CNDT - Earnings call transcript Q3 2019

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Operator

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

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

Alan Katz

and XXXX ladies welcome Conduent's to Good call. gentlemen, quarter earnings third evening, and

Joining call on Walsh me today's Conduent's and Conduent's CFO. Brian CEO, is Cliff Skelton,

call will Following remarks, take is also your our being we questions. prepared webcast. This

Relations during website. are A call with on available Those as for was afternoon. detailed a Investor this well copy download this slides as SEC section financial filed Conduent the slides of of used the the metrics the sheet

this later week. will also transcript We a post

During X, executives defined contain the their statements uncertain. Act Conduent that this forward-looking to reflect factors Private may number statements. subject management's that certain that and These matters XXXX of today, Reform a expectations those that actual call are comments make materially may are from future in Litigation statements November differ by and in as results address of XXXX to the cause nature Securities assumptions are beliefs, and current as of

is Annual statements as these We information to as forward-looking these concerning required with developments Report update or do result not by in of SEC. events filed XX-K factors or a new the Information except Form intend on included future law. Conduent's

these today reported results accordance prepared are includes presented be substitute the Company's measures, to a for GAAP. because non-GAAP U.S. and financial in calculated addition Information with in GAAP, in not measures with viewed should they not U.S. as accordance

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

over turn the to Cliff? prepared for With remarks. Cliff that I his call will

Clifford Skelton

and I in the team to future. everybody. takes to our regarding Conduent potential new a Thank we In I has Company's the a and chapter CEO toward remain our Conduent was you, help opportunity Alan. and that demonstrate be remain part history. of optimistic eager Good given afternoon, untapped Conduent's improved become August,

sales, reputation enhanced turn in over in our We the improved in crafted in improved have topline and plan and manifest efficiency course increased growth, an EBITDA, the marketplace quality, toward time. which charting the will

On our will discussed accomplish points. people that and on improvement, expand Those more and bit to levers our and goals. be done levers call, key must utilized we organization, leverage a are Brian critical On call, solutions. those across predictable three I and process previous what's being better today's technology

for But first, let's takeaways go key the the quarter. through

about than metrics caused down financial downs, year-over-year key price in was our of slightly sales opportunities. billion, ahead losses, Revenue expectations, came Our but internal better client previously internal discussed decline $X.X slightly missed still by estimates. is our and The year-over-year.

tactics deploying but than again I down to expectations, Shortly, $XXX will year-over-year. we're the internal outcomes. address was better million, EBITDA Adjusted discuss those also

our performance financials revenue remarks. adjusted quarterly we you expectations, guidance. Brian, the reaffirming our EBITDA his fiscal both QX through the our and walk details Given of are latest the in and year guidance and XXXX will

Among other through We're and actions improvements to spans we our thus efficiencies metrics. and offshoring. things, and taken across on seeing have now simplification far modest non-financial continue headcount very layers for look we some improved

evidence. XX%, Our quarter our expectations, one but was with is is quarterly line in only which renewal rate of it

pipeline technology quality Our also signs signs seeing improvement. shows we of some early improvement and of are

revenue be real to which improvement bellwether are growth, signings continue under new these Unfortunately, just a and pressure. both is business indicators as

teamwork unnecessary operations, technology to made operating sales, We our teams. and we're and and service, driving our have across functions also model management and changes removing

have Board. reporting talent We structures the simplified we and across top grading are

prevent and foundation client work teams drive for future topline and to in spans sales delivery layers We and remains our accountability. improvement. will continue to and remove confusion unnecessary our This

review. made significant also have we Finally, on and operational progress strategic the

discuss to and revenue in intention we X industry company Slide time. just review this more operational spoke, detail. market strategic of had and process. to that turn and to of over advantage our proposition, the is and started and last the expertise positioning exercise the improve position let's When particular Board value simplify our take The management profitability effort So to grow

