- Earnings call transcript Q3 2022

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Operator

Good afternoon, and welcome to the Conduent Third Quarter 2022 Earnings Announcement. 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. the Investor to Relations. turn Goodburn, host, now President, Vice will conference your over Giles I Thank you.

begin. may You

Giles Goodburn

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

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

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

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

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

Cliff Skelton

us Thank you, Giles. Welcome everybody! with Glad have today. you to

by Let for saying good me QX that pretty felt begin us.

$XXX expected. expected and came Our than XX.X% million slightly at both better $XXX adjusted adjusted margin, with in right to revenue it a where EBITDA be million, at we

So very the given days. experiencing economic out, how we’re QX came with pleased especially these conditions all

Our quite new signings business were at strong ACV million. $XXX

sales of at QX’s account positive One teams. and best activity the from had, ARR we performance, our overall our so million. liked Net especially to we’ve continues management be $XX

want from in means we’re win, I’ve activity selling and individual quarter, in loss what net you it or or but the One historical especially off-boarding more trend. we is Now a positive we’re sector, every is can number quarter-to-quarter, that skew as will. public if the to ARR the any losing, not be metric to past, because see lumpy discussed going quarter, than

In addition get strong moment. for a public well we the see to that future, a sales going pipeline to bodes sector. in also Steve having is quarter, that in an especially here the into expanding

public sector. We’re of a especially the the on again, lot optimistic deals also horizon, got in we’ve big because

four A a operations, and as other land digital these, leader were of of These in We expect AI meaningful. proud categories in key media. to categories work-from-home all We should were in a and we’re be that experience few customer which named QX ISG. social highlights examined of: quite by couple analytics,

among Newsweek named five a all four XXX Conduent context, little experience put in or of Top Workplaces. XX-plus achieved companies XXXX customer reviewed. only to Most that leader Also, categories in its Loved out Just four firms

This is and from If of all you given think number about industries sectors. it, that’s the remarkable evaluated. quite all companies

quite the in finish So to XXX feat. a is top

what’s We’ve the of business. generating economy, capabilities in expand bills our future strong happening office. and necessary tactical and leadership idea government of clients taken to our domestic with at pattern marketing new sector, We’ve the back current and not some our which include bills and more massive we to the interest forms growth pay through industries North in our our thus Now, business notion rates, opportunity; a for and of just Remember, for wallet faster impacts to team end especially what’s and the sales doors come. base ups in strategic have horizon us end retention, clients. are client cases We the considerations tolling. happening utilize on international marketing certainly are there align lower solutions of from transit our integration begun and exceed to in leaders stood made actions referenceability new and we our and base companies just running Nevertheless, characterize downs out logos; of team. line that of new that development, and strategic and sector. digital planning. especially of opportunities transitions foundational all as are in likely factors several a unique happening how here, including here, yet. The our real-time There have with we’re to so of technology from is to of our public revenue for not work, recession here many to are the lot are it planned teams and macro-economic millions a solutions lines to capabilities, regard or under our customers. and where consists growth. our that path. public point technology leveraging team, product, we’re changes establish separate millions and These there’s other that better more not health in relationships their bottom public utilizing for share getting to our relationships, a and the growth in this customers cost to business hard Those time a and along their integrated light attracts that transportation We’ve our client into penetrate technology-led up of what’s technologies utilized, of entities competition America, in don’t our new roll while to of Also, open payments opportunities adequate that, The the day being care team our clients. payments specifically know we’ve easily to

We have the horizon. on near-term those

opportunities customer to continue also large We in see experience.

the been are especially to segment. outsourcing the in we’ve drive our selling, retail commercial the pain, in now And areas in are struggled volumes and a and reduction with are to more feeling products means companies as digitization. now While open other some enhanced past have cost

For QX, Capital new across Solutions the six example, XXXX, logo deals through Human closed business offerings. its has

stimulus off are at Going it higher suffice losses to margins. forward, and rolling say,

