CNDT - Earnings call transcript Q4 2020

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Operator

Greetings and welcome to the Conduent Fourth Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Alan Katz, Vice President Investor Relations. Please go ahead.

Alan Katz

gentlemen, XXXX to earnings and and fourth ladies year full call. evening, and Conduent’s welcome quarter Good

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

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

We will also post later this a week. transcript

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

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

Cliff Skelton

Alan. Quarter and Thanks, appreciate Conduent’s afternoon, Full-Year everyone to Earnings I today. welcome joining and Good Call. Fourth everyone,

we’d XXXX the quite Now, listen, obvious, a for think year. the was of say certainly quite year that risk It stating I Conduent well. all was at a as

pandemic ended However, for year are despite of the the headwinds, proud us. how we quite

and made as heavily company. As And we on bit And last initial of discuss of Brian our recognition of operates the I said in we And success few from the results to of a believe February out outlook efforts, dependent will in earnings I a we the probably Slide of gives that minutes, year. category rails Think delivered that heard past growth progress sort you’ve of a our our in surpassed better XXXX. analysts. continued from as fundamentals. on. in our year is industry improvement stronger the it closed and the company parallel it even X that foundational in real few a

remarks our sales that performance in operational work paying the and see my as always, is also financials as You the hard review as really here. high-level will XXXX. well In today, off I’ll

from XXXX. the The discuss activities. to results previous sales XX from those do in we what also and rate. what the quickly touch will net to what in new indicator, impact we a The we I’ll intend replace recurring As follow metric earnings previous revenue annual XXXX. and get efforts conversations, performance set reported represent which new previously up also will key on of to out retention done months renewal a as I’ll

And came in in to strong line Now, and pre-COVID let’s expectations. year. Both revenue out adjusted than turn X started. be to a get with to EBITDA Slide our turned XXXX margin the QX we million, gave for year. adjusted our to $X.XX EBITDA was outlook a was XXXX $XXX XX.X% billion equating and back that November. in of call revenue on higher the

Now, achieved just of a an $X margin note and EBITDA of billion XX.X%. strong the revenue adjusted particularly over quarter. QX We was

XXXX results, excluding impact the would X.X% declined have revenue would QX XXXX. COVID, have And in at declined Looking the of just to XXXX. compared revenue X.X%

lot as global expected in over seen that of ago, much business are and last few the quarters. the experienced secure may you especially Clients a was in is services who’ve to deliver shifting Now What be been work environment. remote able recall market decline a those the global marketplace we’ve revenue year the to has larger. a to providers, activity

We’re certainly taking advantage of efforts. that in our sales

sales, of $X.X we above target year year. $X.X in initial billion of ended well billion at our the signings, Speaking the for TCV

turn discuss increase XXXX. compared $XXX that a X signings year, to $XXX and XX% compared full-year XXXX. an year $X.X new all in progress XX% had in detail. full I the we increase with retention AR in signings QX of to billion more made business let’s that Now, new our million. regarding the mix, an of signings in just mentioned were Slide growth variation business XXXX represents of were million, to And TCV And this healthy to segments. signings

has space, of Services to the Government Support the California Transportation expansion the of our Enforcement of types payment an end-to-end selected healthcare In we And very provide fourth contract division a give the Department signed of installation business, me Photo In payer Systems. you a administration new deal quarter. expand Child large we to payment space us signed examples Let the signed the provide with just deals digital services. in in few the to Commercial a integrity Republic them. we Cyprus offer to a our for the client with of in segment,

in able we’re to While the in we in safety. expand historically public be strong have been very transit space our to pleased offerings Europe,

give mentioned, a net for around business previously more a context replacement As we little new rate. renewal as

contracted we a basis. revenue net The quarter, ARR ARR from changes, volume the and number trailing months lost give should activity sales, to ARR of realized addition and a holistic time. net forward provides which recurring showing renewals, anticipated the In of for changes all more net won over XX from on in newly including and the revenue indication P&L of sales, be price annual TCV

