CNDT - Earnings call transcript Q3 2021

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Operator

Greetings, and welcome to Conduent's Third Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Giles Goodburn, Vice President of Investor Relations for Conduent. sir. you, Thank

begin. You may

Giles Goodburn

issued operator, to and hope joining you, press everyone, had thanks, Conduent's third today release, our discuss review We chance us this quarter afternoon. a Thank to for earlier XXXX you earnings.

Skelton, today the as will CEO; is and president me as and Steve for will Cliff the walk provide our Joining you outlook. of our Today's a our update. Wood, results CFO. and as well providing then through Cliff is financial quarter, agenda follows: Steve an overview financials business a

will Form the is was the release, take a Conduent Investor This as well X-K. on well We financial slides then the website. webcast, of press on your the filed questions. information, package, as with as call copy are detailed call, available as being Relations the This the used SEC metrics of this during section afternoon and this

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

see over Cliff. them, For more please our to the for call now, to their we information usefulness definitions measures well to comparative use non-GAAP purposes, press I'd of like our release. turn the how as as limitations And and regarding

Cliff Skelton

earnings Giles, our you'll calls call. deliver today. you, interesting you we're Conduent's have a talked to as come commitments with, we and timelines all as of QX earnings well. also appropriate with also that Thank and Welcome on I hope XXXX. consistent proud in. which we times from really it. us I'm that parameters well These report Conduent we hope start we're certainly everyone. To I at staying about, both to debt more the expected. refinancing, to quarters the where the great start we quarter to all pleased It's was QX the as on, continued to recently proud completed previous the performance everyone's good previously of, and live afternoon, you in of we are and go to It's within

And a year. Of bit the the we'll on addition discuss course, accomplishments moment. little in that how about some a we'll discussing the refi, in remainder to then, today, and touch here to QX feel of you talk we about recent and

one-time, came in QX Meanwhile, efforts remain of had XXXX. So, performance Margins $X.XX year. slightly we from year, QX came prior and last to in to similar XX.X%. compare normalized these QX similar when year, X, very last the year-over-year quarter at temporary over at it QX we this EBITDA to our you quarter savings strong had compared $XXX in cost and on year, cost-saving a turn of if when Slide virtually year, at see basis to that billion, the you'll you'll million, and revenue unchanged flat for up last

government business. by benefitted somewhat strength Of our the payments course, in that's

so brings delivered billion. over That's year, $X.XXX a X% and QX business $XXX that's new million. prior year-to-date increase obviously. to sales, our That Regarding sales far,

quite all individual remainder be And across in really for As really quarter, really new XXXX business XXXX you we for about we of feel but in into the any TCV bullish anyway, segments. XXXX. good sales, know, and pipeline in - business can think lumpy the new a sales signal that's

the is New with in that is year, at Again, revenue think this QX. key ARR the what contributed variation timing was quarter, also is prior really improvement business deals up $XXX always and our want versus ramp. really given look each ARR million is that's million, at gradual belief future you of is growth, what in $XX annualized, because to what and in we to

XX discussed, some Finally, trailing occasional fourth past, which quarter. net ARR to $XXX up of the you lumpiness we've compared months quarter this This net metric we've that expect while million. positive it's our last there, you to ARR. was about XX% is in may metric And that talked is

we'll once like continued it As growth, This or other used indicator rate. the is like QX, exceeding in retention an growth talk delivery, service really strong pursuit past, of a our you've operational focus meeting of and important indicator and legacy in past, highlights much the losses, we've a we and emphasis about we've metric outrun client metric for minute. on quality and an ARR more of metrics uptime, net really renewal excellence mentioned important. expectations. other is it's that It's because in use, folks system items, with In it's this other indicator better like particularly a a other - than

we on privileged efforts to from we've associations, analyst to before, in and which by learning, of With here accolades recently And on we respect focused received data that AI the and machine to to a various a are groups, few cloud. clients indexed to technology of all particularly we're public moving lot just highly and slides. and our Finally, regions, see continue efficiencies center you'll the focus solutions, private enabled have enhancing our on. investments, you about consolidation talked