Given areas and we’ve got and of economic commercial. even non competition in the to more public sell sector deals, CX price high landscape, value the especially

rigorous implementation as some driving which a backlog more be must of on are we When waiting big We will, we with efforts of is we deals, win sold revenue to these execute there perfection. near implementation completed. milestones the

go must faster. process sales-to-revenue Our

our business We are and in shared especially services. streamlining further from expenses our

especially footprint into what in must real-estate much settled shrink predominantly model, as we’ve While work-from-home is the a it our commercial sector. further reduced, is

we and slightly terms, than year And headwinds so. plan, obvious But year internal to our to speaking, is primer analyst investor the demonstrate to or expect strategy either continue in see and a Relatively tailwind will up slightly buybacks be come when economic next from no which business and QX, be uncertain significant and the represents to year the decline in three flat we we debt in growth. the in is that substantial in be will equity components allocation, the in expect journey the to XXXX presentation, finally, capital stimulate but in Regarding future, areas in stronger more while opportunity progress. next the optimistic we And it challenging. and/or investments, to comes the to our XXXX. our that

to We pruning hope few describe we soon. also see you a to events

in We’re Board decisions the will with these and as you discussed previously and spring. to the go be with in deep prepared fine-tuning December we

of lot do, So, to a yet opportunity. lot a work of

you was from accommodating, take we expect prior continue conditions tell teammates, and to customers clients achievable long We With can thank us all is of control we a and growth your detailed faster and are then and Our today. a substantial for will revenue through QX and time at our more we you that, you to come years plan achieve moving this from it. way what wish bit and more Steve we’ve look what external were will to but and me end resilient. beyond, ask little Steve. a decline, let

Steve Wood

Thanks Cliff.

certain similar in GAAP appendix the non-GAAP adjust the practice. are As past, is past we divestiture. The we like would non-GAAP and our I that the in both to the numbers. This for point and presentation. filings have in reporting out done are measures reconciliations of to Midas

Let’s to five slide metrics. key and discuss sales our turn

Our to XX% compared sequentially the sales approximately key we and have quarter growth was metric XXXX. in primary as posted ACV metric for now X% QX, grew past this the sales also year-over-year Year-to-date of up up $XXX segments strong of XXXX. XX% It for five sequential quarters. in again three were we with first ACV posted sales are as the to three million ACV. increases we once and commercial the All attainment, segment quarters compared particularly in

QX, effects opportunities the the compared were already built long-standing they QX, activity quarter $XX is to currently revenue our down was protest contract our X% understood formal up the how and the driven compared New Both X% XXXX. the segment. a these for government the the pipeline metric as by guided XXXX renewal TCV client, in other of discrete the approximately that the transportation The for Their as combined this year-to-date was down, as price importantly, beginning are metric is positive items contractual anticipated, but on changes compared well adjustment commercial business late-stage into quarter activity as the notice ARR combined Both measure XXXX. expectation XXXX. the a to was the year, ARR segments of reflects on and to pricing segment of segment ARR and the to termination, and to losses, digit wins, up up impact in government The termination was decline. within million. up strong. former XXXX X% but as government The and items compared sequentially. also both a net latter. seventh I net have was been most inclusion The of for of at was in period of expiration and mid high single extremely reduction a metric, as year-to-date quarter-over-quarter is remains and

slide sales Let’s metric key of six turn the some now to and trends. discuss

primary our five ACV, I trend earlier, business As quarters. metric with mentioned our is sequentially for encouraging increasing past sales the new on ACV

for TCV segment This quarter-to-quarter sequential between QX, the well Our XX% strong lot coming year in compared contracts, as XXXX X% average decline fluctuate whereas for of have reverse past, contract XX% of we as are far so those function QX, given drives to segments. three in a year-over-year to will X% as much lighter was segments XXXX. in duration. of typically a the significantly we average NRR a deals is sequentially the which expect as length. as deals and in year-to-date Commercial up and ARR in government in growing years, quarters. TCV, compared to The the change up government compared quarter transportation XXXX a and variability year-over-year. to is about mix longer the as It was said in ARR

our revenue unfavorable QX, European the to QX, more impacting international This Now transit headwind earlier, we million our discuss QX our expectations and quarter considering in when out commercial slide compared during and and financial expected turn line to where mentioned XXXX Overall, let’s to businesses. Cliff against guidance overall $X QX better it slightly guided that $XX our earnings when when results. was and call, with you rates a revenue million as where finished during we XXXX. headwind we an laid exchange seven

was the quarter XXXX approximately stimulus constant revenue terms In in year-over-year This for numbers next currency. government and QX, the was XXXX million. roll The XXXX, QX, themselves, the as XXXX million. expected the X.X% versus to quarter one-time adjusted number to in is $X.XX year-over-year to from down in the million compared X.X% rolling headwind or of from quarter, billion $XXX is volumes largest off be $XX off $XX down

QX, guided down compared was impact which the margin the from in EBITDA Within how which cost large for a client, one-time QX. the quarter rate and $XXX loss volumes we the get benefit driven was $XX down margin Adjusted that BenefitWallet revenue slightly we quarter, XXXX from expectations to for a minimum the commitment favorable QX, revenue stimulus quarter, basis repeat points XX.X% from did as sequentially interest but million of in million in work our was anticipated EBITDA adjusted Adjusted business. not XX.X% largely of a by a contractual will roll-off year-over-year, EBITDA more driven the our included efficiency again, ahead XXX internal ongoing by XXXX. was mix, from government and

go Let’s now eight turn results. over the and segment to slide

volume Commercial XXXX, up million, revenues the adjusted QX, segment segment from mentioned X.X% $XXX For benefited The minimum were year-over-year. commitment earlier.

