콘듀언트(CNDT) 2026년 3분기 실적 발표 컨퍼런스 콜: 매출 감소 속 마진 개선

콘듀언트(Conduent)의 2026년 3분기 실적은 전년 동기 대비 지속된 매출 압박 속에서도 수익성이 개선된 것으로 나타났다. 경영진은 다음 단계로 교통(transportation) 사업 부문 철수를 완료하고 구조적 비용을 절감하는 동시에, 29억 달러 규모의 적격 파이프라인을 지속 가능한 성장으로 전환하는 데 주력할 것이라고 밝혔다.

핵심 요약

• 계속영업매출은 5억 3,400만 달러로 2025년 3분기의 6억 500만 달러 대비 감소했으나, 2026년 2분기보다는 전분기 대비 증가했다.
• 조정 EBITDA는 3,100만 달러에서 3,600만 달러로 증가했다. 조정 EBITDA 마진은 전년 동기 대비 160bp 개선된 6.7%를 기록했다.
• 콘듀언트는 이번 분기 동안 6,100만 달러 규모의 신규 사업 연간계약가치(ACV)를 체결했다. 연초 이후 신규 사업 ACV는 2억 4,900만 달러에 달했다.
• 적격 신규 사업 파이프라인은 약 29억 달러로, 정부 부문 기회 25억 달러와 상업(Commercial) 부문 기회 4억 달러를 포함했다.
• 3분기 조정 잉여현금흐름은 마이너스 1억 1,700만 달러를 기록했는데, 이는 리파이낸싱 협상 중 회사의 팩토링 프로그램이 일시 중단된 데 주로 기인했다. 경영진은 팩토링이 정상화되었다면 분기 잉여현금흐름이 손익분기점에 근접했을 것이라고 설명했다.
• 콘듀언트는 2026년 가이던스를 유지했으며, 3개년 전략 기간 동안 두 자릿수 조정 EBITDA 마진과 플러스(+) 잉여현금흐름 달성을 지속적으로 목표로 하고 있다.

주요 재무 데이터

사업 및 운영 성과

상업 부문

상업 부문 매출은 전년 동기 대비 16% 감소한 3억 800만 달러를 기록했다. 경영진은 이번 분기 중 콘듀언트의 최대 상업 고객사 계약 만료를 비롯해, 고객 경험 관리 부문의 계약 손실 및 물량 감소를 주요 원인으로 꼽았다.

상업 부문 조정 EBITDA 마진은 9.4%로 전년 동기 대비 70bp 하락했다. 다만 전분기 대비로는 비용 효율화 프로그램에 힘입어 조정 EBITDA가 500만 달러 개선되었고, 마진은 160bp 상승했다.

해당 부문은 3분기에 4,500만 달러, 연초 이후 약 1억 4,400만 달러의 신규 사업 ACV를 체결했다. 이번 분기에 4곳의 신규 헬스케어 고객사가 추가되었다. 3분기 상업 부문 성장 활동의 약 58%는 서비스형 비즈니스 프로세스(BPaaS)에서 창출되었으며, 경영진은 이를 해당 부문에서 가장 마진이 높은 사업으로 꼽았다.

콘듀언트는 또한 휴매나(Humana), 애트나(Aetna)와의 협력 관계를 확대하고 자동차 운영, 결제 무결성 및 청구 교육 분야에서 신규 업무를 확보했다. 상업 부문의 적격 파이프라인은 연초 대비 27% 증가한 약 4억 달러를 기록했다.

정부 부문

정부 부문 매출은 2025년 3분기의 2억 3,800만 달러 대비 감소한 2억 2,600만 달러를 기록했다. 이러한 감소세는 시스템 구축 프로젝트 완료, 사업 손실 및 고객 물량 감소를 반영한 것이다.

조정 EBITDA는 6,300만 달러를 기록했으며, 마진은 전년 동기 대비 230bp 상승한 27.9%로 집계되었다. 경영진은 비용 효율화 노력 덕분에 마진이 개선되었다고 설명했다.

정부 부문은 3분기에 1,600만 달러, 연초 이후 약 1억 500만 달러의 신규 사업 ACV를 창출했다. 해당 부문의 적격 파이프라인은 2026년 초 대비 8.5% 증가한 25억 달러를 유지했다.