imagine, pleased the you a and XXXX completed package. we the we're than the as our before, of of priority, as refi, key XXth. construct might Finally, was the October timing on with and facilities This, mentioned I debt more

this XXXX, maintaining to underway. the with all good to focus this and on momentum of now to in we're us, XXXX finish redoubling effort had Importantly, launch next growth a we've necessary behind point activity our a phase strong our

to can revenue, individual net new X, see consistent any recurring possible turn lumpiness quarter. despite any in and you you'll nonrecurring might If in Slide annual the business performance you notice

that that of I mentioned, is us bullishness as right pipeline now helps levels. $XX in our opportunities than really Again, our for As in billion in ever our high-quality XXXX. of mentioned, out terms better confidence

mentioned, which I a losses, we're in materialize really just up not The for that possible a the to back measuring lost, includes we those going quarter. this remember X deals what's the of any key been that growth. like positive metric, contracted minute, revenue metric. everyone net activity as I'd ARR best just recognition been all-inclusive. and approaching date, legacy to XX-month we've this quarters won, is each go subsequent metric is changes. thing In Let's down, is particular here indicator price and and to for the to growing and Steve's metric here minute once the volume fact that, while we've rapidly And that, outrun we it's you changes tied this It deals is trailing is

client six quarters, the the Our driving strong is better combined that for strength with ARR last number. retention, in

quarter, is and as to work X you this momentum continue business Slide a you'll and indicate to the intend easily app in strong are Award for what to recognized solutions journey. these enable digital done Excellence we've in like of that recognizes focus On customers which manage achieving outcomes we've continue. our note that's on a awards their get an mobile Many achieve, we're allows to continued momentum discussed, to acknowledgements clients we've inclusive of Each relentless this it's accounts hard our to that tolling also and the deliver smartphone, that to notion X, beginning examples awards on a a show this that we market. Whether President's ESG, were market improve we experiences, Toll Innovation, expect and that. all we're culture. end-user told their straight EZPass and exactly payments the winning going they're always of pursuit underway, or of the for had what for and new of Meanwhile, better we quarters. We we

do, And excellence. proud progress over made Of of. each be quarter always folks XX,XXX time, am team present but course, really far. can't of I those will pattern you more we've to operational the associates how consistent another tell proud this achieved of we of growth can a there's winning And I in so and have success increment all of will of

certainly through detailed the Steve a I'd your So, again, like to time view turn the quarter, financials. of Steve? really or take listening everybody I it to And today. more today. lot you appreciate appreciate quarter's over to I

Steve Wood

Thanks, Cliff.

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

to with Adjusted year of expectations, COVID-XX. year, was $XXX increased in Ohio $X.XX segment, year. We down including to EBITDA in lost associated increased turn from results, revenue and with was the with volumes down business discuss prior-year at Government announced in internal offset and the as year This our revenue million, and the the X cost new Transportation over quarter business benefitted our the over segment we from by Highways some benefitting Let's P&L. starting finished previously XXXX ramp with savings with QX years. line England. Slide pandemic our prior billion, implement begin X.X% deals, temporary X.X% Lanes flagship quarter for Revenue our compare from SNAP

$XX driven adjusted the XXX approximate decrease margin margin medical above that in offset and Government XXXX. This mix with down segment EBITDA for mix revenue benefitted was lower XXXX, Transportation revenue Our million and was our savings benefit in points from by internal EBITDA QX an The slightly QX EBITDA expenses. our of cost expectations. was and segment. adjusted Both in compared our quarter XX.X%, employee were a by favorable temporary basis partially