EBITDA BenefitWallet as $X points. our million XX% well interest quarter business. reflected compared EBITDA the efficiency noted higher wallet to up exchange year $XX commitment of as XX.X%, Both were XXXX. higher impacting million, basis XXX was for the we positively compared the to rates and incremental quarter earned the programs. and earlier, Adjusted cost Adjusted interest our impact prior the million margin benefit business volume Foreign rates on an was QX, as from up $X as headwinds in

for revenues in Within the that Adjusted higher is of the to the I compare was impact, were have impact Government about business underlying by quarter, the base of noted the million would which against segment, largest Removing X.X% for EBITDA been quarter XXXX. year-over-year. XXXX. year-over-year the XX.X% earlier $XX compared as revenues The runoff down stimulus government million, our segment in $XXX XX% by XXXX adjusted government from Government revenues efficiency the up year-over-year million $XX including runoff million, Transportation impacting exchange stimulus XXX QX, volumes, year-over-year. business. points headwind year-over-year, this international of the partially were margin of adjusted The quarter in operational million, XXXX approximately was down foreign reflecting down transit segment QX, basis a year-over-year, offset in was $XXX initiatives. EBITDA XX.X% X.X% $X QX,

adjusted $XX XX.X%, adjusted EBITDA up was For the to the basis XX.X% segment, year-over-year. up quarter compared as Transportation million, margin and was for QX, XXXX, XXX the EBITDA points

slide Let’s discuss and nine the cash turn balance to flow. and sheet

the the total million million completely balance on point. at $XXX We this credit very with in facility and position total $XXX is strong. Our is unused revolving liquidity quarter sheet almost cash ended our

is X which X.X our net leverage Our ratio believe of is turns. normalized below turns, X.X we to range

debt are position, the long liquidity In we have strength until addition XXXX. total to of repayments our dated, and our debt significant no maturities

our in capital event, as Cliff relative to strength. of a prepared at we As noted remarks, from to position his come opportunities get but primer see we refine come analyst and and allocation. More we our investor it to

I similar X.X% revenue Capital a and to during noted expect of As call, we percentage earnings to decreased a QX our yield as expenditure the percentage. quarter QX in

XX and outlook. Let’s our slide to turn review XXXX

a will of and in mentioned and seeing segment in some QX specifically, into the more Cliff started and likely XXXX, entertainment largely economic As beginning that we of volume be softness see CX within in specifically we’re earlier, and commercial headwinds. in some our factor More travel to the clients discrete space. are effects of QX areas

million headwind million $XX commercial level this basis approximately year less For expect larger having of a in next softness sizing, a addition approximate X% made headwind of on couple more is now to we a to in than is this this be post-pandemic and the an QX revenue call-out experiencing earnings our $XX This We of base. industry their volumes, slightly year. noted $XX when to we full of clients segment normalization Conduent’s year. volume million

we above of net segment the timing flat a reductions on be a million these approximate Therefore part at or an headwinds overall full quarter, volumes Commercial now further range of certain our us put at metric. of from impacts currency constant with revenues in Within $XX to point activity revenues the Transportation the previously incremental end combined client would as with expect expect be be we effect this in exchange, of our headwind. along demand-driven This we clarity, the well fourth The means these not adjusted within from expect QX a ARR segment as currency range. volume are these $XXX of foreign impact the level, As project of full now of to million year million. basis. $XXX slightly to guided low year to segment the

to business have ignoring continue programs expect XXXX. in the slightly segment approximately one-time We the decline stimulus would to Government benefit from in underlying which growing government XX%, XXXX the

is a As year-over-year one-time reminder, $XXX impact million. government the volumes the stimulus from approximately

for here a Transportation year $XX the approximately adjusted an constant to to million expect We full be be effect also currency. headwind. on flat estimate basis, The FX we segment

