CNDT - Earnings call transcript Q1 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, everyone, and welcome to the Conduent First Quarter 2019 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Alan Katz, Vice President of Investor Relations. Sir, please go ahead.

Alan Katz

Good evening, ladies and gentlemen, and welcome to Conduent's first quarter 2019 earnings call.

call CFO. Vemuri, today's Brian CEO; on Conduent Walsh, me is Conduent's Ashok and Joining

prepared website. we of download available our the as also section during Following the remarks, Relations call on SEC being call questions. this the metrics slides of webcast. the is this This detailed afternoon. Investor A as filed financial for copy was the These used will slides Conduent with take well your are sheet

this later week. will also transcript We the post

filed During today, executives defined the today contain GAAP. required reported in viewed the US their GAAP, Act presented forward-looking future Conduent uncertain. that this Report forward-looking for do are of Private update to in Conduent's they as result intend not XXXX, a certain is The are results materially law. financial except Form these that these We SEC. in not with Because reflect with subject to should and included matters as XXXX These that prepared are accordance addition developments not as or factors from includes May Reform new concerning X, that on information company's the non-GAAP events call, are accordance comments of these substitute measures results a beliefs, be a measures. in make or may management's those calculated with US future by to in information and statements Annual Litigation XX-K statements by as statements current in to number and factors cause assumptions as address of may the nature Securities actual and Information differ statements. of expectations

I usefulness use on this to Ashok definitions which comparative over call measures that, of issued for will was release, X-K. to as more them, purposes, afternoon their prepared to our Form we furnished for the and non-GAAP For well SEC see turn please press as the his information our limitations as With how remarks. and regarding was

Ashok?

Ashok Vemuri

evening, good you, everyone. and Thank Alan,

the announcement we made I get to we transition. discussion, comment into want Before earnings regarding leadership the on the

current have As that intend as CEO Board once made. a transition the during we seen the member expects and first in the It Board you a to will successor many the as an to quarter of Conduent. Directors XXXX. which privilege continue of of until I'm is my of step to as successor and has CEO occur appointed, orderly a been would of I to CEO committed third my lead has role been down announced

We have laying made short in foundation had. am of and enormous progress, resolving relatively time, a program the significant standing achievements. of these up proud driving issues a digital period interactions a I company become public the legacy to a we company, transformation

to continue to and As to enters will ensure to for this the will continues best It transition its the thank Conduent right begin phase this is growth want Board to pivot the CEO. the industry. honor the to to is an to I in the team lead the next company's time seamless going I They during be success all . a the with and forward. transition work during these period to their employees of transformative and driver Conduent them support Board changes. the continues next

our than EBITDA. impacted lower revenue in-quarter primarily one results adjusted to of due larger In expectations and client anticipated volume terms new timings business turn revenue conversion. in our from quarter, unanticipated in of the drop first below This sudden an and came lower and

and Conduent in and the the into complete work Brian a incredible our made of advantage leveraging This modernization automation team by loyalty, progress such us. secure, his turns, year Improving structure the the one is leverage detail every relationship has the productivity the offset interactions knowledge with and last sophisticated both in more scalable, However, with our acquisition. efficiency this existing foundational quarter, strong and foundational The book go-to-market down along payment we and was continuing by clients an interactions. of create approved product transaction to Board data the delivery made bill by on closing partially to of on embarking clients improving last and that and of capabilities team renewal for X.X this to Accu-shoring, our quarter expansion automation technology that critical amount Accu-shoring and quarter. take positions of delivered Conduent industry operations core growth. our team improvement members we will are client years. two day opportunity year-over-year volume allowing cost expects above their of and strategy the leading reducing executing The infrastructure newly These pivot ratio to for place a on and experienced improvements, us achieve of productivity and longevity business securing experience to prepared margin continued the seventh a and about the of through was deep share improvement mission in platforms. in competency, rate first now technology to digital in developed having get The interactions, remarks. demanding company, market solutions. opportunity achieving over deal as XX% of the XX% the straight