뉴욕주 메디케이드 플랫폼은 정규 운영 단계로 전환되었다. 경영진은 버지니아주를 포함해 최소 10개 이상의 다른 주에서도 수요가 발생하고 있다고 강조했다. 콘듀언트는 약 3억 8,000만 달러 규모의 파이프라인 기회에 해당하는 30건에 가까운 정부 입찰 제안서를 제출하고 선정을 기다리고 있다.

포트폴리오 및 재무제표 조정 조치

콘듀언트는 10월 1일 메닥소(Medaxo)에 대중교통 솔루션(Transit Solutions) 사업을 명목 금액 1억 6,400만 달러에 매각 완료했다. 거래 종결 시점에 사업과 함께 이전된 해외 현금 1,800만 달러를 제외한 1억 4,000만 달러를 수령했으며, 부외 금융 익스포저를 2억 달러 이상 축소했다.

회사는 통행료 징수 사업 매각도 조만간 완료될 것으로 예상하고 있다. 경영진은 교통 부문에서 완전히 철수하면 총 2억 3,400만 달러의 매각 대금이 발생할 것이라고 밝혔다.

10월 23일 콘듀언트는 회전신용공여 한도를 리파이낸싱했다. 7,500만 달러 규모의 신규 회전신용한도와 1,500만 달러 규모의 계약이행보증 신용장 한도를 포함해 총 약정액은 4억 4,700만 달러로 증가했다. 만기는 2029년 5월로 연장되었다. 해당 신용공여 한도는 교통 부문 자산이 매각되고 운전자본 수요가 감소함에 따라 연말까지 8,000만 달러 축소될 것으로 예상된다.

회사는 1억 600만 달러 규모의 비용 절감 방안을 도출했으며, 이 중 5,500만 달러를 실현했다. 보다 포괄적인 비용 절감 프로그램에는 조직 단순화, 협력업체 관리, 부동산, 기술 인프라, 자동화 및 AI가 포함된다.

경영진 가이던스

콘듀언트는 계속영업에 대한 2026년 실적 전망을 유지했다.

• 매출 21억 5,000만 달러~22억 5,000만 달러.
• 콘퍼런스콜에서 언급된 바와 같이 조정 EBITDA 1억 4,000만~1억 7,000만 파운드(GBP).
• 중간값 기준 조정 EBITDA 마진 약 7%.

경영진은 2026~2028년 전략 기간 동안 조정 EBITDA 마진이 점진적으로 두 자릿수까지 개선되고 플러스(+) 잉여현금흐름을 창출하기 시작할 것으로 예상하고 있다. 또한 2028년에 순레버리지 1.5배, 이후에는 약 1배 수준을 목표로 하고 있다.

이러한 목표는 영업 파이프라인의 실적 전환, 비용 절감, 실행력 제고, 교통 부문 사업 매각 완료 여부에 달려 있다.

리스크 및 주요 점검 사항

• 특히 상업 부문 고객 경험 관리에서 과거 고객 이탈, 계약 손실 및 물량 감소로 인해 매출이 계속 압박을 받고 있다.
• 이번 분기에는 주 선거 일정으로 인해 계약 체결이 지연되면서 정부 조달 주기가 길어졌다. 경영진은 선거 주기 이후 사업 활동이 가속화될 것으로 예상하지만, 구체적인 시점은 각 주의 결정에 달려 있다.
• 29억 달러 규모의 파이프라인 자체만으로 매출이 창출되는 것은 아니다. 경영진은 이러한 기회를 성장으로 전환하기 위해서는 수주율 제고와 성공적인 시스템 구축이 필수적이라고 강조했다.
• 조정 잉여현금흐름과 레버리지는 팩토링 중단으로 일시적인 영향을 받았다. 회사는 4분기 말까지 이러한 영향이 해소될 것으로 예상하고 있다.
• 계속영업 부문에는 이전 교통 부문과 관련된 잔존 고정비용이 여전히 반영되어 있다. 콘듀언트는 3분기에 약 400만 달러의 관련 비용을 계상했다.
• 2025년 1월 발생한 사이버 침해 사고와 관련된 합의는 여전히 법원 승인을 거쳐야 한다. 경영진은 보험을 통해 합의금 전액을 충당할 수 있을 것으로 예상하고 있다.