could in When proposition our a weigh as Building is a our go-forward we and/or suitable our company, as ultimate which Company for as go-forward performing high potential businesses disposition will think scarcity. in particularly be are early review and align candidates or significant plans. that businesses with the and the combination that assess complete businesses such believe, to value late overall how QX completing complicate on we goal. value about unlock through to QX the review we could XXXX. attractive strategic review, go-forward are well due strategy consideration our We We divestitures outside, of our XXXX scale businesses intend to a our

we will also outcome, would XXXX. first strategy. capital the taking beginning strategic anticipate The review on our address Depending actions half of in any allocation potential the

this, potential consider of leverage ratio stock we part our which create or opportunities, repurchase, will could for external value any shareholders. expectations, and internal other of As and all debt investment

relative Now operational discuss to company to order let's more provide more inside the in on current tactics detail. Slide X,

technology early quality three an boost too sales, impacts, and efficiencies. only the groundwork foundation, correlated and past the directional. see to the the But has are right laying are Over to our drive to enhance It's us changes begun direction. our team effort confident in our we processes, move and improve we making in months people, to

sales clients, we have these organization. to of to maintain and sales. strengthening new some review order improved Let's a In rate, begun our renewal sales logos, already starting with new client services strong of to tactics, existing sale

have we of top proven sales begun next to the hired level Chief grade Officer a First, Sales and talent.

organizations deliver, and we improve decoupled Second, sell to have sales to teams sales and general satisfaction. logo and product executives management and new delivery and our account to operate client enable new

are to Our reacting positively clients moves. these

in confusing our and organizational structures. Third, we're removing go-to layers market simplifying the also model

reaction we focus and services increased with our that offer a Our clarity based clients on and org client our that sales base. and from within both Again, we're engage will drive positive the us we structure expect retention. receiving and client solutions

Let's move to our making on and quality. our improve discuss the enhance foundation upgrades we're to

We focused a reducing talent. penalties. new SLA top improving are our been quality and building and begun on already technology charge and CIO many his improvements. has he process We leading We've grading hired the and operational out team making

and improved command our first out The was order of proactive centralized infrastructure. team monitoring build business of to to for the center management boost an

processes machine learning of and center improved excellence and leverage This will associated outages. proactively reduce automation to

But operational beginning long our we in to it's improvements fact, metrics initial best based early and a again, to very go. already practices. In performance on way have see implementation we're of

The incident company These want team infrastructure nimble will set has and responses is consistent also highlight focus through service on improvements. outage making process an area cost of more efficiency, a structure the protocols. of improving reduce duration rolled turn last improve we in specifically our to management support centered client to and The out technology the communication. protocols and

mentioned during This simplified simplification management have the I decision we more messaging slide, key should efficient As the enable making. organizational model.

focus result are This will continuum, effort revamping SLA will reduce on points Additionally, commitments handoffs, enhance client and met. mutual performance sales-to-service improved the ensure better management. pain and in governance, which implementation we also are

reach The the examples being its this are slide few changes of changes potential. the made on company to help

have consistent to of beginning go our metrics to see improvement. turn, to way a still some quarter-over-quarter long we While are

me at win excellence despite has our in efforts. outset, the As optimism new capital potential of to untapped gives I mentioned relationships, the our our tactical business current this and endeavors company client stages pursuit our up early of and free

we will Our employee base that is get confident more there. becoming more and

With the on over will it financials that to Brian to turn I Slide review starting X.

Brian Walsh

Cliff. you, Thank

we exhibits appendix, numbers presentation provide provide the GAAP we to I'll I X, the and which that Before the in clean in throughout a Slide impact by of have completed. turn adjusted divestitures this the compare both removing note that and

X with Now of let's third where financial quarter results, key on few financial overview review the I start will metrics. a an Slide

we quarter X.X% third EBITDA expectations. our As billion, our divestitures. compared our adjusted results results that approximately for and $X.X down were revenue the adjusted quarter, mentioned for quarter year Cliff with was the exceeded pleased last internal Revenue in

a and quarter downs EBITDA by attrition, X.X%. the with EBITDA XX On impacts. an excluding adjusted When revenue adjusted XX.X% client This was $XXX XX% year-over-year currency adjusted renewals divestitures, margin decreased business price down to the and in new constant was of year-over-year. basis, on million reduction inadequate impact of driven point primarily to basis

the for quarter $XX income operating year-over-year. Adjusted XX% down by was million,

in revenue offset adjusted to on were than While in by pressure adjusted declines quarter reductions, and to make to the more we continue operating current these cost income. EBITDA savings progress resulting