With clients us outlook utilizing to company on for base maximize financials will talent in become initiatives the operational enable and of knowledge the the investing a the Brian our efficiency business. Brian? to smarter the are human capital eyes through our and base leveraging take our growth. We that, to

Brian Webb-Walsh

with we opportunities XXXX impact I'll Throughout some quarter. off GAAP the through and this going provide in Ashok. of in clean our adjusted we positioning will conclude divestitures a the future. and compare past by the removing thoughts and the that financials both Thank we'll which and start presentation this you, exhibits the and in numbers, on appendix market for provide completed

partially approximately start full On will we of adjusting down on billion items. $X.XX for an after with overview instead go run-off improve as the a savings walk reported business divestitures, a well lost sales financial quarter driven focus quarter constant $XXX continued prior Slide improvement. on by portfolio results. initiatives, the year-over-year, quarters strategic care our but of When with of contracts a year-over-year. line our let's in won't X XX I X.X% adjusted P&L, impact offset Revenue the year-over-year, first was few of of increased select point basis or key year-over-year through we X.X% the as Now an the divestiture to and quarter the $X.XX new currency in cost ramp for decisions, X.X% customer business. force. primarily trend excluding as was EBITDA to SG&A EBITDA million down by by the of margin adjusted driven revenue of billion or the basis, XX.X% in the

While revenue pressure expectations, result on being and as continue program led than made to transformation to EBITDA a lower we our show adjusted progress margin improvement.

of EBITDA in up timing addressing meaningfully costs, be year. half profile expected the back is to margin the Given the our of adjusted stranded

was Our goodwill primarily million, $XXX a driven pre-tax first in loss impairment. quarter the by

slides, the result, as few carrying all a full-year we of goodwill and a the outlook units. evaluated have and in our values discuss I'll lowered As our for reporting

to value transportation $XX XXXX cost of Adjusted the value impairment. found as excess segment customer EPS primarily decline March contracts, loss due XX net XXXX, and expected income million had resulting higher QX than carrying to was be as down in of in divested of new businesses. million business, was from as XXXX. adjusted amount driven XX-K, and the our As reported business $X.XX, by well $X.XX as below delivery, was $XX XX, this December its and our carrying of the lower in of least The was

to through Slide X, Turning our go let's segments.

have slide all financial last have did included shared of segments IT cost summary in infrastructure the of the corporate a we we and the As and detailing quarter, line. included performance

reported, declined grew a points X.X% XX QX EBITDA client revenue, revenue Adjusted to and was due from actions. basis lower while lower As adjusted year-over-year primarily transformation. commercial our by strategic X.X% volume margin down EBITDA our driven of result as XXXX business

Our IT longer are business California by pressure, adjusted business, of notified QX, government on the government were our the X% And pricing EBITDA declined the preferred bidder business legacy higher we MMIS not note loss and the we in that A for decision. quarter XXXX no declined and renewal to costs. in contract. XX.X% decided protest driven for this we

rate. renewal EBITDA our we While QX we will this perspective, it impact from is incorporate contracts at have the contract contract. minimally into timing loss end determined. will of is detail adjusted ends still an a The down this is wind being exact XXXX, profitable of one but a the revenue Once that larger and

Our business for with transportation by XXXX driven segment revenue grew quarter compared the X.X% new QX ramp.

down was and driven XX.X% higher by costs. IT EBITDA primarily and penalties adjusted However, delivery

remind in in of numbers. remaining which revenue final student Looking the of you the quarter to loan been at revenue that these I'll first contracts standalone the loss with care the business, out and select primarily run-off. customer The backed has associated is continues other, be from stages

costs. As we first IT vendors. costs shared transformation discussed year one in infrastructure by the than settlement quarter In our with were million, cost out these of and last quarter, IT negotiated $XXX prior a the lower we and driven XX.X% infrastructure have corporate broken our

we show transformation year-over-year initiative segments costs and in We throughout cost the to and Later, progress likely XXXX. discuss have adjusted at year, made to we improve we to meaningful expect still our not rate. growth in the these EBITDA see the work progress opportunities in continue our offset the decline although operational to the will structure I This improvement on same through done in the adjusted have EBITDA efficiencies quarter. in the detail more leading