애널리스트 질의응답(Q&A) 주요 내용

경영진은 최근 체결된 ACV가 이미 매출에 기여하고 있다고 밝혔다. 다만 콘듀언트의 최대 상업 고객사 이탈을 포함한 과거의 고객 이탈로 인해 그 효과가 상쇄되었다. 해당 계약의 영향이 이제 완전히 소멸함에 따라, 경영진은 신규 수주가 점차 고객 이탈 규모를 넘어서면서 전분기 대비 실적 개선을 뒷받침할 것으로 예상하고 있다.

버지니아주 현대화 프로젝트의 경우 매출은 진행기준 회계에 따라 인식되는 반면, 고객 청구 및 현금 회수는 계약상 마일스톤에 따라 이뤄진다. 시스템 구축이 완료되면 프로젝트에서 지속적인 매출이 발생할 것으로 경영진은 기대하고 있다.

가격 책정과 관련해 콘듀언트는 계약 갱신 시 가능한 경우 인상을 추진하고 있으며, 물가상승분 조정(COLA)도 더욱 일관되게 적용하고 있다고 밝혔다. 상업 부문 갱신 계약의 기간은 일반적으로 약 3년인 반면, 최근 정부 부문 활동에는 단기 추가 업무가 더 많이 포함되었다.

경영진은 평균 거래 주기가 길어진 주된 원인으로 선거 주기를 전후한 정부 부문의 계약 체결 지연을 꼽았다. 선거가 끝남에 따라 보류되었던 일부 주 정부의 결정이 진전되기 시작할 것으로 전망했다.

실적 발표 콘퍼런스콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good afternoon, ladies and gentlemen, and welcome to the Conduent Q3 2026 Earnings Conference Call. [Operator Instructions]. Also note that this call is being recorded on Thursday, November 5, 2026. I would now like to turn the conference over to Nick Goel, VP of Investor Relations. Please go ahead.

Nick Goel

Thank you, operator. Good afternoon, everyone. Welcome to Conduent's Third Quarter 2026 Earnings Call. Joining me today are Harsha Agadi, our CEO; and Giles Goodburn, our CFO.

Earlier today, we issued our earnings release and presentation. Both are available in the Investor Relations section of our website and have been filed with the SEC. As a reminder, today's discussion will include forward-looking statements and non-GAAP financial measures. Please refer to our earnings release earnings material and SEC filings for the relevant risk factors, disclosures and reconciliations. With that, I will turn the call over to Harsha.

Harsha Agadi

Thank you. Good afternoon, everyone, and thank you for joining us. This has been an exhilarating and exciting quarter. We recently had our Investor Day after many years. I enjoyed meeting with investors, bondholders and analysts who follow our company. Thank you to everyone who joined my leadership team and me in person, and we have webcast. As we emphasized at the event, our singular focus is executing our Ascent 2026-2028 plan. I will talk a bit more about that later on in the call.

Let me brief you on what we have accomplished during the quarter. We have executed on several major milestones that I have established since the inception of my role as CEO. When we spoke last quarter, I outlined the progress on the 5 priorities for Conduent. Just to recall, those priorities are converting our pipeline into substantial growth optimizing our portfolio, increasing speed and accountability, enforcing financial discipline and reducing our cost structure. These priorities currently remain unchanged with sustainable growth now being at the absolute forefront.

Today, I want to update you further on the continuing progress we have made against those priorities, but also be very clear about what we have more work to do. Our third quarter results were in line with our expectations. Revenue from continuing operations was $534 million, sequentially higher than second quarter. Margins continue to improve as our efforts to simplify the company, reduce costs and strengthen operating performance has begun to deliver benefits. And importantly, we have now completed several significant actions that make Conduent a more focused company with a stronger and stable financial foundation. With that foundation in place, our focus is on converting our pipeline into growth.

