CNDT - Earnings call transcript Q2 2021

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Operator

Greetings, and welcome to the Conduent’s Second Quarter 2021 Earnings Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I will now like to turn the conference over to your host, Giles Goodburn, Vice President of Investor Relations. Thank you, you may begin.

Giles Goodburn

Good evening, and welcome to Conduent’s Second Quarter 2021 Earnings Call.

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

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

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

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

Cliff Skelton

afternoon, everyone. everybody Good earnings Giles. I you, really Conduent’s here QX call. Welcome Thank to being appreciate today.

was QX a in us. our marks Let It me a quarter for really good saying start that milestone by journey.

you’re what hear detailed hard going improved you and was bit I’m today I in August winning? it If about about this driving work and And – sales, our operational our to years little about turn good to then confidence to took few the in of our foundational value? experienced a CFO we’re said to associates, Steve I’m of some know. next in all two with talk bit I’m to we XXXX, we top-line, refinancing going you’ll me when Through a today. the over as also which months. fundamental why how pandemic importance from XXXX, be going on I quite in during about financials. touch talk turnaround, journey think the all quality to excuse new performance in a think pleased a ago, little is our profit over debt And Wood the place excellence, of XX,XXX pretty the

Slide to X. turn please you if So

margin. large year-over-year points I basis management. XXXX. of revenue EBITDA revenue in to was XX.X% new $XXX That’s first return XXX and that up year-over-year, you’ll Payments driven up mix by billion, revenue Conduent’s million and of was think pre-COVID equating business Overall, Meanwhile, quarter in that volumes, to and performance rent. project revenue spin January since X% marking good a see Transportation driven $X.XX the at by growth came year-over-year in Government of near the expense part adjusted

total at previous contract million to up high quarter XXXX. QX sales since in quarter sales, $XXX spin new our of QX sales XX% of business strongest Regarding That’s was value. the the compared

to talk here going at strong year-over-year. in also a was minute. just ARR business about million, New that I’m XX% $XXX up

net $XXX was million. our activity for Finally, months metric XX trailing the ARR

this the drive in of significant service a resulted our improved about platform which growth excellence quarter in with other minute accolades talk to that and as QX, more quarter. uptime I’ll third highlights consecutive for for continue is in we clients, Now well. several the In

That Turning the $XXX X, remember mentioned and year-over-year you to annual contract value. total improvements contract non-recurring was can value in Slide TCV. of million see total Again recurring both contains as revenue. number

XXXX difference a higher improvement length than client the XXXX than was also Again, of that certainly XXXX of which Our between recurring million. spin revenue quarter QX annual of quarter XX% of $XXX QX confidence – in XXXX indicates non-recurring the improvement XX% percentage of since was strong that million, in higher XX% And and previous is the was year-on-year. single it highest slightly XXXX. is higher XXXX, contract in very highest a of add-on The TCV was revenue, project at QX volume. QX in QX much $XXX up

quarter’s which ARR of is million. lost business, et business volume price million, metric, $XXX the from mentioned, activity inclusive up As net last $XX was contracted new changes, changes, ARR, cetera

that a $XX previous million, month $XX million, month the was of $XXX for was XX think minute, trailing before million. trailing Now, XX the that previous

deal for our sales losses, business are sales XX-year quite Government our On Page in UK for positive future. X, losses. This all run UK the significant Government segments impressive out revenue as towing our it’s you $XXX we our segment, that legacy quite soon those Highways our Commercial, a seeing nicely. expansion forecast Transportation Transport’s with Europe. we’re three Department on across of an Also, new can growth, So, Transportation quite sales and of and marks the outpacing which impressive Transportation. see the a balanced contract signed were England. In the stands as basis performance our of million percentage and indicates And that we business a

of optimism continues deals, Department Health with one global still quite for on to Services major for the awards that of pipeline be see bit Commercial past news good towing it’s our in that had future, State for In XX and of in also in months, Medicaid major was encouraging strong, two Government we’ve deals, quite Hampshire business, Processing. QX. secured a very and is with The with quite Services, Transportation. sales As Medicaid we our the where in also performance improving, early the we New the us opportunities The the already gives but Claims great strong, sales we’ve scale. a performance Hawaii signed lagging and Human interesting performance which that, and Government saw three is to some

approach, have a very management and go-to-market focus we modifying things talent upgrades, doing on like our We’re some sales our account healthcare serious industry. approach, the changing and