Let's QX days provides other payment important $XX quarter, was compared timing move of driven driven the focus cash of was quarter prior CapEx year, with metric in and primarily to an DSO flow seasonality outflow the in largely outflow Texas Slide million million and given overview quarter. of an cash the business. of the operating QX of and X increase by cash Adjusted XXXX for on on quarter. associated working in flow our two XXXX. the continue by the free CapEx IT for capital. by $XX with the $XX flow was $XX our our we'll improved investments the million the this settlement in million The of typical We to cash first in an

cash as XXXX see to year continue We flow to back half of the both weighted free the we in XXXX. saw towards expect and

to the We current Our million capital XXXX, net X, ended a balance let's the structure. our turns. X.X of Slide sheet. was ratio end updates leverage At our quarter $XXX healthy in QX the with go balance Turning through cash is

to Prior $XX and settlement. announced, we a this in amendment a payment recently million the an amendment to we through Texas QX. in As we into expect million $XX $XX month. amendment approximately the of April of we entered million made our make payment Under

make a point Additionally, we in of payment of full. plan we the million approximately which to paid would have at in $XXX settlement XXXX, January

discuss showed key Accushoring transformation ongoing our Turning being employees program. while located is XX% let's Utilizing with to delivery competitive on cost our Slide low We our of countries. in price. initiative cost progress markets our to in improving model X, continued lower labor now

of focus third-party has spend. area Another been

it supplier relationships to both takes add year, being better leveraging strategic drives Automation supplier internal base down building programs customers. our consolidation partnerships external and use. to past of internal development through to and are time our efficiency engage We're customers. that savings buying continued value delivery the in Over drive that strategic the power of we've for pricing to our leveraged the and our the pursue negotiations serve services while while

client bots to in automation are use make function launched complete and investing other support tools repeatable and to delivery. and have our create We tasks of to systems simple, certain better efficiency facing

our improving stable increased efficiencies, should tech well see as also in we secure as invest and more a infrastructure we network. As operational

completed result the to past continue stranded we over of divestitures year. that costs see meaningful were opportunity Lastly, as a the our to address

cost the good making and front back of the are on be We out, while half we'll takeout weighted. this progress majority

action costs. We plan to place have these in a

improve some taken already have to QX. actions the to efficiencies. In we've that operational taken we see We for revenue actions for response XXXX, challenges also additional

X, and current Slide through go updated our plans. XXXX to which is on our Turning let's forecast based guidance

standalone we QX, a provided adjusted results of walk for contracts. adjusting our impact reported including customer to our in did divestitures, baseline, we the select XXXX the care XXXX from As have

driven Variability increased in primarily commercial has new by now X% the in currency Given volumes we to client X% in volume been client be reported in on account slower XXXX. business expect signings variability basis our down revenue our a and constant and business. between large

for further volume adjusted fluctuations. account We potential to have our range

guidance and into expected revenue is margins any cash investments of we business. contribution the to modernization the focused infrastructure adjusted the EBITDA the lower are create our adjusted progress also which automation increasing full-year guidance, a CapEx are consolidating to XX% important in reflects including I'm Slide improvement. acquisitions. we group technology, fronts, investment client-facing around growing now additional while and the on including capabilities markets, impact from of increased XX% number in in outlook flow a adjusted our and to that The EBITDA, does commercial we as made This XX%, reflects build. leader, meaningful remain single decline Despite in positioned which expect addressing it's can X.We well analytics. margin a and include be which between from free on as Adjusted continuing year. strong both applications updated elevated have not our EBITDA We and of and well be remember revenue foundation dynamic for under we