$XX million continued continue the restructuring now the was full-year noted an and as This restructuring, infrastructure quarter anticipate We the Not $X million. was organization. driven page, to for on metric, consolidation. transform both important headcount-related reductions spend by we of but

last and cost our we call, delivery on more balanced savings. are a client approach mentioned investing taking for As between

still While on spend taking also necessary we to are adding operating order focused unnecessary model, we are our to clients. to in and performance streamline resources address actions for improve our

to our discuss X Slide on move to metrics. Let's sales

compared for discussed, $XXX the up to as at quarter with for a returned normalized last quarter Cliff were whole As X% rate our year. same the more level million, XX%. renewal signings a the quarter TCV

the was million year. down million business same signings, up of $XXX new year-over-year of $XXX up of renewal made last $XXX to This compared XX% and million signings, X% quarter

business we TCV front. work or which business to the generally strong, While renewal still revenue project-based $XX new Of orders. were is $XXX million were signings signings, new the do million on non-recurring revenue, in have change

addition will early this Keep watch RFPs stage increase $XX that the we Our improved new the mind can XX-month continue business stages government This to early rolling so billion. government several of timing past to of to pipeline metric. deals. this out, shift in is due in primarily quarter

Let's move on quarter X. on the segment summary Slide for to our

basis X%, adjusted margin Our year-over-year. was down revenue primarily lost by pressure. driven was down by driven pressure. XX%, price, EBITDA volume Commercial XX.X% was while revenue This Adjusted of business declined and points XXX business, primarily EBITDA

Government Our X%, for making margins decreased flat the lost Government by driven EBITDA business and revenue pricing business. adjusted by quarter declined year-over-year. by X%

quarter Transportation business year. to higher and new This volumes. Our segment by international primarily the was grew compared revenue third last X% driven results

Adjusted quarter, costs IT XXXX, year-over-year. year. up for up positively higher EBITDA XXX EBITDA by basis XX%, third were the impacted was points was corporate and costs. X% QX million, Adjusted and compared quarter prior than margin the the with as XX%, shared our $XXX In revenue reduced IT increased

and compared $XX year. on operating with cash by move in use million the last timing of discuss investments. the was The CapEx $XX the Slide quarter me compared same a to to XXXX of sheet. last of decrease $XX QX largely in of to million, cash driven for a XX quarter, Let million flow million year, inflow balance $XX

to CapEx for spend We full-year. expect of X.X% on revenue X% to the

in million than quarter, $XX Adjusted of quarter last $X million same the year. better was free cash flow an outflow the

Given tactics, of year-end business our to free cash our the seasonality generate QX. typical flow and strong cash we in expect

cash a We for expect XX% as EBITDA free adjusted approximately flow of percent at convert adjusted the to full-year.

sheet with balance cash to QX. at Our of end continues $XXX million healthy of be the

current return we have of approximately that X.X end expect we net turns, of ranges of suggest, note the credit. year. leverage available leverage the X our Our was revolver $XXX outstanding by our remains letters million approximately capacity I'll turns net given current guidance ratio and to to the undrawn,

debt future table debt We a for you maturity a of to have included give timing sense payments.

years to bulk debt. a can have the of until see, we few address you we need our As

Loan B and Term respectively. XXXX, A in are XXXX Loan Term Our due and

full-year XXXX to guidance on attention our XX. Slide turn Let's

are we quarter, this margin the revenue for adjusted guidance performance our our EBITDA reaffirming year. and Given

We which bridges baseline, impact walk, the the XXXX the reported previously XXXX divestitures. of for results provided for adjusted included have normalizing

decline and between Our a X% revenue of excluding X% remains outlook divestitures.