in the are the legacy portion Now, are of some Commercial remnants of of high losses business, resonant. also the pandemic and a those resident

quite burning results, about half. we see we’re through obviously. losses. And like our now aggregate, regarding those the the reversing very sales positive near-term. second sales We’re in And the we’re optimistic In

regarding of XXXXs Slide lines. time our Now, X; Year the us first GM recognizing progress out top of in others well. Conduent separates This non-financials the award us Supplier across our on as the and was category as one our of named multiple product clients as and suppliers. of a for performers performance are for

from associates financials. proud the very And represent I’m for Business comparably, recognized to diversity the large be our being in for important, company company the large the our Our company, that home empowered a work top pandemic. CEOs of The XX,XXX of for we great top for a category our in finally, to one Officer that for bottom a with I’m CEOs is. that’s set best all technology and Chief This about achievement outstanding themselves very an And Stevie, Gold and associates to where of we’re over category to American the all experience proud during of by recognized by Award is the deliver digital of culture of trying the leading is because Information continued clients. really in was sales, XX enabling here operational disruption. they’re create and through quarter among can this strong companies performance, line

the the know, or earnings it’s a as destination However, Earnings is one. certainly alone continuing represent way. you the always journey along step will never one alone one

all do, commitment. This and we’ve be to consecutive that perform the quarter said we eighth intend that we’ve against we will where we made. then However, commitments will what tell you delivered the along on

refinancing guidance the to of debt. a remains Steve attractive. seamless. quarter, minute, reiterate our the our priority for transition Steve? as to Steve refinance to get The significant I’m to Officers the much talk CFO. of through done. very planned the few you remainder next Wood would that listening. to financials. over expect all some made remain update want we’ll going was And Financial here in we debt today, markets out top will of detailed brief turn for In it you has in And months, XXXX. take pleased a the year. optimistic. remain I for more Thank the our progress is but very the Chief well we again, So in already about us him to we Also

Steve Wood

Thanks, Cliff, and good afternoon, everyone.

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

Let’s with turn results, QX P&L. to starting Slide the discuss the X, to XXXX

trend up revenue was the The Revenue $X and This the X% partially item with segment, had revenue prior year-over-year. related XXXX. driven across XX.X% business, business trajectory external offset of points QX from strong stimulus up we EBITDA strong our for across prior years. business increased Transportation a up was driven growth with while in progress was volumes our expectations lost EBITDA was quarter by positive. efficiency revenue for continued in The a in by with to adjusted partially Adjusted increased continues compared that XXXX. lost programs, be highlighted, Cliff EBITDA basis line our QX of a Government As internal and a adjusted business Payments range XXX affected volumes new and the above year-over-year, quarter billion years. XX.X% by by increase mix, one-time offset million, was quarter margin our ramp $XXX from

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

QX, was This basis volumes X% one-time a EBITDA prior For segment item progress, business while new business the affected increased XX.X% was and years. Commercial adjusted EBITDA XXXX. year-over-year. increased by more efficiency by X.X% lost points that our Adjusted as as from well of were declined were XX up QX driven margin revenue than offset ramp

X.X% increased volumes points. revenue basis This increased XXX years. adjusted margin EBITDA margins and segment from was efficiency progress. by mix by by to XX% XX% while EBITDA business, lost partially improvement business grew new the in payments stimulus revenues prior adjusted by Government due of both for segment the as offset was and healthcare, the driven primarily This Payments of Government quarter. in ramp business Government well our by Our as

compared Our Transportation by from segment business XXXX prior achieved revenue all partially years. Adjusted business XX.X% increased driven Revenue was XXXX compared with and down XX.X% EBITDA for savings new grew QX QX XXXX, XXX business volumes to the primarily XX.X% and units. EBITDA offset growth points some across driven QX by was down ram lost Adjusted revenue mix. basis benefited year-over-year. short-term by quarter margin that cost

For growth mainly the driven year, higher cost trends $XX costs of six X.X% benefited the segment last that the unallocated million quarters. was by the past our our than appendix, detail XXXX. year-over-year we’ve savings by In quarter, included the short-term for QX same quarter

through ramp Commercial new trends losses. as segments Transportation to the forward remaining are business improve positioned we impacts, the work moving Our to continue the lap taper of and legacy in COVID-XX the and

the Our currently said over support snap, of federal benefiting down from Government have time. as pandemic come we segment which is will

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

healthy the we remain quarter position. liquidity solid a cash balance Our balance $XXX to sheet. and continues the with on We have of ended sheet million