Let me begin with our most important priority converting our pipeline into sustainable growth. This remains the area where we have the work that we need to do at a very focused level. We have signed new business year-to-date ACV of $249 million. At the same time, our pipeline continues to give us confidence in the opportunity ahead. We entered the fourth quarter with approximately $2.9 billion in qualified new business ACV pipeline with healthy increases since the beginning of the year in both commercial and government segments. We have several RFPs in play. But as I have said before, pipeline alone does not create value, conversion does. We need to convert more opportunities into wins, improve our win rates protect the clients.

We already have and execute successfully when new business comes on board. We continue to see encouraging proof points in both commercial and government. That is where our maximum focus is today. Let me start with commercial. Commercial has generated approximately year-to-date $144 million of new business ACV. What I find particularly important is the type of business we are winning. During the quarter, almost 58% of Q3 commercial growth activity was in the business unit business process as a service. our highest-margin business within the Commercial segment. We also continue to see diversification across add-on businesses, new capabilities and new logos.

Let me give you a few specific examples. We won a new capability program with a very large global automotive manufacturer focused on retooling and auditing critical operations inventory. We also added gravy as a new logo in payment integrity. We expanded our claims education work with Trillium Health resources, building upon and implementation that began last quarter and we continue to expand our customer experience relationships with Humana and Aetna as we support their respective member growth. These wins are important because they demonstrate clearly what our commercial strategy is intended to do.

We will deepen our focus on regulated industries and increase our sales bandwidth to the middle market segment. We want to deepen relationships with existing clients, introduce additional capabilities into those relationships and create differentiated offerings that we can scale across industries and clients. That is how we intend to improve both quality and durability of commercial revenue base over time.

Turning to government, we continue to strengthen our position across mission-critical public programs. Our first full Conduent Medicaid suite implementation in New York has now transitioned into ongoing flawless operations and is creating follow-on sales opportunities as the state adds capabilities and enhancements to the platform. We're also seeing strong demand from at least 10 other states, for example, Virginia for the state-of-the-art solution. We also expanded our state disbursement unit relationship in Illinois with nearly $2 million of additional print services ACV and secured approximately $4 million of ACV supporting Pennsylvania's transition to chip-enabled EMV technology for EBT.

Government has generated approximately year-to-date $105 million of new business ACV. And looking ahead, we had nearly 30 submitted proposals awaiting awards, representing a meaningful pool of late-stage opportunities although state election cycles now over will accelerate procurement and award timing. Our strategy in government is straightforward. We have decades of domain expertise in highly complex programs. We want to combine that expertise with modern technology, stronger implementation and execution and new capabilities to become an even more relevant and valuable partner to our government clients.

Now let me come to the second priority, which is optimizing the portfolio. We have completed the successful sale of the public transit business to [indiscernible] for $164 million and expect to complete the sale of the tolling business shortly. These transactions advance our exit from transportation and sharpen our focus on our core commercial and government businesses, allowing us to concentrate our capital, resources and management attention on those businesses. Across both commercial and government, our strategic focus is on serving highly regulated industries and complex programs where our domain expertise and mission-critical solutions can differentiate us.

With the completed public transit divestiture and impending sale of tolling, we have made significant progress on our portfolio optimization priority. When we fully exit the transportation business, we would generate $234 million of gross proceeds which is almost equivalent to our market cap, clearly not reflecting the true value of this company. We will continue with our disciplined approach of fixed South and grow.

We will fix businesses where we can see a clear path to improving meaningful performance sell businesses that are no longer aligned with our long-term strategy and grow the businesses where we believe we have the strongest competitive advantage and the greatest opportunity to create long-term value. Portfolio optimization is not simply becoming smaller. It is about increasing focus and investing in higher-margin businesses with attractive growth opportunities that have long-lasting solutions. It is about making Conduent simpler, more focused and better positioned to invest behind the businesses where we believe we can create the greatest enterprise value for clients, and our shareholders and bondholders. That was the objective we outlined at the beginning of this year, we have taken meaningful steps towards delivering it.

The third priority is increase speed and accountability. As we communicated on Investor Day, going forward, AI will be a very important lever across all parts of the business, and we intend to accelerate our efforts. To do that, we have established an AI center of excellence that will serve as the enterprise engine for scaling AI across Conduent by identifying and prioritizing the highest value opportunities rapidly developing and validating use cases and creating the reusable capabilities, governance and partnerships needed to move AI solutions from concept to production faster. The AI center of excellence will work across two areas in particular. One is how we create differentiation in our solutions and open new adjacencies with AI, like scaling unstructured document processing through Gen I addressing fraud across full life cycle of benefits in the government programs.

