CNDT - Earnings call transcript Q2 2019

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Operator

Good afternoon, and welcome to the Conduent Q2 2019 Earnings Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

I would now like to turn the conference over to Alan Katz, Head of Investor Relations. ahead. go Please

Alan Katz

and XXXX ladies Cliff welcome Conduent's our to our Good call. gentlemen, With quarter CFO. Walsh, Brian earnings CEO; have, me second Interim afternoon, and and today Skelton, I

will we remarks, prepared our take questions. your Following

the for copy Relations the This used website. the sheet detailed Conduent with SEC financial during webcast. slides section These available filed slides this was metrics of afternoon. call download call as being Investor is the also of on A the this well are as

We this will transcript week. later also post the

today, this make statements are to During concerning that in comments Form contain and cause may those management's Conduent's SEC. reflect Report certain is results by Reform and X, August call, of Securities Annual Act that matter expectations factors statements. assumptions XXXX, as These factors from a matters Private address in the defined current beliefs, materially as that the that filed are their Conduent with executives of nature in XXXX Information of future to may forward-looking differ actual and included these the XX-K Litigation subject uncertain. statements on are

events the be not these required today GAAP. new forward-looking result measures these for We are information results accordance addition reported in financial viewed should to and U.S. in measures. to except as accordance they non-GAAP by includes developments not with statements substitute company's calculated prepared GAAP, a not or a as with US in intend do law. update The presented future or as of information Because

to see press furnished issued afternoon as use measures non-GAAP comparative release, which X-K. and SEC purposes, well was please For we our more information our for of and the as Form as limitations usefulness regarding on them, was to this their definitions how

to over call the remarks X. begin turn his who Cliff now would on slide will Cliff? I

Cliff Skelton

our in this as to June myself and Chief opportunity everyone. to joined Officer Conduent to Operating CEO afternoon, this named and of week President community. was investment have member I Directors. It's Interim introduce Board and of great earlier Good the a

the with on weeks throughout our as meeting with colleagues, visits And clients, at on Conduent here learned really needs long-term service primary I success. was well excellence. our to our spent vendors best-in-class I enablement, capability, Along focus our need all establish my that our last partners what and as those employees sales the growth and seven a organization. critical pivot of while are operational We delivery which be technology to and to furthering to Conduent's our

we execute capability, assets of this our successfully phase the have the have we to said, next journey. That

background, Chief large-scale of Operations at of Officer, way by career serving leading my two Now companies. the Information as while efforts, a of Head Technology years Global last XXX a XX and Fortune transformation included

technology some privilege In This provides the and corporate roles side the and key having companies direction client a to largest had for operational strategy. of viewpoint holding addition our overall the client the for needs financial world. experience understanding and unique services of the on in

platforms with for processes room Along and empower course, There's an improvement in our base, Well tremendous organization. loyal we our we a at around through of have employees manage how the there diverse transformation. talent opportunity value and people. within mission here to is and Conduent our significant unlock this strong client and

that and organization jobs, put our our value in the sits modify the within pivot our get right in and employees right and the we can to motivate growth. back on-track us unleash we If people practices the

and outcomes of to cost, going four three how discuss don't turn we're next all we're get considering In to slide there. quality. to of our we the risk phase And why transformation, decision-making

Along technology reputation moving our and in are represent risk enable mitigation the client our improve measured and need process brand, way people, a categories, forward enhance retention. we all balance investment in processes and proper expense because reduction with which excellence, efforts with transformation. quality, levers Improvements tremendous our any key three opportunity increased to it and in

Regarding to end-users the hiring improved teamwork leaders and training, to disruptive need practices We need is teams. talent as critical. the we Attrition be that drive and has transform to people, costly invest something motivate better retention, right in foundation. is we our and need improved, better to their to and clients to it's their

problem improve to handoffs. decision through efforts better change management, respect to management, need we and risk management, making our and process, people management fewer With incident processes,

and value improve it as platforms, to finally security technology, to the development focus client to efforts continue on relates of need our and we upgrade critical And to continue delivery.

outcome execution, efficiency and environment, be growth, capability utilizing the state-of-the-art offerings. product enhanced a Now with stable sales stronger and improved excellent will more

by also improvement. our will serving pivot and of it growth, motivated transform pivot we people and client to our approach Conduent the the prospect in and mentioned, look as to continue I'm and stated investors positioning and our need make to enhancing deserves. previously endeavors progress investments extend company as to our forward value to toward Meanwhile, our quality capture

with pace these will needs. transformational to view a continue in our have at platform of Efficiency improvements along but modernization, more measured

see our efforts. that reflect outlook will go-forward You such EBITDA will

strategic wanted you a be it the will lines company the Now before your I review operating to to we comments to for doing business you to of also Brian over as update our turn we'll financial Brian work mention and I and please. all review over and that performance, that progresses.