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

was the line at Our quarter target turns two in ratio net with our half to the two turns. of leverage end two and a of

May remaining X end the secured XXXX. debt in of can As $XX due maturity our We senior repaid table, you of maturity the XXXX this is see of quarter. the notes million on first on at major

Operating mentioned for the cash XXXX. $XX Cliff driven improvement and working strong over the $XX And to QX by months. a the revenue, million inflow see EBITDA and an compared This we with $XX adjusted markets for for million improved first increase QX was CapEx was million priority. million sequentially and was X% quarter his As of being cash of refinancing an top We would of and the performance few $XX still the primarily free in flow half capital. million in XXXX. of quarter complete refinancing flow $XXX attractive. or the remarks, was expect is next

we pandemic. XXXX As in the CapEx due a to reminder, somewhat constrained

year to full good and QX move Slide execution, $X.X increased two sales we revenue and discuss XXXX. $X.XXX guidance billion. for year our in outlook between have to Now, range and full With XX our quarters to momentum ago, left let’s our billion

We and associated continue timing to the quantum of programs. with the get improved stimulus volumes to line both Government sight Payments of

to As to we could XXXX. stated programs as year-over-year, close in towards XXXX being flat stronger volumes compared before, drive these us in

to relates remain to it third will programs snap, in As pandemic expect volume then as conclude. taper but we the QX quarter, in strong those

raised In now a the terms expect of XX.XX% adjusted we of range and our guidance EBITDA to full have margin range, adjusted EBITDA, XX.XX%. year in

XXXX by adjusted was XX.X%, strong half this driven quarter. performance Our EBITDA first in the margin of the

and to transition QX then margins but EBITDA Looking slightly in QX. remain into normalize strong, forward, expect lower we to be as we adjusted

still year XXX We XXXX this result payment approximately retention. reminder, expected basis margin XXXX for bound revenue volumes adjusted will In grow the believe would business, free the and Normalizing cash and Normalized between have and government these flow. stimulus both we XX% expect to we and top-line of approximately adjusted points adjusted we said the EBITDA excluding short-term XX% effects be in EBITDA year, the a continue As as for of XX%. Act lap improvement. approximate to be this aid previously, an number to investments XX.X%. the CARES impacts normalized year-over-year that full would December stimulus in range the convert

spend changed outlook not our million. $XXX expected on $XX our our and spend $XX XXXX restructuring of million, CapEx or between have million We

want for my I new shareholders in close, as I and their associates, teammates have helped Before to transition our well thank into clients me support, continued who role. my as this

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

Operator

your Our first Cross [Operator from Cross question. Research. you. with state Instructions] comes Thank Shannon question Please

Shannon Cross

lost you portfolio and much. and there in I we growth on should wondering Thanks. very how about – was terms a given, bit business Commercial about shifting I you couple margins Thank a of can going what’s the talk and thing the then more. versus have

Cliff Skelton

is the the Shannon, I with and Yes, start the let parts revenue. two one the story, is sales think Commercial one Commercial, me net to

really of little If you lagged we’re strong this a success. and bit, QX the look strong some kind is a Government sales. timing; on at basis, sales, On of Transportation a envisioning sales relative very commercial really,

is across negative that just what ARR all And legacy, in And number as so compares, Commercial. we the Commercial see basis, net there and about running QX. you is aggregate, significantly a lot we of a segments, matter we’re the that X.X%, that On it’s see on the still on you very a positive seeing different net our coming that though measure back improved, can imagine, into in it’s losses. legacy and prior,

and timing, just, time let that it’s a to need it. more me So we But done. little let just add to color some Steve get

Steve Wood

Cliff sequentially he three month we’ve segment, talked that to and number about add that there that trailing basis last the positive has a mean, and increase in it, alluded improving one within metric. the quarters. in net And seen ARR about the XX activity for the his sequentially contribution Cliff that I’d I the now thing as Yes, Shannon, on to other remarks. well. Commercial commercials talked been when

them the of the about losses, losses. sequential business, said, of base driving a which we’re kind like net segment, are think Commercial as the to hydraulics of is than in losses big now the going about of that what about prior. number size the It’s being really get to right more then talked the we think as this the haven’t And the I end legacy in the we next primary business XXXX I starting number was about is of But last the And in XXXX number. as be And the XXXX. those see to the and year where now. the of twice just be legacy wedge you quantified year Commercial and that going half of number thin is to think if and terms And growth legacy that business, year, half secondly, those reminder we’re overall into, losses; size So, we the to the year. their in for component call starting metric. this going metric about I the there’s ARR of two

improved got got direction. hydraulics sales retention. performance, by in improved now we’ve So, now driven the We’ve by hydraulics, of the trend again beginning the of commercial the right both to segment, us driven

to that we that’s back as needed a onto to that the just line here. confidence XX. little that that us line. gives There’s growth sight of time move increased bottom get segment a more So forward, Shannon,

