What happened

Shares of analytics and automation software company Conduent (NASDAQ:CNDT) were on a tear this morning, up an astonishing 73% at 11:10 a.m. EDT on Friday after the company reported a surprise profit Thursday night.

Heading into earnings, analysts had forecast Conduent would report a $0.05 per share loss on sales of $925.5 million for fiscal Q2. In fact, the company earned $0.12 per share (albeit on a pro forma basis), and did more than $1 billion in quarterly sales.  

Origami dollar folded into an arrow pointing up

Image source: Getty Images.

So what

In its earnings release, Conduent called its sales "well-above expectations," even though these sales were actually 9% below Q2 2019 levels. Perhaps more important, though, Conduent noted that new contract signings in the quarter (indicative of future revenue growth) were their strongest ever, up 90% year over year.  

As for earnings, on the one hand, it's worth emphasizing that the $0.12 "profit" Conduent reported was only a pro forma number. Calculated according to generally accepted accounting principles (GAAP), it showed a loss of $0.25 per share. Still, even this loss was a vast improvement over the $4.94 loss per share Conduent reported a year ago.

And free cash flow for the quarter turned positive: $55 million not counting capitalized software costs, or $38 million with them. Either way you figure it, this was a big improvement over Q2 2019, when Conduent's negative free cash flow exceeded $200 million.

Now what

Conduent guided investors to expect anywhere from $960 million to $1.01 billion in revenue for Q3. Seeing as the midpoint of this guidance range is well ahead of the $962.5 million that analysts are forecasting, all signs point to the company beating earnings again in the current quarter. Which is just one more reason Conduent shareholders are smiling today.

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