the timing are a can and months only as QX, activity Now, are months. resulted number see in the in indication in does trailing more we than given retaining you in XX chart, from losing there new that XX the million And of trailing The revenue. net revenue. not we anticipated selling predict is of directional that $XX any

our XXXX and to in X in what update turn business let’s perform focused on on we’re a Slide for So versus XXXX. how we priorities

is achieving our and our people, strategy always, our growth, and As in leveraging quality, improvements measured technology. process by efficiency driven by our

on for our and our driving COVID-specific operating centered XXXX Our improving priorities clients, model. challenges, value addressing were

work-from-home And In COVID-XX inclusion plus diversity a terms focus we of our our associates moved while our people on crisis. to we quickly and prioritize programs. safe to We XX,XXX keeping secure. people, and the environment, responded systems

are leverage and shared we Of in but services are values only own to efficiency course, associates programs and base best And keeping drove to clients, talent. core our with very our utilization lastly, here of our future of not these important improve practices. at Conduent,

And results technology a We acquisition, client governance at was and impressive, and categorizing and and management, implementations were information the service year, of delivery. security Regarding our and we we and goal and out processes accomplish and headwinds center, around management. and From the management centralized set our outcomes. change technology achieved pillars. improvements improving process start must standardized of talent We we was driving risk improvement, all incident, problem at finally, process high-quality stood be And command monitoring; improve from growth changes. change standardize partner platform activities. sales to of our we the our much perspective, our our in These COVID, forefront processes. consistent up the quality efficiency our to always what client IT despite

growth we platform terms business drove we down. expectations. and signings, made exceeded efficiency, real technology revenue progress improved defects In new margins as our quality readiness of EBITDA and on operational significantly We and uptime, and and mentioned in

resulted of and All engagement in client this NPS scores significantly associated improved scores.

course, loyal more associated creates glove, Of go definitely base because a X and a in base. these hand outcomes motivated client more motivated

priorities, of to same the clients. technology to In need better continue We our we’ll use levers serve this people process and our XXXX terms journey. improvement

XXXX Now, the if to plan correct. plan, seems are you our similar XXXX

progress. You’ve disciplined effort And is in past. outcomes. If heard it’s growth use achieve the us seems we it consistently efficiency communicated focused journey people that process the of with how requires terms repeatable outcomes consistency, resulting similar, same this will and because and us help in about and technology talk quality

growth. and comes clients resulting are predictability, when retention Our it confidence expecting and in

approach. So we’re staying in our consistent

the our detailed to through of Brian before our very in given say XX,XXX pleased turn I’m it to let I I’m and one And plus teammates. over investors. commitments that clients, to everything every just associates, go We happened performance. of Now, proud me delivered to our on our to XXXX, financials, our with our this,

turn have for continue And do. how over XXXX. progress work now thank to us plan I’d We a it to Brian solid joining lot I’d We more financials. great to for Brian? to everybody to today. and year, a make look our a have last at detailed like we in this on like journey

Brian Webb-Walsh

Thanks, Cliff.

presentation. and are filings non-GAAP and the in As reconciliations the of both we’ve the our in reporting done GAAP appendix past, we’re numbers. in The

offset Slide at X%, impact in XXXX million, billion the better year offset year Adjusted we prior $X.XX Let’s by a the the decline full negative the and end turn start than always as above we plan start and range impact of X% full year lower bringing XX.X%, impact to points year new as highlight year EBITDA done. been mix. note on to detail we X.X% year-over-year, for the of business, have was of still while finish we by partially same with that and was revenue the the variances cost year excluding we in business with was revenue X.X% highlighted, million, by revenue adjusted gave EBITDA X the ramp. center of discuss margin the by baseline, COVID results net certain the now declining full plan to approximately the We’ll of impact at strong in XXXX down $XX The the our gave XX or costs, to was compared for our commentary, it back basis our Adjusted the of P&L, level One XXXX. down results. year was is impact guidance $XXX employee The partially the we’ve driven EBITDA year. COVID high up ago. the while item down full The a would to divestiture. and year for approximately providing adjusted is year the was initial driven to revenue that Cliff in the outlook the X% major savings lost program don’t COVID COVID that XXXX coming as our excluding call