Secondly, AI Center of Excellence will closely look at our operations and ways of working to enhance productivity and development speed through AI. An example of that will be driving usage of AI-based coding tools for developers with the right measurements and guardrails in place. we are currently shaping the long-term road map and expect to share more on this throughout the next year. In addition, to this, we have aggressively delayered the company organization, dramatically changed the leadership team this year and move to decision-making at light speed. The next priority is enforcing financial discipline. On October 23, we completed a comprehensive refinancing of our revolving credit facility where Giles will provide additional details shortly. This was a very important milestone for Conduent. And combined with the divestiture activity strengthens our liquidity and gives us greater financial flexibility to execute our transformation.

And that allows us to increasingly shift our attention from restructuring the company to improving the performance of the company, both on top line and bottom line. Our fixation and focus on moving towards positive free cash flow is resolute. Giles will provide more details on it. Our final priority is reducing our cost structure. We continue to simplify the organization during the quarter, reduce structural costs and improve how we operate, you can see clear evidence of that progress in our third quarter profitability. We're also tightening capital spending year-to-date spending in 2026 and totaled $38 million compared with $59 million a year ago. That is encouraging. But let me be very clear. We still have a significant opportunity ahead of us.

At Investor Day, we discussed a broader cost transformation that goes beyond traditional head count reduction. It includes simplifying our organizational structure, optimizing our vendor base and real estate footprint modernizing our technology infrastructure and using automation and AI to make our operations more efficient. Out of the total $20 million of cost savings target, we have already identified $106 million and have realized $55 million. The objective is not simply to take cost out of Conduent. The objective is to build a company that can operate more efficiently increased pace of play and invest more effectively and translate future revenue growth into stronger margins and free cash generation. One last topic I should update you on.

We reached an agreement to resolve the class action litigation arising from the January 2025 cyber event. The settlement is subject to court approval and is expected to be funded by our insurance fully. Looking ahead, as I step back from this quarter, I would characterize our position this way. We have made substantial progress in reshaping Conduent. We have simplified the portfolio. We have strengthened our financial foundation and increased our financial discipline. We are reducing our structural cost base. We are investing in technology and AI. And we have built a substantial pipeline of opportunities across our commercial and government business. The next phase is about converting those actions into sustainable profitable growth.

With that, I turn the call over to our CFO, Giles Goodburn, to provide more details on the quarter's profitability, balance sheet and our outlook.

Giles Goodburn

Thanks, Harsha. As we've done in the past, we're reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let me start by stating the results we are reporting today reinforce our conviction around our transformation journey we laid out at our investor event on September 30 this year. Since the beginning of the third quarter, we have completed several strategic imperatives and showed progression in some of our key financial metrics, all of which I'll discuss today. First, we completed the sale of our Transit Solutions business to Medaxo on October 1 for a headline price of $164 million. We received $140 million at close, less $18 million of international cash, which went with the transaction and also reduced our off-balance sheet financial exposure by over $200 million. Second, we completed the refinancing of our revolving credit facilities, extending the existing $357 million and adding an incremental 90 million of additional commitments comprising $75 million of new revolving commitments and a $15 million back stock performance letter of credit facility for a total committed facility of 447 million. We also extended the maturity of the facilities to May 2029.

This new facility provides us ample financial flexibility to execute on our Xtend 2026 to 2028 strategic priorities. The facility reduces by $80 million by the end of the year as we divest the transportation assets and reduce our working capital requirements. Turning to the quarter. Unless otherwise indicated, the financial disclosures and related information and commentary provided herein relate to the company's continuing operations, which exclude the transportation segment, all prior periods have been restated to reflect discontinued operations. Let's discuss the key sales metrics on Slides 5 and 6. We signed 61 million of new business ACV this quarter compared to $70 million in Q3 2025. In the commercial segment, we are consistently signing between $40 million and $60 million of new business ACV each quarter.