Brian Walsh

Thank you, Cliff.

compare provide divestitures and prepared note appendix, remarks, the I'll a XXXX and removing we completed and that begin in GAAP will I we exhibits Before presentation that in the clean of XXXX. numbers provide both the in the this by throughout my impact adjusted which

partially was I on new and by QX, of will quarter our for by prior results decisions, offset key overview the business, let's with ramp This Now in divestitures. driven five strategic primarily on of Revenue the compared adjusted go lost $X.X an was the X.X% P&L. XXXX runoff items the we approximately second quarters business. billion, start results. the financial slide a down through of few on with line

a year-over-year with X% margin On to the divestitures, When XX EBITDA excluding adjusted a adjusted million EBITDA was revenue adjusted of down point currency quarter at basis the reduction. $XXX constant decreased basis X.X%. in XX.X%, impact an

While our in make quarter in the these both in progress were offset cost revenue continue than current program, the transformation by to investments savings more we and pressure. business

million, Restructuring headcount-related spend both cost by was and facilities and continued ongoing $XX program. driven data consolidation the center reductions

quarter million primarily was the billion, in QX goodwill $XX with Our the of impairment. was pre-tax profit $X.XX driven loss the The in XXXX. loss second compared by

We of all reporting outlook guidance out found carrying The be the to units goodwill impairment, fair of the adjusted is metrics, values driven change below this by impaired and as goodwill our quarter. values. is our which the of was associated in non-cash were the our

a recorded approximately of As pre-tax charge a $X.X result, billion. we

to our revenue growth potential continue long-term goodwill see that We over in embedded the in and model. the our for business forecast have

under and and million lower discuss from near-term outlook is $X.XX volume of balanced savings. as adjusted well and revenue a signings XXXX. pressure income net shortly, $X.XX, EPS was will as lower Adjusted I result as cost in cost approach our QX takeout down lower million from was $XX as However, by $XX more pressure driven business a losses new to

our of details the on segments through go now slide Let's X.

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

and actions. a X.X%, QX primarily EBITDA XX% down of margin our driven As lost strategic by was price revenue while business XXXX. business, declined Adjusted commercial lower points was adjusted result down from XXX reported, revenue basis EBITDA pressure as year-over-year

EBITDA by pricing line, business driven revenue offset declined top business on by increased lost reduced renewal, the large changes pressure. as the Government-adjusted X.X% IT pressure. government volume X.X% Our a with associated spend and

QX grew business ramp IT Adjusted driven by compared by revenue EBITDA and quarter the for as impacted up with the Our Transportation top QX higher international segment new spend increased declines. line and was X% XX.X% on XXXX compared XXXX with volumes.

XXX Adjusted to QX XXXX, compared SLA penalties. basis EBITDA as recovered have lower we also points

As has moved associated to zero We'll the expected, This business is historical and comparative purposes. student with other loan revenue. revenue other reporting divested the where continue was for previously. gone results

and IT corporate as higher were and business. the come to of cost shared million, show by prior X% our year, expect year-over-year spend costs the stranded throughout investments. would year, quarter, second IT $XXX out go-to-market progress the driven increased the shared In than We

get flow, through I cash $XXX go signings TCV compared business down our new into Quarterly X. the with let's details were X.X% on slide sales Before XXXX. results million, on QX

with quarter, While improved business we the last on new the still front. do performance to compared work have

the that we are this we we terms protesting was longer contract had Medicaid was no a of of rate the quarter. loss booked In lower contract. driver California a renewal large as quarter This last and mentioned that this quarter renewables,

are that California, the the would XX%. negatively the the had have to two rate. we addition in rate California Without In Medicaid losses quarter other loss, renewal Medicaid loss, renewal been the impacting

outsized had which for year-over-year renewal We had last opportunities an had our a a impact. losses year, fewer so From this a compare. perspective, client difficult quarter, renewal made largest with multi-year we select

We have delivery. strong improving a continued focus and on client relationships

ensure place and the have platforms. our and that to investing to are leverage we team We in right processes technology

past this declined headcount Sales quarter.

professionals. on We and in sales continue are high-performing and talent right organization focused to look bringing the for sales the

client new our on and to losses governance decline we increase pipeline opportunities, backfill improving new focused $XX sales. sales business saw quarter billion. and the strengthening confidence of capabilities Given also slower We're and our drive the to in process foundational

cash flow for the payment cash on and The driven outflow was million the the Texas Slide by our Let's operating working settlement capital. primarily in quarter move to of with XXXX QX on X. $XXX other associated

in credit for towards million million balance $XX paid Texas XXXX. posted we quarter January of settlement the letters $XXX and This remaining the due

