our network and information systems and it may not be possible for us to fully or timely know if or when such incidents arise, or the full business impact of any cybersecurity breach.

Additionally, with advances in computer capabilities and data protection requirements to address ongoing threats, we may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems caused by security breaches. Moreover, employee error or malfeasance, faulty password management or other irregularities may result in a defeat of our or our third-party service providers’ security measures and a breach of our or our third-party service providers’ information systems (whether digital, cloud-based or otherwise). In addition, the increased use of employee-owned devices for communications as well as work-from-home arrangements, present additional operational risks to our information technology systems, including, but not limited to, increased risks of cyber-attacks.

We have in the past experienced, and in the future could experience, an unauthorized party gaining physical access to one of our or one of our third-party service providers’ facilities or gain electronic access to our or one of our third-party service providers’ information systems. For example, on January 13, 2025, the Company experienced an operational disruption and learned that a threat actor gained unauthorized access to a limited portion of the Company’s environment and exfiltrated a set of files associated with a limited number of the Company’s clients. See Part II, Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operation – “Cyber Event” for additional information. This and any other such access could result in, among other things, unfavorable publicity and significant damage to our brand, governmental inquiry, oversight and possible regulatory action, difficulty in marketing our services, loss of existing and potential customers, allegations by our customers that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for substantial damages related to the theft or misuse of such information, any of which could materially adversely affect our results of operations and financial condition. Similar consequences may arise if sensitive or confidential information is misdirected, lost or stolen during transmission or transport, or is stolen or misused. Moreover, security breaches have and could require us to devote significant management resources to address the problems created by the security breach and to expend significant additional resources to upgrade further the security measures that we employ to guard such personal information against "cyber-attacks" and to maintain various systems and data centers for our customers. Often these systems and data centers must be maintained worldwide and on a 24/7 basis. We have in the past experienced and in the future could experience service interruptions that could result in curtailed operations and loss of existing and potential customers, which could significantly reduce our revenues and profits in addition to significantly impairing our reputation. If our information systems and our back-up systems are damaged, breached or cease to function properly, we may have to make a significant investment to repair or replace them, and we may suffer interruptions in our operations in the interim, each of which could materially adversely affect our results of operations and financial condition.

In addition, our and our customers’ systems and networks are subject to continued threats of terrorism, which could disrupt our operations as well as disrupt the utilities and telecommunications infrastructure on which our business depends. To the extent any such disruptions were to occur, our business, operating results and financial condition could be materially adversely affected. In addition, our liability insurance, which includes cyber insurance, might not be sufficient in type or amount to cover us, or the carrier may decline to cover us, against claims related to security incidents, cyberattacks and other related incidents.