EBITDA at of will low-end for to adjusted now to XX.X% which the within our range. flow is also full-year, We be adjusted our approximately of margin anticipate the adjusted We prior anticipate conversion XX.X% XX% be cash range. still free EBITDA the

XXXX, loss currency X% forward year, constant completed to signings next divestitures. for given and contract, California anticipate between in the signings, Medicaid and Looking of to for normalizing in be X% we down the the year-to-date expectations QX revenue

at the declining contract, is Excluding current we performance. X%, from would be the with consistent three midpoint, points Medicaid California which

cost margins expect XXXX the in by still stranded offset be to including we back additional driven actions, employee by revenue costs. Additionally, pressure, of as compared to flat removal bringing XXXX, certain costs,

pleased am quarter. the progress I this with

be of still work is done. lot there However, to a

progress as point look indicator We signings, we see metric the to in new turnaround when to showing to and will continue topline leading to business we best this as forward in XXXX.

of a at and good next going on to things updates forward We have at additional the earnings we call. number company look the providing

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

Operator

our And first session. will We comes the [Operator ahead. question begin from Please of question-and-answer Cross Research. now Cross Instructions] Shannon go

Shannon Cross

had kind specific the in the And over investments would flow I Is follow-up. about then question model on think end you we of cash where at should terms anything that Thank just the at think? a that there point, carry this is Thank and guidance. know into XXXX? I'm the about I of lower I should very we much. of you. fluid just a but have thinking – what or

Brian Walsh

Yes.

couple So effect our guidance at being cash performance Shannon, perspective EBITDA non-cash is this the from of the on some on points, end is of a performance year-to-date based flow year a year. conversion our low this in of

believe if the EBITDA we like look similar a year-over-year think items we cash be a going As expect the CapEx restructuring, from them and interest, and year, at then will conversion as we'd they'll collectively, cash same about flat into taxes, perspective. roughly next we margins be and

year. similar expect we'd So conversion next

Shannon Cross

Okay. the And you're addressed then you. on you since what – side? of back the clearly, you've been a the last there to what negative Thank seen maybe kind of what provide you've Maybe on curious context business. Thank take Can you've I the just positive months be you and little since now. as time middle but about, within more And the the update on since about there review, step surprised been you an maybe thoughts you. three your everyone? and in a

Clifford Skelton

Yes. Thanks, Shannon.

got we turn as to relationships fast some had company have our got around place great pivot some bunch a here previous us week may growth at headquarters relationships are a at in clients, great we'd of clients as efforts company around technology in have mentioned to and tell, the just has able the great With opportunity. the can last great of caused foundational not sales, I with to call, that As growth a and forum We've from like. you bones. in got the we've be

those And effort putting all so we're place. in foundational

It's kind for place, right in once am how I'm surprised we foundational called pleasantly are we sales the surprising are, gives springboarded of we very is, it. I great of us the sales once growth can me. efforts, teams, processes topline to optimism that and not get surprised great these get talent up. this simple place equation the get once not What new some by in and with surprised these relationships which is,

the are that as the put springboard upward is bottom we foundational down at We got still and at in where place rebuild great it's capabilities leverage place. and these

think don't press; the all So I getting any on surprises. what surprises. all I read negative side, No positive into. surprises knew the I there's was I

Shannon Cross

you Great. Thank much. very

Clifford Skelton

You bet.

Operator

Tandon Please of question next Mayank comes Needham. ahead. Our from go

Mayank Tandon

line I guess Thank to for terms different Brian. Brian, at want thoughts your get just I you. looking offerings, the horizontal in of trend evening. the next Good year. for

offerings forecast growth the the are revenue just various segments, you gave the expecting trend? you within or in Could topline about the forecasting. talk overall core you're to how them that us You decline three

review? in are a I for you're Cliff underperforming a would you review, sort company would the think once question ones are broader of today? be, be about of Or sell areas with the you the terms seeing done as could the that bag guess that potentially standalone underperforming, mixed outperforming to some then, and the look of it we And