Slide Let’s to results. XX to over turn the go segment

the lower driven primarily million interest transaction partially volumes impact and primarily offering. points lower year-over-year. decline offerings, The of declined rate XX.X%, approximately healthcare as of The well commercial costs by onetime business. X.X%, while savings. COVID on impacts certain margin adjusted year, Adjusted by was declined year XX.X% our For cost revenue and offset items was adjusted EBITDA within primarily down BenefitWallet the EBITDA driven COVID prior was our EBITDA lost as processing full revenue, driven by by Commercial impact basis $XXX in the XXX employee

by business grew well X.X% as volumes, by by year. by approximately primarily as COVID-XX revenue California the from million offset Government This higher cost EBITDA by EBITDA XX% related and was the improvement the XX.X%, for adjusted of new loss to partially related This Medicaid margin basis driven ramp the due XXX business was of our work of the Government points. adjusted of margin savings contract. COVID program. to increased increased Our while $XXX volumes

the by from to by approximate million primarily X.X% compared XXXX, Our Transportation negative driven revenue segment impact $XX COVID-XX. declined

to XXX new was continue revenue by mix ramp. year-over-year. up of cost impact basis driven EBITDA also by Transportation, for points recover loss savings offset and was year X.X% business the compared the QX margin XXXX to In had pre-COVID volumes. volumes tolling Adjusted business the we We up with program. Adjusted saw XX% XX.X%, of EBITDA partially

management business in continued and pressure the in curbside transit volumes the impacts remained business. However, under

new million, talent offset operating $XXX changed driven year, decrease full XXXX. on XXXX, our bringing costs the IT than by For our we’ve were lower This and unallocated go-to-market. model, including certain and by function back employee X.X% corporate spend, lower reorganizing bringing In costs. was partially our

the that reporting provide are at update year an on impact will segment and We call. may looking how QX our this

and Slide discuss Let’s balance the to XX now turn sheet flow. to cash

sheet of ended balance a beginning borrowing sheet we to Our pandemic as the the the with year. had We solid year continues cash December, paid revolver for position. at the have we the We million cash on balance free and very healthy strong remain took a precautionary liquidity the and in flow on $XXX million measure. which back $XXX performance of

approximately As of year-end, under the $XXX we of had million revolver. capacity

net ratio target line end at Our of in year X.X. leverage our X X.X turns to was with

driven was and $XXX million can and for maturity is CapEx Refinancing X.X% our XXXX. lower capital partially or a during $XXX spend, performance, priority all CARES payroll strong million XXXX. or us. period and over revenue. end cash was pay was year of million table, flow the maturity This increase of first the for Act $XXX lower XXXX year extra million a you an was on fewer CapEx free deferral $XX taxes. is in debt offset see EBITDA the quarter at It debt the for As by for primarily year our end cash portion tactics. working XXXX Adjusted the major the and tax of by

anticipate XX $X.XX be Slide XXXX. billion that EBITDA XX.X%. our and achieve for We margin billion to an to XX% we reported adjusted expect move will to revenue Let’s between between and outlook of discuss $X and XXXX

to of tax free half We back note we payroll spend and see the both spend CARES we impacts range than flow. outlook This million to restructuring the of EBITDA full adjusted XXXX. today. expect that paying XX% Act approximately to expect between On of XXXX, approximately convert spend CapEx includes cash year million $XXX and in also the that $XX COVID million lower in This of and $XX be million includes $XX stimulus overall from deferral.

will a by as the about compares QX outlook we this COVID as past, how the trend million throughout XXXX, in from QX impact compares we’ve of the see impact will year X And the the expect year. this the contract year-over-year Medicaid terms In discussed began revenue $XX first perspective, impact California to in over spread quarters. the in

it higher In to see terms And margins expect balanced seasonality in resiliency. business still we with XXXX. some seasonality the lower our in tactics fourth given the challenges quarter. should all profitability fewer more our QX to in while slightly that typical lastly, cash year-end generation have of brought, in in Despite be XXXX, XXXX our we tremendous expect margins is and showing

is As our and hard Cliff work mentioned, dedication team. this of thanks to the

to shareholders is I for and continued to continuing track. for the our our clients transformation are associates, and want We support. right clients on thank our their deliver