In Q3, we signed 4 new logos, all new health care clients signing up for solutions across our health care operations and enterprise operations offerings. As Harsha mentioned earlier, we also signed a significant new capability with a leading auto manufacturer, which will support the continued growth in our finance, accounting and procurement offerings. The commercial qualified pipeline stands at just under GBP 400 million, which is up 27% since the beginning of the year. In the Government segment, we signed $16 million of new business ACV in the quarter. The third quarter has consistently been the low point in the last couple of years, this year, we continue to see a steady release of RFPs from government entities, which we are actively bidding on. However, the process of awarding these bids is taking longer and, therefore, increasing our average deal cycle times.

The government qualified pipeline continues to stand at $2.5 billion up 8.5% since the beginning of the year. Let's turn to Slide 7 and 8 and review the Q3 2026 P&L metrics. Revenue for the quarter was $534 million compared to $605 million in Q3 2025. While down year-over-year, revenue is up sequentially versus Q2 2026. Adjusted EBITDA for Q3 2026 was $36 million as compared to $31 million in Q3 2025. Our adjusted EBITDA margin of 6.7% is up 160 basis points year-over-year. Included in these adjusted EBITDA numbers is approximately $4 million in 2026 and 5 million in 2025 of stranded costs related to the former Transportation segment, which we will address as the transactions close. Both adjusted EBITDA and adjusted EBITDA margin showed significant improvement versus last quarter, and our expectation is that will continue into Q4.

Turning the page to our segment results. Q3 2026 Commercial segment revenue was 308 million, down 16% compared to Q3 2025. The decline is driven by contract losses and volume declines predominantly in our customer experience management offering. The losses include our largest commercial client, whose contract with us ended in the third quarter and is already incorporated in our outlook. Commercial adjusted EBITDA was GBP 29 million, a decrease of 8 million year-over-year, and the adjusted EBITDA margin of 9.4% was down 70 basis points. The reduced adjusted EBITDA and margin is predominantly a result of a health plan administration license agreement we signed in the prior year quarter, which made a strong contribution to the bottom line.

Sequentially, both adjusted EBITDA and adjusted EBITDA margin improved 5 million and 160 basis points, respectively, resulting from our cost efficiency programs in the commercial segment. Government segment revenue for the quarter was 226 million versus 238 million in Q3 2025. The drivers here were completed implementation projects lost business and lower client volumes. Adjusted EBITDA was $63 million, with adjusted EBITDA margin of 27.9%, up 230 basis points year-over-year. Our cost efficiency programs drove the higher adjusted EBITDA and margin outcomes. Unallocated costs were $56 million for Q3 '26, a reduction of 16% versus Q3 2025, reflecting the continued progress with our cost efficiency programs in the corporate functions. Turning to Slide 9, we'll discuss the balance sheet and cash flow.

Let's start with the temporary impacts of the renewed revolving credit facility. Due to the new facility closing after the end of the quarter on October 23, there are a couple of items on the September 30 balance sheet and cash flow statement that were impacted by the timing of the close falling outside the quarter. On the balance sheet, we have included the full amount of the previous facility that was set to mature on October 15, 2026, of 170 million in current portion of long-term debt.

Also, during the negotiations of this new facility, our factoring program provided by one of the bank lenders was temporarily paused until the new agreements were finalized. This pausing of the factoring program straddled the quarter end period and hence had a significant impact on our cash flow from operating activities, our adjusted free cash flow and subsequently, our net leverage ratio. We anticipate both of these impacts will be resolved by the end of the fourth quarter. We ended Q3 2026 with approximately $295 million in cash on the balance sheet and negative adjusted free cash flow of 117 million for the quarter. The pausing of the factoring facility had a significant impact on free cash flow.

But on a year-to-date basis, we continue to show an improvement versus 2025 and had a normal -- had a normalized level of factoring been executed, we would have been very close to breakeven free cash flow for the quarter. Our adjusted net leverage ratio of 2.9 turns is temporarily elevated this quarter. It excludes EBITDA from discontinued operations and includes the estimated cash proceeds from divestitures at closing, and our capital expenditure for the quarter was 2.8% of revenue, in line with our expectations. Turning to Slide 10. You will see our guide for 2026 remains unchanged compared to last quarter and what we shared at the investor event on September 30.