Clifford Skelton

Brian. ahead, Go

Brian Walsh

Okay. Sure.

both we quarter segments Transportation, think we next have if we and we perspective. So they're this and performing the topline it into for with look as start year. how profit strong we get today and at the change growth If how will

and we will some growth lap a in ramped couple projects we'll year, as we And and down. of new the a low have we have probably as as growth next we Transportation, rate business moderate single-digit expect get into

still at Commercial, we down year. When we and it be into comes lap councils decline a get as one to to and this that we of next we that will as price year. expect moderate, to decline beginning that's it had But going the some be

government and line start of fully us, is impact the to to contract And and the we're in year. a will Medicaid get to that perspective, impact California get going in – starting QX us worse, partially then trend then starts QX from as going next

segments how progress next into cost. But year again, We're on the pretty get the performing. drive on we that across consistent overall expect that's efficiencies overall we So working as see flattish expect to and we we be to margins segment.

Clifford Skelton

working it's get And into the still as question Mayank, not this. of give the your underway on those to on can't just has with outcomes. the you of a I folks imprudent efforts I on a Board tell underway. yet me review, can you review, strategic lot feverish It details for would and opined. be the an there's lot obviously, of details on done We're

got place can as understand that pretty as for review. details the we've what specific you as a tell And to the opportunities So high-value vis-a-vis we're is Conduent in and mentioned what narrative, looking where of value to though that's guardrails – strategic I the in some outside putting scarcity we're disposition guardrail. there in try and

for perspective. opportunities to businesses what trying from where aren't necessarily investment strategy and looking our forward we're aligned We're with investment accomplish an go

that our And basis. be grow will prop, company simplicity, don't then and kind we want we look like we anything want value can go want that complicates more a we confused finally, of further by to forward what

tell about lot at next as can More much quarter this it's underway. work there come and of the is as in to a So stage. I you obviously

Mayank Tandon

That's understand. helpful. I Sure, Thank you.

Clifford Skelton

You bet.

Operator

Please of Bryan, line ahead. from Our Bryan your is Cowen. open. comes go next question Bergin

Clifford Skelton

Hey, Bryan.

Bryan Bergin

today consider we inflection? also the any composition? can to qualified seeing be a a bookings the to pipeline mix How the business us give you the of expansion, sense bit mature around close little flavor you may wanted on on pipeline, a revenue then how ask pipeline give that current should toward there. versus I And you're changes new

Brian Walsh

Yes.

at I QX, driven in from and and continue that are I move deals government the QX those said say a to to we would by the movement stage lot so need metric. look the you to in So kind early that pipeline it my prepared as the was remarks if watch of around of dates

as look the heavier at to then of it's revenue say, the pipeline of the and mix mix the current overall we Commercial right the versus you would at business, I if compared to just now, Government look Transportation And base. in mix compared the

Bryan Bergin

making about XXXX sense can expansion us margin, we you sales And – the give as as these investments the self – then, turning can think or you're should as be corporate really and we considering we fiscal Brian, here considering terms initiatives dependent you it to really sources within on to how Okay. in of root get in should is structure? And the a – that far of revenue from IT the trying base? be fund

Brian Walsh

Yes.

So already year, some guidance the takeout on when and include efficiencies the have prior working and starting and that to next we were will cost we a stranded divestitures. related for look margin takeouts of cost at that further will number

we to we some a And about, then we talking we an offset will then have be pressure each to to things offset. get other that we've year, next we'll those will year. had profit reduce are and deal to resources, building improvements as we'll be been the the back have will flat add with in believe to all margins that employee from into have drive to have other we and which of we revenue impact costs this going And

Bryan Bergin

you. Thank Okay.