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

Operator

from you. question Thank now We’ll Bryan first from question-and-answer Cowen. a coming be [Operator Bergin Instructions] conducting session. Our is today

is line Your live. now

Jared Levine

Hi, actually for Levine this Bryan. is Jared on

terms of any stimulus, your then and In in the color XQ terms full-year how about provide impact in can you’re outlook? fed you the of thinking

Brian Webb-Walsh

Sure.

think we XXXX. in a likely would for but we And year, impact business later it COVID, in again COVID general, that XXXX, in into it COVID expect the a positive Government say the We see did lot last negative. And coming Commercial this the an is impact have improving versus since XXXX. to overall look started that QX what QX, in in I the versus like negative QX, COVID negative the again, on QX in and So like Transportation we likely down top-line year. and impact see will

QX. through revenue year improve the will as from year. And about lap And so we last and to impacts start that the COVID then go down X% we X% we think as in to we’ll in be

Jared Levine

then, And on can Cliff, by segment? environment us you Right. update business demand the pipeline the and

Cliff Skelton

particularly seasonal across kind our in we Jared, the of Yeah, really seeing activity or in this pipeline is And $X outsourcing but as it’s all healthcare, activity segments, in so see segments, and them. billion the last up Government you of And somewhat time a lumpy. the over RFP a more $X of billion lot across year. know, plus we’re

So it’s activity. In not seeing space, that lot Commercial a we’re the predictable. more

in We’re healthcare. seeing it

segment. centers, in seeing board We’re across healthcare the it call frankly, in the

market So strong is is changed. our The reputation market strong. and the has

much and place of of We’re technology lot a talent, a the upgrades the our quality to due better our quality in and operations and things, recent of platform.

So, the we’re opportunity feeling good about going really forward.

Jared Levine

decline Great. could in XQ? just If clarification, I more sneak constant the one currency what was in

Brian Webb-Walsh

currency. It from was very impact minor

point. was think like X.X it I

Jared Levine

Thank good. Okay, you.

Operator

you. Thank

today Mayank Our coming question next is Tandon & Needham from from Company.

Your live. now is line

Mayank Tandon

the Cliff Thank you. evening. Congrats, progress. Brian on Good and

Cliff Skelton

Mayank. Thanks,

Mayank Tandon

recurring the get nature? that versus the else in we then, recording I out, I wanted Anything of the of impact, about. versus in around to can the want what’s onetimers in Brian start so COVID some and some that to model just call of our what’s first impact trends XXXX. better handicap California talked with the onetime you question terms like

Brian Webb-Walsh

Mayank, around impacts. Mr. we the give COVID Yes, the the segments, we in analysis

impacts have onetimers would have margin also and a if would of adjust point you down full wouldn’t commercial, out. shouldn’t a year down basis, savings Government addition So from been couple the that cost COVID declined that been full California. up much. in Commercial have hit have perspective, much up we part of been a would I those, then And being on have to The year adjust decline if would in that of instead impacts because of Transportation smaller the in we on basis did for being Commercial a as large COVID repeat. instead

come that as EBITDA go year. this should of in some we decline throughout So, back

would those I’d points make the be So onetimers. on

Mayank Tandon

a you think I Any XXXX growth? predict Is color from timeline way there getting organic constant to what a when Okay, exiting on that? question like there get to get that’s really positive timeframe? a is maybe we often XXXX, can investors. maybe is, currency I’m at now

company to trying for feel when growth positive Just get enter a territory. can the organic

Cliff Skelton

a it’s Mayank, question. Yeah, great

the minuses, and gaps indicator. – sort answer report, me It’s activity new you is so ARR of heavily is And business of pluses really dependent the use an indicator many is it AR, on net sort couple a tell replace it. that over we volume let of. months. shows rate sort you the changes, losses, me This to XX new Let changes, as renewal and was that And previous gave an the – we things. in timing it metric price The activity had something why. between can

