Conduent

Conduent Incorporated, spun off from Xerox in January 2017, inherited a $6.4 billion portfolio of business process services contracts spanning government services, transportation, and commercial industries. However, many of these contracts were legacy Xerox arrangements structured as fixed-price, transaction-volume deals with limited escalation provisions. By 2019, revenue had declined to $4.5 billion as clients renegotiated terms at renewal or shifted to competitors. The company faced a structural problem: its government contracts (roughly 45% of revenue) had been priced aggressively to win volume, and commercial contracts lacked minimum commitment floors, meaning client volume reductions flowed directly to Conduent's top line. New business signings were not offsetting attrition, and the contract backlog was declining. Operating margins had compressed to approximately 4-5%, well below the 10-12% typical of well-run BPO operations.

Starting in 2020 under new CEO Cliff Skelton, Conduent undertook a systematic contract restructuring program focused on improving contract economics rather than chasing top-line growth:

• Minimum volume commitments: Renegotiated existing commercial contracts to include minimum monthly volume floors, ensuring a predictable revenue baseline even when client transaction volumes fluctuated. Contracts below $5 million annual value without minimum commitments were either restructured or allowed to attrite.
• Outcome-based pricing conversion: Shifted select government and commercial contracts from pure transaction-based pricing to outcome-based models tied to measurable results (e.g., claims processed accurately, citizen inquiries resolved on first contact). These contracts carried higher per-unit pricing in exchange for Conduent assuming performance risk.
• Contract term extensions: Negotiated 2-3 year extensions on key government contracts by offering technology modernization investments (cloud migration, automation) in exchange for longer commitment periods and built-in annual price adjustments of 2-3%.
• Portfolio rationalization: Deliberately exited approximately $300 million in low-margin, short-term contracts between 2020 and 2022, accepting revenue decline in exchange for improved contract quality. Management described this as clearing out unprofitable work to build a healthier base.
• New business selectivity: Shifted new business pursuit criteria to require minimum contract values of $3 million ACV and minimum 3-year terms, reducing the volume of small, short-cycle deals that consumed sales resources disproportionately.

• New business signings: Annual contract value of new business signings reached $732 million in 2022, reflecting improved quality and size of contract wins compared to the pre-restructuring period.
• Remaining performance obligations: Unsatisfied or partially satisfied performance obligations stood at approximately $1.6 billion as of September 2023, indicating a stabilizing forward revenue base.
• Revenue stabilization: While total revenue continued to decline (from $4.5B in 2019 to $3.7B in 2023) as legacy contracts ran off, the rate of decline slowed significantly, and the remaining portfolio featured stronger contract economics.
• Margin improvement: Adjusted EBITDA margin improved as unprofitable contracts were exited and restructured contracts carried better pricing, though the company continued to invest in transformation initiatives.
• Contract duration: Average contract term for new signings increased from approximately 2.5 years pre-restructuring to over 4 years by 2022, improving revenue visibility.
• Timeframe: Restructuring program executed over 2020-2023, with the most significant portfolio changes in 2020-2022.

• New management team brought in 2019-2020 had the mandate and credibility to accept short-term revenue decline in exchange for portfolio quality improvement
• Government contract base provided natural renewal opportunities for restructuring conversations, as government procurement cycles are predictable
• Technology investment in automation and cloud migration created genuine value to trade for better contract terms during renegotiations
• Private equity interest in Conduent's transformation story provided external validation for the strategy of prioritizing margins over revenue