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

new Commercial X.X%, our on appendix performance. primarily relentlessly trends to we rate twin in offset segment lost driven hydraulics continues better For sequentially the business focus client from revenue and by ramp. QX, the segment net the segment, Referencing as declined growth our partially presentation, to years, sales the revenues retention prior our Commercial by improved in of business improve

adjusted primarily EBITDA down quarter savings for adjusted cost while revenue QX driven year the over was of XXXX, year. Commercial This For by XX as basis the decreased margin points segment, that X%, well benefitted EBITDA the short-term as XX.X% mix. was

Government revenues volumes pandemic lost our Increased X.X% increased business business SNAP quarter. prior years. from offset government in segment for the Our payments

XX.X% of lapped well segment for X%, Caymus by increased positioned basis quarter is the margin the Additionally, was healthcare adjusted runoff by EBITDA the contract of margin by revenue improvement growth. our driven and business EBITDA government mix. increased third the Government during adjusted XXX this points; while

continued year, quarter, cost XXXX. growth Our by Like tolling XXXX. Transportation segment this years. by revenue in Lanes Express XXXX, segment down business lost QX points primarily temporary I-XX VDOT by from segment including QX prior quarter, well last Transportation from XX% we and savings and our basis ramp, compared down Transportation contract. grew EBITDA margin volumes EBITDA England These This position Adjusted X.X% was This adjusted to partially contributions the Ohio that was driven was for Lanes. as high Highways tolling which XX.X%, an benefitted In we and exit quarter win, revenue XXX contracts was point with over was business was compared our as the Virginia QX announced offset XXXX. margin as mix. new for points well basis up new increased sequentially. additional the domestic XX as year driven XXXX, significant

expect margin in We sequential EBITDA QX. improvement

the unallocated expense the the one-time costs quarter, included a which $XX For item. impact million, of company's were

while efficiency our delivering through continuing account and sales continue our We and estate invest in to management real organizations. topline results expense, across infrastructure drive to

segment quarters. As I trends X detail mentioned our appendix of the the earlier, in year-over-year included for the past we've growth by revenue

and impact sales. reduced are positioned the business to to forward, Commercial legacy lap segments as ramp losses, moving trends we new from increased COVID-XX Transportation effects, Our improve from in see continue and

currently segment support federal is quarter. from benefitting Government taper as the we have Our said, of pandemic SNAP, the will which during fourth

on losses. as refer move I sheet, I would it beneficial legacy we before balance to size losses and thought the be the to Finally, to

activity losses approximately will These presentation. legacy which metric, metric. prior, excluded As XX-month and are in net the number losses discrete not as of is that notified $XX ARR these XXXX, are halve of XXXX therefore, in approximately the and activity and a from halving our in approximately to losses definition our million, in included ARR to these part is XXXX reminder, a XXXX again trailing in effect $XX set million. $XXX to net The our million, legacy appendix of

the As a of new ARR in addition onwards, impact reminder, XXXX changes wins, a XX-month metric is in contractual this of notified trailing activity business annualized measure net pricing volumes. losses from ARR and to

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

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

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

Our maturities net and Term XXXX, of our turns. with of Loan of senior line between A ratio notes XXXX of as completed and a X $XXX in new planned, XXXX. of at due leverage debt due the a target million in quarter $XXX million On secured refinancing, $XXX debt XX, extending was Term in consists October the Loan our in end XXXX, due B X.X of we X debt our to XXXX. The to turns, structure

Sequentially, as collections well adjusted filing the a XX. lower million, we on to our be quarter the impact in expectations. the year, as of the SNAP of XXXX, found was taxes event internal part maturities over million timing the Operating our the and of Additionally, QX of payroll due subsequent line flow for as Further cash Term in on Operating pandemic year transaction $XXX details of flow with to as the will deferred related benefitted also than free QX closing. impact revolving drew were Form which XXXX. was of facility XXXX. timing which cash $XX QX on QX in because XXXX have with $XXX an $XX cash collections XX-Q, A, QX million related we credit in benefit Act was operating was CARES our which inflow pandemic flow can lower same of both against cash of on Note flow including million, SNAP, and to Loan

was XX, Slide As adjusted I cash expenditure free quarter unchanged. cover will million, X.X% remains flow or $XX full Capital on on the for our revenue. the outlook year of for

to full-year discuss Let's our move XXXX. XX for to outlook Slide

quarter, of full-year We the last margin to ranges to we are at discussed reaffirming and with EBITDA the and XX.XX%. range margin in billion in range guidance revenue $X.XXX our $X.X revenue XX.XX% EBITDA adjusted billion the of