So should indicator. That’s a it’s that’s one indicator but growth, not of indicator indicator you remember, timing an future But consider. of not when. an

Another component previous from in over of is next question the happens the that to equation, X losses? is off when years. We your burn course the think answer the

unpredictable. there some in then, unknowns Caymus. the mix, into were all And it’s you course, And of it the of the As know, COVID. you like big past, put when there’s ones

While up there’s lot a all unknowns unpredictable. great that is way we What vectors a become more of are confident say the these year, certainty, had I for it is just no can we’re in I growth with XXXX. until But the predict timing would lined clear.

Mayank Tandon

rate Got in flow much versus it. on but what a helpful XXXX? you I guidance to finally, is then conversion numbers, based lower cash XXXX, your free you why delivered give That’s on conversion, a want get on in that And be clarity to Brian, color. the going few the

Brian Webb-Walsh

and to we’re constrained uncertainty support to out. CARES the CapEx decreased need year, this versus on paid In the things COVID point last I’ll new $XX that we of $XX million. to we’ve it of signed, at CapEx, investments last being point end about the XXXX, of had this primarily million into inflow second about Act taxes, make it is we million back X down we a bringing million $XXX this a around the business from to half we in One deferred also That’s year business. gets $XXX the able payroll that outflow year. and million the $XX In year. because benefit major back to It’s year, is, Yeah. a

cost better say over gets us, second once major to And those behind I as just revenue XXXX. to our calling year. and conversion so growth, think as the last Act continue we program versus maintain So center year us, half time, down leverage. X we is the the we’re it’ll in actions drivers. data consolidation operating our CARES come repayment there’s this come would we program, to rate paid pivots the which are behind down get less And gets restructuring,

conversion the we So time. over do and see rate EBITDA improving improving

Mayank Tandon

Okay. Appreciate my you Thank questions. taking it. for

Cliff Skelton

You bet, Thanks. Mayank.

Operator

Thank you.

Our today is Shannon from Research. coming Cross next from Cross question

is now line live? Your

Shannon Cross

you in-process, at investing can kind lived wanted position of of you. start to we cleanup guess you then with you’ve do still Or which that terms a while there’s go? to been Where Or add first overall the Cliff, amount much. transition the And follow-up. a are big I is in of Good the of a changes. have thinking my a very point make to you business? potential this in I a sort new a And pandemic you’ve Thank in to one picture capabilities? more speak what fair for question, I’m so forward think acquisitions is you is, in for new of to and looking lot through and this areas?

Cliff Skelton

what be other is point They’ll – we’re operating be we’re it say down are aperture, now the we to But the fundamentals the efficiencies. be or you’re the to to on at that the activity. of COVID look open tuck-ins wouldn’t mirror, tunnel always either on would They’ll light that which the of about. in XX, XX, I foundation, I would leverage completely close acquisitions other sort seeing that on and category to end as the of doing talking winds your aspects up always other lifting. the at words, heavy through as They’ll worrisome rearview serial, in is COVID parallel the forward. your the and In always Shannon. focus halfway or I going Yeah, in point, say refinements. start M&A

certainly say of considering lots I open XXXX, always to things. we’re in So would

expect I organically. grow from is you my that thing is what thought think prove us that we this said, can

got while prove we So company in a that the at can to inorganic the parallel, we time. – need organically opportunities, to we’ve may grow we consider same

Shannon Cross

I’m you’ve see Okay, at run it ARR to looking I’m of then, revenue. statistic. And the perspective, curious Brian, a great. sort it from I net historical correlated how sure guess, I’m And to

So as and maybe it is? the sort think know, if was quarters, maybe we Thank or number to about even curious don’t X X, what back past, to where how that I’m revenue timing quarters, I you. just go or X of trended relative the

Brian Webb-Walsh

Yeah.