We and client address efficiency. model are And focus working to remains improve taken delivery to company pipeline. have actions that leveraging Sales conversion variability. revenue to addressing a to ensure our we that our a ensure from the are our by and large we volume headwinds we global lastly, streamlining stable with our diversified are improve incremental

focused right on are perspective. and for management We that all entire is market stakeholders. positioned believe in value a well team the our our are driving from the We investments of areas

now will Operator? lines open We questions. some up for the

Operator

from [Operator our first question. Shannon Cross Instructions] today your ahead from go Please And question with comes Cross Research.

Shannon Cross

can of on Nevin’s letter? Mike comes leaving? laid woman thought disconnect more next what your give Can this I the more the in? to obvious there with as Ashok, be or here. beyond of Specifically what I'm precipitated since you of How should Board not answer, out Thank for sort about potential we be will are out be Conduent sure leaving background think throw operating but some in the and up company you at soon comes you sort how I'd a point? to these working many you're going ones of the going you. for or what most was us the to as And guy in was sale

Ashok Vemuri

over significant a by to interactions becoming Conduent been made separation that progress company company, as detailing inherited. public since the extent As issues years we transformation, to the as have last the driving a two resolving the has laying great legacy digital foundation become well we a

us the and of built. team. business We've markets client a to we in the built The foundation leverage loyal on base operate and built strong clearly has market. width foundation been the strong opportunity the depth gives the So from our more

as it the as in year next succeed clients, to feel employees a for company. as seamless the that is And who believe in become opportunities leadership leader be strategy the that as team enter my definitely foundation follow. for the of and in assist for to strategy clearly as for in is or my clearly transformation I good the order team continues she place. the Board I and Board So, pivot to it clearly The in opportunity confident growth management effective. that are last here, my transition and the to he we CEO. well was time will new is keep There strategy as and and an approved by the a phase available CEO for that strategy. my – I thought the management I to the believe both in possible and bring will the was transition new to we me I

Operator

ahead Our from with next Bryan go question. Bergin from comes question Cowen. your Please

Bryan Bergin

to wanted here follow on I bookings.

weakness you we're point Just talk the function to? signings? changed and more can think showing related or segments is particularly what a there macro quarter-to-quarter, productivity, comment, the can business anything this sales about of that that you around why really do particular you can new outsized you force offering Are

Brian Webb-Walsh

had based it In fell In in. large of Sure, lower the other so pipeline we of one our out a some had large on clients M&A some is and forecast. conversion QX was we that deal one delays other that deals late in and case, quarter. signings, transpired involved the that cases, in

in force my addition, we In remarks, mentioned, prepared sales I had some churn.

some force we're we focused QX. and but stable, building keeping did So up in on the have sales very churn it

we As platform we're have causing a convert digital in some to press, turn of investing this been in cases. out in and also around. to But our the some all and of on the focused our business pivot the force. couple and We're that We're our pipeline solutions believe right the delays infrastructure. sales continuing the in on issues it's we new and legacy have longer stabilizing pipeline, all platforms been taking focused things converting to investments technology

including our operating And quarter. our gives sales leader, consolidating on acquisitions, as We go-to-market are in us model, under consistent one commercial which accretive streamlining such HSP, first strategic and across we're executing we commercial. the closed process which

areas first this confident say we're signings lead in and I around. in say turning in commercial. that would government But of that and growth declined transportation terms than time. more under to obviously we're And So more I quarter pressure, the on focused we over pressure are would were QX a will under couple

Bryan Bergin

bookings what for XXXX Can year-on-year? now you for your clarify expectation is

Brian Webb-Walsh

but obviously pipeline We top business We're a organic said driving drive in what basis. growth. We're signings signings moving in is our for, one on number QX, business mean, double-digit consistently driving focused the to QX line new get new how signings is consistent new see the see direction. on we've we we business very that. this to right perform. growth need to convert we're as priority That's we'll and didn't focused; I