As a reminder, it excludes discontinued operations. For 2026, the revenue range is $2.15 billion to $2.25 billion and our adjusted EBITDA guide is 140 million to GBP 170 million, which at the midpoint is a 7% adjusted EBITDA margin. The out years remain consistent with what we discussed at the investor event with the addition of our net leverage ratio expectations. The new revolving credit facility and the $520 million of senior secured notes, both mature in 2029. The which allows us to focus on the Ascent 2026 to 2028 strategic priorities for the next 18 months before commencing another refinancing process. As we execute on the Ascend priorities, we expect adjusted EBITDA margins to incrementally improve to double digits and also begin to deliver positive free cash flow over this 3-year outlook time frame.

These are the catalysts, which will drive our net leverage ratio down to 1.5 turns in 2028 and steadily improved to one turn thereafter. That concludes the financial review of Q3 2026. And now I'll hand it back to Harsha. Harsha?

Harsha Agadi

Thank you, Giles. We also recognize that our current financial results are starting to reflect directional improvement. Revenue has been under pressure from historical churn, but our conversion of our pipeline to revenue will continue to improve and increase velocity. We believe the actions we have taken this year give us a stronger foundation from which to address those challenges. Our strategy is no longer about defining what needs to change at Conduent. We know what needs to change.

It now is all about flawless execution combined with a laser focus on selling our services as we reduce unwarranted costs and embracing today's AI-driven technology environment. And along with that, executing on our Ascent 26-28, as described on the Investor Day, which is standardize our operations and infrastructure specialized in core communications and scale around broad industry challenges. We believe that is the path to sustainable, profitable growth and long-term shareholder value. Before we open the lines for questions, let me leave you with one final thought. I became CEO on January 16, 2026. Over the course of this year, we have acted decisively. We have reshaped the portfolio. We have strengthened our financial foundation, reduced our structural cost and simplifying how we operate.

We are investing in technology and AI and we are building a stronger foundation for the commercial and the government growth patterns. The work is never complete. But I believe we're ending the year as a simpler, more focused and financially stronger Conduent than we were when we began this journey. Our focus now is execution and delivering the results that demonstrate that progress. I want to take a moment and thank all our associates around the world for their continued dedication, commitment and hard work and our clients for the trust they place in us every day.

With that, I wish everyone happy holidays, and we'll see you next year. Operator, we are now ready to take questions.

Operator

[Operator Instructions]. Your first question will be from [ George Crust ] at Noble Capital Markets.

질의응답

Unknown Analyst

Congratulations on the quarter. I'm filling in for Mike. So you talked a lot about your new business wins, but revenue was still down for the quarter. I was wondering if you could provide a little bit more color of when your new ACV wins actually start flowing through to the P&L?

Harsha Agadi

Yes. So first of all, the new ACV is flowing through to the P&L. But we've had, as I said in earlier calls, before I even joined Conduent as CEO, a large customer cycling off that has now completed. So we will not see those big holes on a daily basis anymore. But as the ACV on the new wins keeps picking up, as you would expect, it will start exceeding churn. So to me, what you're seeing is like a net number, but the churn is starting to reduce with that large customer having left us. So each month, that's why you're seeing sequential improvement quarter-to-quarter.

Operator

Next question comes from Gowshi Sri at Singular Research.

Gowshihan Sriharan

My first question is on the Virginia, how is revenue being recognized for the modernization? Is that milestones or cost as incurred and the lift in government Q3, is that from implementation work or rather some kind of run rate operations?

Giles Goodburn

So I missed the second part of the question. But the first part of the question, Gowshi, it's on a percentage of completion basis. So revenue for that project will be recognized as we go through the projects on a percentage of completion. And then we build client based on a milestone basis and clearly take the cash on a milestone basis as well.

Harsha Agadi

And by the way, Virginia will be ongoing revenue once fully implemented and will be actually much larger than New Mexico, and we have 10 more states lining up right behind it that we're in negotiations with because Conduent, the CMBS, the Conduent Medicaid system is truly state-of-the-art unique and cloud native that our competitors to the best of our knowledge cannot offer.