Shannon Cross

And have mechanisms it I think driving that regard margin, when their sales Okay. then customers with that revenue to, you as increased add-on both try selling assume business comp selling, your incremental to deals. well what’s just, would you’re do the increasing reasonable, you or structure add those to Or with programs? changed

Cliff Skelton

Lot of of volume, in volume. have is the growth different current whole a ARR way. growth But management outpacing the it’s and talent improved. to global organization, little – business is, improvement, increased has which of And businesses, game go or add-on frankly also business it our of sales project plan I by it, different in mean, add-on that NRR new stimulus – lot just and account with the a both it’s a improved the with in the the NRR, is leaders the quite there volume. we confidence, more portion It’s even that to bit it’s add-on

Shannon Cross

growth this various your about just overall, Do versus share rates of or much just the that how win is, question last you? within – Thank my better as think business just wondering units. growing for you you. I’m you’re then improvement? market And seeing Okay.

Cliff Skelton

Yes, model. say say It’s market I performance. we would sales – growing its have overall. different improved wouldn’t I its a

As the burning Steve legacy losses. through said, we’re

marked perspective, Transportation, both Highways deal. We’re evidenced a a England improvement in from seeing perspective retention by that sales and big

retention. it’s But, and through we’re for frankly a modestly waiting now X% confused sales to little the better burned places. to in just improving, now pandemic. better it’s legacy performance, the X% but markets, have of different And still So, through – and losses those a it’s it’s talking confounding COVID with burn

not market I it chuck would So, growth. to up

Shannon Cross

much. very you thank Okay,

Operator

Please from JPMorgan. comes question state question. with Jain next Our Puneet your

Puneet Jain

benefits Hey, I glad to revenue Obviously, performance may range. to see not year’s a like continue near-term from thanks question. the Government have versus Transportation, taking being next of like guidance sales this for and follow that much overall in could public into that Payments within would improve up How prior question. competitiveness comps stem my year? beyond flattish easy sustain the it in sector

Cliff Skelton

The do got says that you model, where’s in put the quite, the overlay on it cetera. in volume pivot your losses, burnout net question think legacy three you burn we’re the from the working. we’re And say, of partially And be so modeling, business it Where’s going is a base of It’s Puneet, there of stimulus we a you want off it’s little be would drop for doing business. But of naïve of, that’s what for here long-term. exactly areas edge with the great just base all well, about if unpredictable. into wrong. of the is to going puck for is know – what don’t comes do. stimulus the I is to expect going volume And of think Commercial space, for going, bit the COVID, attributable business bode know why recommend then you sure. the to you, COVID here, we alacrity say the Government back and that of to here’s et go with know really to would about your net doing base just Delta year-over-year wasn’t volume that tailwind some the going? said. growth you when question of the to where way Steve the it’s off. that’s that then to should we And variant? going model, sure But the And me think well. COVID what’s in But is we it’s problem where because to legacy your quite goes thin in losses, we it’d what exactly is here the all this when it’s that But I with to about growth off wedge. answering it on me for perfect then That’s you that in is to in Steve? you difficult think business it’s falls the what is which X% It’s the and we to say would this, got going base

Steve Wood

that. with Yes, that everything Puneet to just agree I add one I more cliff said.

think and but we’re business, of are out And term about of in driving I exactly as combination It’s talked in from to about, those on from we where it’s we we’re that thinking guidance. performance, terms combination of add in guidance, remain were outlook those positive new of our as both factors sales that benefiting obviously, But a some terms we’ve stimulus, short difficult tailwind out. divine sales. our thinking a it’s of about factors.

Puneet Jain

Understood.

areas. you to pursuing execution. you talk improved given technology How also balance But respond some investing clearly peers heavily are sheet going of tools solutions strategy? how those competitive? Maybe you And automation, like Like to M&A overall, invest sales areas performance to and – industry stay look constraints? are in your acquisitions that? to the in at about You’re in many the going benefited those from AI are if like

Cliff Skelton

Yes.