Bryan Bergin

takeout a being required And how And Can we you mentioned walk make follow-up through then to balancing about cost up how margin business XXXX? for be additional on that you're to levels investments actions taken. the the detail versus should then have turn just are I shortfall the revenue those around cuts growth? you thinking here you to the as

Brian Webb-Walsh

employees. suspending March challenges, XXX-K cost Yes, so subset in a the visibility saw incremental for we around we actions when headcount actions and budget improving of for sure Two, revenue on make incremental to to salary still margin three, took increase to EBITDA match we some the one the we, some the our year our company. of reduced we decided we're focused the take for

look so at the XX% balance, for top we we wide as the that, you and turning at and making improving investments we've That's to profitability guiding we're guidance margin. the right EBITDA doing a XX% focused around pretty year, As range line. the on can

We're focus. And out, executing get we that We end few be a in of costs the so the expect quarters over that's so the also then that benefit all year will stranded focus. and the QX by the takeout. will to stranded took us cost next actions the

cost so you look our If at technology make with investments we're top maintaining and high that so also we balancing was turn in cost CapEx can in takeout, line you with CapEx investments around. investments, as we can see and QX

Alan Katz

year, note of will a action a Yes, half really the coming year stranded the of would stranded of is as picked lot improvement quarterly out. of up that of costs impact, the in so year-over-year the Brian, Alan, just half cost, benefit and result terms I this those the the the back in the timing back

Operator

Your your go Puneet JPMorgan. Jain comes from question from Please with next question.

Puneet Jain

as makes to on sense your that and government business. Why monetized commercial unlock could clients provide portfolio could assets if any as share of current well thoughts Ashok, to both Conduent's value? are to there services be it you shareholder

Ashok Vemuri

we I commercial clearly, believe synergies significant that as that so the public leveraged. there the and the do on well side, transportation on Puneet both exploited Yes. that are government the in as can and be sector business

on the acquisition about we HSV transportation, our a government on that for We're of a commercial increasingly partnership. partnership mobility at can have in deployed look talking similar is case technology that urban And examples as public-private you well healthcare both platform where on be are the side. as cetera. capability et we classic talking If about

XXXX and cover do a had better such end, opportunity the every opportunity that we really to capabilities and efficiency, perspective, we really program bundle were fact assets for When that price So stable look divestitures have. realization we the better the bringing and we every for always various broader and not into us the our return a from to that believe for going last an I that gives those better diverse of competitive We're a that we that in to market and and fit advantage. cross obviously upsell assets believe were any our did clearly, explore value. shareholder enhance we that's said

Operator

from Company. Our go Please next Tandon comes question. & question from my Needham Mayank with your

Mayank Tandon

targeting give impacts, the walk you to the did is of now into you X.X% were that are a inorganic much for FX negative cetera? the the that X%. previously But Brian, guidance and negative contribution you X% organic? to down How to provide could us through XXXX et What X.X% update. growth insights from

Brian Webb-Walsh

Yes.

the at So and provided call we the constant on currency. now that first, is QX guidance

and also we guidance we provided we no call So there impact acquisitions. on QX the any currency is incremental removed

two all We're commercial we this working is driven but our change impact unexpected with March. address saw pressure, one in inorganic clients, volatility, the items, by and larger which quarters. volume and really other February clients and this one volumes from of we So the it's sudden could was

we really change. signings that second, the to reflected have and in business updated drive guidance signings two organic consistently really it's were business those double-digit new the and we need again new growth and order that in down XX% so So volatility potential guidance to led QX growth in the items

Mayank Tandon

that on insights client trajectory, volumes tack And into could then And the with the going large the question on why about deck that just the California is lost to I business revenue referenced decided can another the also well is you government some there comment the also, of maybe side a there client? referencing were in what one, or was is if on reduce as contract government on you the your business? side, is contract you that impacting