XXXX, sequentially compared as guidance of we XXXX, revenue our expect the QX slightly delivering midpoint higher but towards us QX, be range. of terms than In lower to to QX

above As we our to quarter, full-year adjusted of free adjusted our convert still we to EBITDA down discussed to full XX% last expect We EBITDA at guided the finish margin come midpoint of and cash or sequentially to flow. range. from year the expect QX

year. year Normalizing impact X% would to tax impact and payment reminder, XX%. would normalized payroll a Act XXXX, CARES payroll for approximate the be be approximately be over the for in deferrals, the made an tax CARES of As this number Act improvement both that December the XXXX XXXX of

updating downward million spend full now outlook $XXX for CapEx timing the revision on are projects. our of and year; to spend be expect XXXX this approximately We our reflects expected

restructuring to now to we we million, in the optimize spend Additionally, of spend range of $XX additional across million real and to opportunities as be estate take other advantage areas. expect $XX

Before support. I shareholders and to continued clients, thank close, want for our associates, I their

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

Operator

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

Shannon Cross

much I about lot you think very for go potential into just question. a of and how of my what's running can about stimulus year, taking things then this realize I'm you more Thank timing a bit out in - the curious, in that we plan time of at I the And but at and least could business. have through maybe follow-up. support are the help to you point can up sort air, if this come what's a infrastructure talk in the

Steve Wood

I'll Shannon, infrastructure on flip Cliff, cover some then talk to comments and I'll about Yes, the Cliff Steve. stimulus, will it bill. and

XXXX, concluded the stop we we about want of of back tailwinds, offramp the about continue the remaining come legislatively that giving we runoff stimulus to when the with taper September in stimulus, of pandemic and and I the we'll sort Commercial of see And we're had got so, come XXXX government think one back going effects rubric headwinds SNAP and as year, and end about some beginning effects whilst then of at we've COVID. of - that the that of the think back effects the and about some effectively be for program of short to of We've to XXXX. to we come kind QX. part in a guidance expect and look, next year, revenue So, clearly, - this element talking of clear, at is components dealing that we're of talk Transportation but that of going to that of are obviously as from witness the clearly

Cliff Skelton

But some timing one up one lot U.S., as Yes. in respect follow in about in we're highways, you the chain roll-off to just on, - some rate, workforce to as business, with automation think whether to a can And guidance are post the attributes there if XXXX sort to good return there's and bills come some repair supply - there's stimulus U.S., of management, and that focused Australia. on base guess into bode runoff, mine COVID, the and on run capabilities a little going in a are for have and back there's is how there we in the living on the interstate I'll as attributes bills see one those in XXXX. as but back infrastructure will. corridors, a timing government know start it's all stimulus it's stumble COVID you the in works. into not as the the school cameras infrastructure, do consider as XXXX. settling of that things good we in and the of - you there With three of for when respect one a again, and bit, And think - that just, all zones, XXXX, I with, bodes to Transportation your bus factors return tolling confluence Shannon, well But well. on along of - congestion good coming volumes parking well. Those we're The UK, year,

federal to decides of state, going the a we'll it. with they're into then start revenue We've allocation the We win comes the lot then, And win from a distribute. governments You for go to and to it. we out got think it, and state how bear. compete recognition then

that's We kind is and a think we of of some captured. happens of again, be When to that. just the it more capture that to matter going up captured, we're to timing a in of but issue. think lot a there when. likely air, So, is be It's lot there's a