$X CapEx last the largely investments. quarter with by was driven $XX decrease of timing of for compared a year, million million

$XXX of flow a million to large IT the outflow cash payment of our partially Adjusted was free result of one quarter, a an providers. as in

in business, Given the and cash to expect see half of year our to the be towards particular. we weighted free seasonality of flow timing continue the QX of back in this CapEx to typical

to go capital Turning the let's X, our in updates through structure. Slide

and our end million. of continues QX sheet Our balance healthy to at balance cash the $XXX was XXXX, be

is Our current X.X net leverage ratio turns.

to while continue opportunities, M&A. balance we at look with will M&A, inorganic of organic terms investments we In

opportunistic valuation We see disciplined technology-enabled a higher deals. assets are of will multiple relative be for terms continuing in to our so and we to

let's XX, our Slide XXXX to Turning through guidance. go

reported normalizing have results from XXXX done our XXXX is we to the adjusted we in divestitures. baseline As provided that impact for our past, of walk the have the

account the updated first changed call. outlook year as have year outlook on to in We have since factors that two as performance last the for well of take the our our into half our the

to new see business on revenue signings. select additional continued pressure result and some incremental losses, First, contract as pressure, we of expect volume lower a

As quarterly are the that positioned is going to we growth top new have business signings previously double-digit indicator stated we line for be consistent leading growth.

declined from growth. to see business-rated new the turn the metric QX, we corner reduced towards have we While yet this

as mentioned, now Cliff reduction to improvements see need our in Second, we quality efforts. investments a with expense balance better

at but look measured more costs, opportunities so do will a we will at We address pace. to

Given those guidance are factors, our follows. updated as ranges

Our to $X.XX revenue billion currency is and at of range divestitures. billion X% impact the with implying a constant $X.XX XXXX outlook from of now between for approximately decline X% adjust

adjusted cost EBITDA and takeout, updated which range between is for now million given $XXX would lower revenue margin, Our our $XXX adjusted XX.X% EBITDA. of expectation million lower of imply and to a XX.X%

free of driven Lastly, and the conversion by a XX%, is change EBITDA. our for cash XX% adjusted in flow between now outlook reduction is this rate

Texas reminder, associated with cash payments the the free adjusted a flow litigation excludes settlement. As

our also results The factors in XXXX. mentioned that impact I will earlier

impact three-point loss We our contract. revenue Medicaid will California a approximately from have on of the

the In losses. the lower lower to topline face business rest signings, of addition and from volumes, next additional business year we incremental pressures expect new

flat return offset certain XXXX adjusted relatively reductions cost EBITDA stranded as efficiencies. pressure We we them revenue these expect costs persists. and and of margins, will be terms anticipate other employee to In headwinds as by be

expense balanced addressing As stated as reduction well. a we'll we more before, have take approach to

long-term we're to pleased the and positioning cost lower have takeout remains business us our around to focus not growth. While with for balancing on the delivery turning outlook, client

lines. business are mentioned, now operational also we strategic along the Cliff a the and company of and with review conducting our Board As

We shareholder to but not progresses, value that provide as at share opportunities to maximize review additional information potential and will look any additional at we'll have time. this do details

focused on performance. Regardless of the remain improved outcome review, of we delivering this

diligently will have a our team attractive organization. realize assets we of set of to to behind And We full an the work and potential us. continue dedicated

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

Operator

Thank you.

from comes will Cowen. Instructions] begin We question-and-answer Bryan question the [Operator now first session. Please ahead. with Bergin Our go

Jared Levine

actually Hi. Levine Jared This Bryan for on is today.

broad-based Or in So pieces? would have of round it likely it a after. of business kind divestitures? one strategic you. to selling will a Thank terms in I likely follow-up be be more potential of expect review of business more off non-core kind And just to another

Cliff Skelton

Hey examination Thanks the before plan, your work with started opportunities well so we but pieces question. of company, we in – so our for Jared, under just category. all this We've exact give both any Board, lots update whole to review but in can have as Cliff. we're that an is don't the there's done are be as

Jared Levine

the terms are and was the quantify force? year-over-year Great. sales made force can And Thanks. what And in that what you of investments the in terms of sales then sequentially? being decline

Cliff Skelton

we're So previously. sales force, down XXX XXX about we at to were

the of paid has off. Some investment

churn Some the has caused reduction. of us

sales perspective perspective from continued leadership not is is force in view and next. Our a from a numbers just needed investment quality the what's sales but a

we ramping quickly. but see said up as pretty So XX about I and that back we're down

Jared Levine

you. Thank Great.