this Shannon, So XX-month a is trailing metric.

during encompasses year. versus calendar XXX $XX think closer the signings business that million less had about And So XXXX, the last activity XXXX. to XXX was ARR the if you in new we

that number been XXXX XX that And was in our negative that XXXX. put have number lower, X% XXXX. would were the positive that’s losses So higher, much aside, in why in we and so versus declined COVID

a it’s as So metric. And look it, since the back can introducing just at to we’re but go as we far that’s new way it. about that’s

Cliff Skelton

that But we’re would It make any goofy. indicator say, quarter, the a metric, it’s of what or a the months, that leading it’s is – I trailing can if number in track right matters definitely Shannon, XX big the But a growth. hit a if look ARR stays trend little on the given to big because positive, if loss. it’s bit there’s what an trend you the activity activity as because

Shannon Cross

you. Thank Great.

Operator

Thank you.

today coming Jain Our from from JPMorgan. question Puneet is next

is line live. now Your

Puneet Jain

of is puts my top-end X%, takes taking like X% the the to low-end low-end which and talk various comps can Brian, to versus be expectations with It for to the start plan about toughest. revenue growth and that you minus year get the you the guidance? your at minus looks of question. growth thanks will Hey, annual you

to So QX you what gets the levels? top-end from

Brian Webb-Walsh

Yeah.

through the I volumes be would coming more and federal revenue So unemployment would government it from also SNAP funding. and say high-end, at

faster in here, what So at the for instance help be the faster that midpoint. recovery have get better if help than range kind higher high-end that’s that business would then faster. the Transportation midpoint were extended and and a ramping Commercial at baseline were new to – the than volumes signings and And the to of of we would

be back would the Commercial be the funding in that worst business would come would that those impacts, the to on case. maybe taking weaker get Government the volumes side, So and less lower longer would higher and high-end, new COVID us the case us Government, coming things get because are the tended to from to worst Transportation

Cliff Skelton

Yeah, Puneet, board much have more would products commercial XXXX. on I lot had those And say, a Commercial efforts a our have or in sales would opportunity focus we more than in lot faster.

a that get high said, contributing As Brian could to be factor into the end.

Puneet Jain

Understood, understood.

that And in to CapEx somewhat OpEx? track we make you or to that there about as so way and is Is And number the way business, show you in Shannon’s investments number? up any priorities estimate will a think incremental XXXX whatever question, that the for is, there similar need investments need can to in technology?

Brian Webb-Walsh

a support CapEx as number. business. indication versus year that the that of so do year we’re some OpEx is investments investment making. And are Yeah, up the good is new to incremental lot this again, investments also last CapEx, show our but of a there But of

And investments. some of for it is technology

way the to track it. So easiest that’s probably

Cliff Skelton

Yeah, agree, I would Puneet.

we’re CapEx in As it we you using of think about kind buckets. think X what for, can of

percentage we got your part, cetera. adjacencies XXXX, also product is the activities et you’ve discretionary in got then portfolio. cetera, big the going to it’s make if as et a you’re or systems up have that running business require our to the of to increasing protocols, security more CapEx in on And for enhancement sales a or either that and which modifying date we Then budget. sure optimized have CapEx activities year, So you’ve

slow up we So ratcheting are in some seeing XXXX.

Puneet Jain

Thank Understood. you.

Operator

reached back for our further of We end the to floor turn I’d comments. over Cliff you. the session. to like question-and-answer closing or any Thank

Cliff Skelton

the everybody feel clients in hit and thank mirror, in marketplace everything. good about do for But here the running We in for And XXXX. ground drive the of to like time today. while really it’s value and I’d to Look, you us our it’s joining win XXXX. rearview we’re proud

We’d day So updating stay we you you joining. a hope hope you safe to for have – and time. forward everybody great look next healthy, and to Thank certainly like today.

Operator

Thank you. conclude webinar. That and today’s does teleconference

time may line a today. this your disconnect participation and wonderful at have thank you You day. for We your

Conduent (CNDT) 19 Feb 212020 Q4 Earnings call transcript