Operator

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

Puneet Jain

was soon your improvement in for new to in changes see see It you to and Hi. to business we and taking signing renewal making metrics? rate question salesforce business improvement the my How nice and stimulate signings. expect in here. should to upside also see good new stabilization Thanks revenue eventually

Clifford Skelton

as Yes. rates moving in renewal the question. targets. often pipeline renewal Puneet, dollars, not as you are are well it's events. And And both a rates great as know,

fluctuate dates So can the contract with respect pipeline, to month-to-month.

again a generally is question speaking, lot signings. better efforts begin direct of going new answer hold. topline say, of to these the is any growth. QX the foundational not new But bellwether sales I in take We're and terms sales to seeing here to business would But is, what be your

end the XXXX improvement be to of into at monetization of XXXX. is it definitely and XXXX. has going XXXX that those better than And be really to and efforts better, manifested the

need what seeing greater going start to demonstrating not So I QX anticipated, new turn you, we think start will any from in you to a while perspective, signings XXXX. is be early business not a to great and than

Puneet Jain

internally further how going you are to progress changes all ensure operational announced Got foot for of to are that of soldiers how from words, and In track risk your motivated it. are those you manage And changes? going other those actions, today? disruption

Clifford Skelton

great Yes, question.

stability when the you you say that how – does manifest say So, quality associate the you measure satisfaction, you and and in in soldiers, associate foot quality? I assume in do engagement, reputation mean when marketplace? How the

there, The distinctly and what improvement too its bit incident is And way early a most way starting uptime. declaring we to in start of see one way, we're rates anything the victory. of to – already little measure

putting clients improvement. the we difference. of already they're our positive But including efforts feedback clients, to government many the getting that are feeling We're see that in from of already starting our place think we're some

much What client more – in we sales. client in uptime retention, is, all will and manifest incident start which rate, incident based improved and need marketplace, seeing to the turnaround reputation on time,

So all kind are things those time. of taking

it an point we takes again of What time. say from would view is, employee

now company and are to change, waiting we do and and what waiting Our see. employees feeling – they're associates the They're are can and see waiting to seeing but they're we're do calling optimistic. the they're what

how in January. the measurement out can measure year. was last the have revenue. sales want think, clients of do we'll our to grow that's us new The what engagement buy and the We'll day is associate But do difference. our October fast survey to going of the at clients we and And last a one from go what end

Puneet Jain

Got it. Thank you.

Operator

BMO of Stefan Markets. go Styk from ahead. is Capital question next Our Please

Stefan Styk

lower and you around My I'm to on pricing decline divestments. forward? just is could you. Thanks. from year-over-year any quarter, versus renewals question this your revenue share curious what renewals due is first going about risk client Thank more if attrition on pricing Hello. talk

Brian Walsh

Yes.

I try is in about There from least additional to deal when it say also be quarter either think we with of it's basis. offset on margin this year-to-date – stable. about times will and the price scope our price, we an or lost a do end at would So margin at a the than will impact a there's And business. by perspective sometimes getting then to majority downs. from smaller But them but we from taking when price when cost the we have there for there actions impact renewals, of something contract fee the business lost we are downs, it's price that in

Stefan Styk

same my question, period working year? second than the year more last the much you was Okay, weaker months first could great. if this of And to speak capital in nine management

Brian Walsh

Yes. Sure.

then at the the CapEx. it's impact. cash well look capital the flow, lower also through nine negative has you that's as had And if months. Working by So biggest EBITDA higher year-to-date we've impacted first been

the So three those through the cash things flow quarters. first have depressed

tactics to and compared year-over-year. we've in plans and QX historically – the a plus QX cash think drive fourth year-over-year to to we taxes CapEx lower also collection last and in on quarter lower about year that see working basis, we're done some capital, using as improvements deliver we the focused for. have calling It's in place conversion DSO on QX, the improvements, As XX% we

have So we're have QX and year. to very place get to execute XX% we for will focused plans on the in us that cash, against our and them, we conversion

Stefan Styk

you. Thank Great.

Operator

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

Clifford Skelton

for thank like as grow. and today. our we I XX,XXX additionally excellence everyone's you pursuit pivot in appreciate of teammates also perseverance to here recognize everybody's closing, our listening all appreciate Conduent at and really participation In our to

much very listening for all your and participation you thank I So appreciate today.

Operator

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

disconnect. You may now

Conduent (CNDT) 6 Nov 192019 Q3 Earnings call transcript