Gowshihan Sriharan

On the pricing side, how did pricing in the quarter of renewals compared with contracts that they replaced. And the move to shorter contract terms, is that -- is that coming mostly from the client side? Or are you structuring it that way?

Giles Goodburn

So yes, so we're generating price where we can on the renewals that we're engaging with the clients on. Clearly, there's cost increases, we will know as inflation inflationary concept here in -- across the globe. As far as the tenure of the renewals are concerned, we're typically renewing them in the commercial space at that kind of 3-year time frame, which is the average deal size or deal tenure that we have in that space. In the government side, I'd say we're doing in the last few months, certainly more add-on activity. We talked about some of the larger deals being caught in the award side are not being awarded due to what's been going on with the election cycle. So in the government space, we're seeing more add-on activity, which is essentially a shorter time frame.

Operator

Next question comes from Marc Riddick at Sidoti Company.

Marc Riddick

Good evening, everyone. I wanted to start with maybe a couple of comments around -- maybe you could share some thoughts around the pipeline. And maybe you could talk a little bit about a couple of the catalysts that you're seeing there as well as how the pacing progress through the quarter and then to here into the fourth?

Harsha Agadi

Yes. So maybe I'll step back and first talk about what I call as the qualified pipeline. And even from January to now, it has actually become quite large, about $2.9 billion. $2.5 billion is on the government side. $400 million is on the commercial side. And a qualified pipeline for us, Marc, is it has to be Stage 2 where conversations are already taking place and RFP or RFI in process. So there's a fair amount of activity. The other piece that I should tell you is the entire culture on sales has changed. We have a lot of elements in place, which some will tell me that this is normal in certain companies.

Guess what, Conduent some of it did not exist. And now our pace of play from Stage 2 to completion is picking up a fair amount of speed. Now the election cycle on the government side did slow us down. Just to give you a simple example, we have 30 proposals amounting to $380 million that was in the pipeline waiting for it to be approved and moved forward. I think the gates will open post election. And frankly, with the way election went, I think there's a greater opportunity for Conduent to partner with states that are willing to spend. Just to give you one small example, the one big beautiful bill, which is also called HR where a lot of Medicaid [indiscernible] were probably going to get blocked for a variety of reasons.

Now with the shift in the Congress that actually will remain and might increase in activity, therefore, helping content. So we're actually -- it's kind of interesting. You have two sites to every election, but we're actually positive because we have the government as our clients, and we're going to see a big pickup in activity.

Marc Riddick

Great. And then you may have answered what my follow-up was going to be because it seems as though that's at least part of it, but I was going to touch on the commentary around the average deal cycle times extending. Is that the primary or were there other factors in play with the average deal cycle times increasing during the quarter?

Giles Goodburn

Yes. No, Marc, that's the key contributor is what's been going on in the government with the election cycles. And we're anticipating that, that starts to free up now that we're through November 5, and should see some of those being awarded by the various states that we're engaged with.

Marc Riddick

Excellent. And then I guess the last one for me, I'll add on a follow-up because that was kind of covered in the first question. But I wanted to talk a little bit about the pricing dynamic that you're looking at and sort of how that plays into next year's portion of the 3-year plan and whether there's pricing that can be captured in any of the key areas of the business?

Harsha Agadi

Yes. Here's what I would say. Pricing is always very competitive. But we have a couple of things that I think may be in our favor. One is there is inflation on Therefore, it gives us an opportunity to do a few things with that. Second, we are now religiously insisting on cola everywhere. We may not get it everywhere, but we're much more forceful on that. And the other piece is as we continue to use new and better platforms and technology, it gives us savings makes us more price competitive as we're bidding on things. So we have a number of things in place simultaneously.

And I'm very focused when we look at a sales proposal, I am focused on contribution margin before corporate overhead. That is a key number for us to look at. And as I tell folks internally, we don't deposit margin percent we deposit dollars. So we're going to look at deal by deal and make sure there's more dollars of profitability coming through.

Operator

Thank you. Ladies and gentlemen, this does conclude today's question-and-answer period as well as our conference call. I would like to thank everyone for attending. And at this time, we do ask that you please disconnect your lines.