AI our AI the companies also and spectrum, learning, commercial automation partnerships several in we investing different some business. in are specifically across with machine So, companies

some space also the starting in fraud investing to but enabling in We’re not of outside. those sell in fraud fruit our automation quite that nicely to own also are us government and tools, but in just management, capabilities, some us bear internal helping

incremental we’re basis. It’s an as big not on well. doing a It’s So bang. that

We’re of about not making a lot it. noise

are two and and we’re don’t, with near term. our machine looking With said planful not we invested we and to big a we’ve to learning. automation, We the for M&A, respect clients want on bang So to all be AI along, paced. very in individually on

view market my term. market say watches confuse as what is, to they is, growing the growth to that you to say, so us, need of tell in can we won’t want saying do what organically. bunch by early will us And we the to what the And near or see inorganic yet don’t a M&A is too I

lots I support And of closer and off think off right a We’re where through it’s things if cycle sheet know the along is I and the fact, us you things got or opportunities, now. our and to large doesn’t M&A. way capable but going in position about the the And partnerships table, means things it’s looking will at talk of Steve, table. a adjacent here. not tuck-ins the But in the capital win maturity we’d that. a balance sheet, balance lots to few for we’re It That we’re other potential is we like not much doing to in that don’t say of mean way. just other very want

Steve Wood

some the of in balance the to near do that don’t of are constraint things to we’re I mean, doing sheet the do, a being some necessarily at I term. things that as look absolutely. our either Yes,

very, can we’re through and we activities, the about secured the working seeing we’ve in end think, strength to the existing then and I through of the significant this, allocate activities to allowed that fact more quality we talked CapEx very selling other business on coming as of clients tail that you’re are results. foundational start to some has our the that now now that how permeate

we’ve be invest before, time, investments in will It change. to and over strategic initiatives. So, CapEx – more new business as mix tempted our drive, will talked and

allocation. our we I’m think sort on not thinking range do about I the those some balance the capital huge sheet constraint we’re able current term. of a of to And about that things us viewing inside of is how So, be medium overall in of think to

Puneet Jain

you. know. good to That’s Thank

Cliff Skelton

Thank bet. You you, Puneet.

Operator

Bryan state [Operator next Bergin Cowen. Instructions] with comes Please question question. Our from your

Unidentified Analyst

Hi, deal to in and actually on ramps, My there? first of yes, that for last what sign you’re how terms have you can deals [indiscernible] currently, over the question, of seeing willingness changed clients the And characterize it’s three Bryan, might pace months?

Cliff Skelton

is Jerry, there a what there’s buy, think a that was what there. couple couple reception clients propensity you much think – I chopping I is pretty question? to said the

Unidentified Analyst

how the and that’s over Correct, last three months? changed

Cliff Skelton

It’s Yes, the space, you But by And public propensity to didn’t but a it’s a heart the buy. certainly, there of really the reputation execution game. or pretty was their been a not in say consistent. an buy sector and of A segment. propensity COVID. quality In to That consistent. answer, that little varies a answer Commercial there stumble bit price because terms industry by it’s or a that I of sell market is give and hard to frankly, varies in would increasing, to perfect the industry. of the dip and it the it it, of there’s bit, the hasn’t lot ability RFPs out becomes in our changed. And believe been pretty little

Unidentified Analyst

Okay, what are for opportunities under you then terms you great. currently? plans, And in do attractive geographies – which most and the international penetrated of think

Cliff Skelton

Yes.

if you Transportation we So see most the opportunity. a where think international specifically, business about

Europe internationally frankly in some South there’s do As towing just I deal expansion in some in America, earlier, towing see opportunity a in We UK. sold mentioned think more and we we that space.

But some primarily nearest business a big the see little So business, we bit in is opportunities really say the transportation two international customer ones I expansion with in opportunity in the transportation. are experience would those focused our popping our up.

Unidentified Analyst

Got you. it. Thank

Cliff Skelton

You bet.

Operator

to are for back further Thank this management closing There at no it I’ll turn remarks. you. questions time.

Cliff Skelton

today. the lot Thank other with questions has Analysts really going and very everything I stays know everybody And you. earnings. in the our of on been world, appreciate unpredictability of team with I the well. busy I a hope COVID

the time taking out of So I be day us. hope very with much well. to for thank you Thanks. everybody’s your

Operator

great today’s you. may concludes parties Have disconnect. conference, evening. a Thank This all

Conduent (CNDT) 6 Aug 212021 Q2 Earnings call transcript