Brian Webb-Walsh

Yes.

about not did remarks on So were contract win prepared that renewal. we we and talked I further. mean decision XXXX last not -- California we protest in in the are that not to we notified my where the we were I the QX, decided it in protesting

believe an year, will end end, So in the that much that to exact expect contract reflect goes we're to get It's We timing but when very impacts. currently it's EBITDA revenue, extension of approximately in our will we $XXX may loss contract that September. profit know don't margins. the not We of Once low we the renewal rate. the we end of yet. a but of sure million

Mayank Tandon

providing into And to with clients? decided you large then why that were of what if insight business on reduced any volumes the to type comment maybe client could you and you

Brian Webb-Walsh

volume in client end-user that we try business mean, our address wasn't and proactively it's it decision issue. the So the I volume take support to to working it's to experiencing. with variability commercial they're away, are a volume

Operator

Our your question. next Please Morgan question Brian with ahead from from go Stanley. comes Essex

Brian Essex

for just math just about, It if your a talked just was little quick year. revenue XX% the you of looks the account I renewals rate at renewals wondering, can of Brian, like run address for if I the about end bit.

have working XXXX account support follow-up. address renewals. behind just original how that understand your you could renewals you that And maybe on out does is should for but if maybe how Could I pricing value? for that par as on and relying has revenue and how rate, a this renewal address -- renewals about most I expectations percentage we XX% like of of -- it quick the fiscal is then a think So,

Brian Webb-Walsh

win, basically made we What renewal in lose So we're deals calculated it's chasing. did do the rate on we the the and and what quarter. is decisions based

was We the So price provided government that year year the price Other some the isn't decrease what we had this deal, if and in is last that some that pretty for year year. we’re price consistent. was Last fairly decreases than there with renewal part pricing reflected most that increases a is it's price large that being rate. This down each other. offset we in one have entirely commentary offset. that expecting pricing consistent not

Brian Essex

pipeline be same aggressive change then shares the on can just quick the structure. and the Do there the posture have capital you M&A does capital and the priorities looking essentially would of if place where looks? maybe stock on structure, where changes your here to maintain you profile understand, side growth kind kind aftermarket just same might is And we here? the any price maybe still How at want are repurchasing real touch you in just reinvigorate you more on M&A to of

Brian Webb-Walsh

So the look Board along with us, we can continuously at the structure. capital

most organic drive working with it staying we we're believe our pipeline some our value. It's disciplined. and tuck-in focus view M&A impact be to obviously driving mentioned at pipeline healthcare. it's mean that shareholder a point, healthcare making Ashok and as continue value. strategic and I our high and priorities and government strengthening the to commercial we're always the into that in already strong we What the that are makes is but have for both we January. and doing to offerings to sense investing And far, an business that in closed our obviously shareholder to to for looking sense been growth the still this offerings and up strengthen So our makes have first what open we're we're multiples pleased should acquisition

look that to more So like do we want HSP. transactions

Operator

reached to conference that closing we to session. turn like with gentlemen today's the and I'd Ashok remarks. ladies end any back Vemuri the of And for question-and-answer over call

Ashok Vemuri

you. Thank

have right As I the have continues to phase my successor our we until will realize to strategy. to the next the role committed, continue is Board very to Conduent this will CEO. next enters before, current and The as appointed. to transition much. that and transformation committed next as right orderly to a we as that am that, it well sound and us pivot that With have time I believe growth. the and is base client is this we you allow And the to a I thank its in loyal engaged management reiterated team an begin growth, believe we transition. pivot

Operator

Ladies We today's presentation. you do conference and conclude for today's that will call. gentlemen, attending thank

disconnect may lines. your You now

Conduent (CNDT) 8 May 192019 Q1 Earnings call transcript