Operator

Puneet JPMorgan. with from comes Jain question next Please ahead. go Our

Puneet Jain

my cost versus to margin think magnitude of a taking to margin – a Nice Thanks balanced EBITDA on on Is from lower see way incremental investments Hi. for focus expectations? there about question. revenue reduction. impact

Brian Walsh

Puneet, the Hi, if One QX Yeah. was would performance. about split three it the we midpoint. XX is between be It look evenly things. guidance pretty change at under at

as and revenue approach would pressure spend balanced talked overall expected would decreasing third for the about. then second the be the because year we of The not be much

Puneet Jain

any And the it. months your Conduent's Cliff the since it's review? Could share attention? need for there most two, thoughts Got company. you joined And the it. been initial line And areas time you Got positioning? is on which around three strategic

Cliff Skelton

been seven weeks exact you strategic around the review. I've line an I question. here now. great on great, give Puneet can't Yeah, time

as I just at how coming with our how update As and to Board it and said, started we're can take. call that's you longer much next give getting an we earnings the will

to company from are if different our that's a I would I and do of and you question. balcony where what the from gist we the will need say your think viewpoint we of

with we've done to cost-reduction trying really I job drive job a good a done with think efforts. sales improvement. good We've

we those approach view the think I quality client cost and tweak just and around slightly do driving to we're without out impacts need cost is that reductions. a so towards of the process what not the now people

got time and So we're our infrastructure sure of the people going sales making sure lot effort. to a of spend the a sales right execution making efforts right specifically lot got executors we've environment and the sales in our in on we've and leaders

twist efficiency we've a different approach. and So a make make it's It's the it's strategy make we as of as the approach these controls of but a sure place -- client these little improvement viewpoint same lot bit right the on it's impact got in process a to we investments little in efforts.

Puneet Jain

it. Got you. Thank

Operator

from question Our with Research. Shannon comes go Cross next Please ahead. Cross

Shannon Cross

you're are the been a just us about most in repositioning? to where not the trying I you're it's And but a know take see I I was seven opportunity? about, the half Thank only you you you timing last litany year to see the how understand you do to a turnaround. be not can went much. so at the with is glass of again you But seeing going while through to a most full, think you've able question on to and very company weeks. there I Again curious issues just how of terms give plan spend next bit talk going the what bit. it place you But --

Cliff Skelton

Yeah, Shannon.

what people. good We've great point is my a attributes we we've view of got base. a client view here. of call the be lot on got got so we've going process great right got and great my and missed We've So foundational in company we've that's priority the effort a bones people away. high on jobs to couple a of but right steps our right From

you'll our look to from get operations. as slight and try run We're market going to we we time both and And to over see how we're as better organizational to -- that sales going expect model well the how to we as execution. tweaks a at perspective

at got a their confident at abilities. new to sales base growth, we've current client logo we So and look our in end day got to our at growth business to look base so client better across reputation look when the I we've can got in build new our think folks at be the of we've and more

respect grow quality current as our that With we and it's to the to the we've and make course that confidence new got and sales market good logos, going -- quality steps skills, in platform to we've base, with and client really a process focus over haven't the quite steps happen. ability year. that our reputation got capability improvement management to and to is skill haven't help And the improve and of And the we respect our And belief relationship penetrate are to done last my just of area these platforms. particular people job on.

Shannon Cross

we Thank Great. still about which but a was understand were you and Brian, It bit cash was can there really flow? it had That in had, lower. anticipated lower you. than helpful. we talk I was it, one-timers

So, what company big you as second to guess, every confidence half about quarter half? feel is I'm I cash if gives I the a second flow. listening this talking in

can standpoint base Thank second So the look will you revenue where and the you be talk specific year. with through see puts about from coming what of to I we and you. maybe have guess recurring half the as your takes you the just

Brian Walsh

Shannon. Sure,

working vendor in through we an the went driven by audit capital negative first higher million on payment somewhat million is an IT about freed EBITDA $XX through we had half, lower the year-over-year but QX. the on a if first pressure cash that up that free it's flow related and you a and hold, in CapEx EBITDA, half to So cash $XXX at and look flow about of down

for Based we'll When guidance our to higher we second typically. second seasonality, even the in we EBITDA look half, the on second half. the have in ramps reduced us, half we though EBITDA

From expect half, year that working half, revised capital confidence a deliver in last CapEx we second to things guidance. to neutral decline in perspective, will those us the the give the in terms of we in CapEx the so are and then second be actually the

Shannon Cross

Okay. Thank you.

Operator

question-and-answer turn to concludes for I Skelton to remarks. session. back would Cliff over like This the any closing our conference

Cliff Skelton

time your time. to your appreciate Well, really thank forward us we and great you joining for progress all watch announcement next appreciate so the look We today. and quarter a

Operator

has Thank today's for The concluded. now attending conference you presentation.

disconnect. You may now

Conduent (CNDT) 8 Aug 192019 Q2 Earnings call transcript