What happened

Shares of business process outsourcing company Conduent (CNDT -5.90%) were down 16.8% today at 12:15 p.m. ET. The culprit? First-quarter 2022 earnings were in line with expectations and full-year outlook was reaffirmed, but some investors may have been hoping for a better report.  

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Image source: Getty Images.

So what

Specifically, Conduent reported revenue of $967 million (down 6% year over year) and adjusted earnings per share of $0.10 (down 33% year over year) in Q1 2022. The company said the declines were primarily related to a reduction in government stimulus spending from a year ago.  

The company, which provides software to improve business and organization efficiency, reaffirmed its full-year 2022 outlook. Total revenue for the year is expected to be $3.83 billion to $3.98 billion, which would represent a 4.4% decrease from 2021 at the midpoint. Adjusted EBITDA profit margin is also expected to be about 10%, less than the 11% margin last year. The company did announce the sale of its Midas healthcare segment for $340 million in cash, but the sale of assets is generally excluded from earnings calculations.

Now what

Conduent isn't a growth tech stock. Earlier this year on the full-year 2021 financial update, management provided a longer-term outlook that called for 2023 revenue to increase at just a low-single-digit percentage relative to 2022. Adjusted EBITDA margin is expected to rebound to about 11% next year.  

Given the thin profit margins, significant burden of debt ($1.28 billion in debt, $588 million in cash on balance), and lack of growth, it isn't terribly surprising that Conduent stock is in retreat. Based on full-year 2022 expectations, shares currently trade for about six times enterprise value to one-year expected adjusted EBITDA.