Shannon Cross

you're COVID, what the just look to couple are in next of or seeing years? your thank given to coming trying we Can the that, benefits Okay, that? about as talk when - you for how should about all you general, restructuring increased incremental how you opportunities of you've to but thinking cost reductions, for at then, seen the not then, you I'm And about get guide you. flow-through of you benefit charges. again, least think optimization, from where increased And growth, year, next from

Cliff Skelton

Yes.

increase there's couple higher advantages, or - likely a SLA good what work-from-home that's on. you see some, focused environment, also going so see in compared folks it where like for also That stay be efficiency. opportunities where model, us. home. a a for in In perspective, that And and around many real a some on, we're performance that and We're And chief in restructuring that work-from-home, seeing a that's our thing heavy brick-and-mortar. good work-from-home by way, the cost. in efficiencies our good footprint is creates on some to contribute creates ways, the we got to percentage migration to, estate to things So that that home bit officer some focus create a to of But some opportunities in recruiting retail little that's to from a others to at a driving say, of restructuring downsize working us have quality and and operating we've we charge. also currently from work moving to and

the of migration kind with respect restructuring. to focused that that's So we're on

Shannon Cross

Thank much. Great. very you

Cliff Skelton

bet. You Thanks, Shannon.

Operator

Thank you.

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

Puneet Jain

question. driving it off number as taking the just Hey, Is sequential It ARRs? tailwinds in off like this projects on and a year-on-year, as - the the of lower be might new ARR thanks looks of basis. that the tailwinds some well might timing in quarter's Government was be like for COVID-related down business running my could pipeline, some or others running be of

Steve Wood

Yes. - Look, if look it's Steve. Puneet, you

isolation, a down a If you look on thinking it's at little in to the I'd draw about then it quarter think I eyeline year-to-date your basis. bit. But

segment is So it's the for year that. Commercial up us, And over as part nicely of year. quite XX%, performing importantly ARR,

quarter the full-year here. to a always, and bit little a managing I'll more add - let view, a whilst as sort So, Cliff on of down, a we're full-year of was

of as of you - the make as well so, just just year-to-date sort kind think I about just the sure And quarter. that Cliff? view, I'd - the

Cliff Skelton

ARR the But Commercial attention just other slightly pay year that net than and need up down In we're is year, it year in ARR, in all year to would lumpiness. specifically, XX% and date, I call date more to, are very to on signs. business lumpiness think actually X, those sequentially, really we Puneet, over Yes. the two ARR actually metric, really year-to-date up segments. I What that's anything. positive to and

Puneet Jain

drives your XX%, flow, of XX% how from where anything? think should year back talk cash about or flow for what targets to cash this that it free be of higher you goal Can to free to level? at medium-term free like flow EBITDA. level at XX%? can go And normalized XX% we And Like, cash like Understood. it used about

Steve Wood

CARES in be effect Look, was XX%. Act, normalizing got CARES yes, the impact the which And increase be well, if the you remember, normalize XXXX. the XX%, so that Yes. in would a so over of as it, of XX% out has XXXX Act it X% XXXX, would

sequential that's where are going other over the we thinking improvement, and we of drivers. midterm, we'll talk and be conversion to clearly talk to that and you, of are kind more this effects XX in want items that certainly, get like and with. on come about affected trending So of restructuring to months, But XXXX path we, heading. of we Clearly, some we're those are a in beyond year kind when by the about looking back last terms of year, we're where the direction we're at confident

Puneet Jain

you. you. Got Thank

Cliff Skelton

bet. Puneet. Thanks, You

Steve Wood

Puneet. Thanks,

Operator

Thank you.

Our next state comes from Shirvaikar your question. Ashwin Citi. with question Please

Ashwin Shirvaikar

Good evening.

little I But look decel that summer. because to regards kind a sort Transportation, of sequential growth going question looking was there would to more generally transit perhaps X.X%, I QX expect? with going being seems in of So is know of the right? weaker the XX.X% can that particularly I'm weaker when which be anything that than when to at at of a my here, down be I trends [ph] normally And else bit in one look on XQ at

Steve Wood

Yes, Ashwin, let me cover that.

a some revenue of QX little bit. us. on gone places a in a have couple where bit for right to just away. Transportation So, the were pushed moved It It's little did us hasn't

some a areas revenue, little supply you're creating this us it's the is Longer ankle few whether big contracts. Highways just other is and seeing of think Ohio I just into little get teeth bit that in of chips chain it. probably elongation, term, I or where, as around it's starting one my so to of biters remarks, England whether in we're these and and the a Lanes So said of for prepared

isn't also think out right in international recovered. I transit European pointing really yet that you're

couple us. right as couple a there going that to little were quarter of we correct, there's on items forward, a to moved back a going feel there But just you're us. to that move the bit of So are confident that things the are come in things on we

Cliff Skelton

timing, It's Yes. Ashwin.

If the equipment about Transportation is you business, the business, transit fact that generated. heavily our think especially revenue

So, And just as down, manufacturing and the a implementations mean, the it's It's not has the chip revenue and deployed matter as coming of and chain and revenue backlog. it's slows The well, supply done down start as slow getting is and is the the development all the to just back. equipment gone. implementations I booked. operational. slowed,

so, we're And up. It's catching coming around.

Ashwin Shirvaikar

supply you fewer Okay. still highways, trucks? on to And drive all for by just because truckers mainly trucking looking chain, are companies their these people mean

Steve Wood

getting I'm equipment comment customs, was my slightly actually ships. to of that. talking different equipment getting Ashwin, about through shipped, equipment getting off literally

Cliff Skelton

Yes. be being deploying we're England, lot work equipment, a where and they - Highways An example there's would development need done where we're of and chips.

line, not And slightly that so those two behind time behind revenue, line. behind time but things are causing project to slightly be

it's right. that's around, But you're entire trucks, It the the whole and ships, it's It's feeling chain mean, I the supply yes, same everything. coming is thing. environment. So industry

Ashwin Shirvaikar

of and that Got it. your cost give perhaps perspective, clients you're from of look efforts on And all is and capability could some a you kind is out up, color that getting how ask message a I pipeline to perspective, so if transforming from on? given at your yourself, shaping your us recognizing the it

Cliff Skelton

because pipeline just what ago. what's a the changed from million, question. I is were said, wish gross clients. confidence the billion, is for very flat, you in pipeline level, great we year we're bullish the confidence on a what amount - the pipeline to ask reasonably $XX asked The I us asked you'd is of It's me that, which $XX both had wish But I that. pipeline. and our

are that seeing to deals, moved in for confidence XXXX. of the bodes deals deals the in well last in right, the half slightly of which staging the in more we're pipeline of quality what that have So the the more the the is

we in get you these the see pipelines. those in near-term right of higher more what are now As what the the pipeline. move we're And optimistic. is know, likelihood And we that's current to the with in can seeing staging of then terms X-year right you confidence pipelines winning, like to anytime

in think both leading the is improvement operational So buy. technology appetite clients, from excellence to we uptime, more our propensity or more high-quality to

we've the so, deals we're got pipe on. what working them through the get to And booked, and and get that's

Ashwin Shirvaikar

Thank that. it. Got for you

Cliff Skelton

bet. You

Operator

back And that any turn to remarks. today's Thank you. gentlemen, management ends I'll see closing there's to they have and go it - question-and-answer if session. ahead. Please any ladies

Cliff Skelton

for thank that you, today. in I opening. listen, sure, I the the folks our thank operator, everybody the day. appreciate presentation. we about Again, includes But there, out and a that well you, ever-changing No, and hope circumstances joined is have great as talked

Operator

Thank Have disconnect. evening. may parties All a you. good now

Conduent (CNDT) 5 Nov 212021 Q3 Earnings call transcript