adjusted convert off adjusted full the restructuring or transportation the the margin we for Act. timing which noted inclusive X.XX% QX within deferred the revenues We difference up under business Adjusted expected to the Similarly, CapEx of our taxes free project still of our on the at cash XXXX. expect payroll of would paying is year approximately Some of XX% of midpoint be will guided likely previously EBITDA outlook portion above to on CARES in charges. not flow, XX.XX%, in us EBITDA are put to of the catch range. changing remaining range to

into in our continuing with and and Finally, expected event its planning later primer efforts QX, will our we are strategy investor long-range that December. upcoming inform XXXX in analyst

part a revenue to in be outlook rate by for or messaged we outlook that of and government. view talk growth we’ll without in decline rate the earlier, That previously our Our noted the of total adjusting December other financial being volume and Expect in offset expecting and the modest take XXXX, flat QX, current with Cliff. things, questions. interest that are around concludes the for the both more I’ll effects transportation for terms company, closing weeks some for those is into The commercial thinking around before timing how change further for to adjusted comments to about from more XXXX, informs hand exchange review and variability exact these for about for some it us then of communications. we in that capital hear our to in allocation. Cliff coming back more XXXX

Cliff Skelton

that it key for just Thanks, but Steve. minute, operator couple to We’ll just here Steve to discussed. a in the a takeaways over some I want turn reemphasize questions of

retail QX it, strong. was guidance, small QX on our recessionary the have headwinds XXXX. First, creating have above a end conditions effect of previous lower and us a in slightly modest putting volumes likely some XXXX like flattish volumes, will

Now breakthrough we things. be be have XXXX, journey. of all some said, out-years. we XXXX in sales that what in five We big expectations QX the would this to three a creating remember expectations into potentially a influencing said will hope couple and That please year

a or century, reasonable is recession more ago, it Steve net of Yes, nearly Now year-over-year conditions should pandemic company has do tremendous we but influences balance than the unparalleled for year-over-year the growth the even Conduent remains have interest we a flat journey is normalized this rates shape. progressed after amidst X% only recessionary-like that where of and negative when our positive a different on that three years positive are ratios Meanwhile, sheet an the liquidity. our of COVID, not sustained, that fully leverage growth years, we of total than we to but growth phase, short first billion year-over-year three decreases and from discussed, climate, and as and are $X in political contextualize just a more in expectation rising over next is negative. from impressive for started. manifested. Not both retain was we

We’re progress. definitely our proud of

it for open up Operator. let’s that, with questions. So

Operator

Instructions]. you. Thank [Operator

from question state Cowen. Bryan question. first Please Our Bergin your comes with

Zachary Ajzenman

This Bryan. Thanks. for Zack is on Ajzenman

How First how macro current into can views question pipeline. And and the informs impacted macro on at characterize cadence deal calendar that is point? much this you one client early uncertainty the and ‘XX? has cycle behavior also,

Steve Wood

over Hey influence Zack! seeing negative any pipeline of not macroeconomic ton Yeah, we’re way. a the in

headwinds would got little much is represents the got bit signing of mentioned his call on being to primarily pipeline in it In in the those more is parts. fact, respect a every if volume, can One, delays we’ve remarks, With also in do volume in into reduced of retail and the Where will as you it’s the international, sort our I Government we we you and mentioned business committed the where as Steve commercial. get Transportation more some being see a so see in is center the as a it earlier the milestone mentioned space, specifically deal near know ton. where been, in time in that Healthcare and space revenue. industry I prepared macroeconomic environments. businesses. Government specifically implement let’s we remarks that the perfection, that a influences because ever and in model, and recover through Transportation cycle What seeing than when deal these to transportation, we we break will control especially we call is of technology stronger some to do we’ve I causing in with deal to travel announcement the but space two recessionary-like line certainly not some to revenue from, we Government implement, are in time government of my

we over pipeline. the be to all that, and honest to upside with as relates you, we’re it So see

Zachary Ajzenman

client a Got it color loss. more in the helpful. sounds here? volume the Can our the follow-up original shed it, dynamics like just was metric to talk And metric. guide, ARR expectations, perhaps could bit about excluding these it’s that’s underlying the you on performed net and but how relative select on you is It embedded

Cliff Skelton

I’ll Yes Zack. take this. Steve,

the metric causing that the obviously quarter and the baked What said, already into sequentially of down But trailing so that the a we they’ve be those XX-month referenced how were it thinking the guidance is I in and quarter. outlook. largely to. the the we to into see you were fully way you on deals basis two we performing is anticipated, about the think as it in expected been effect things I

is one bit – little in perform examples a little where bit and front of segment up XXXX on messaged those So is that this and terms the in catching out to metric, it. XXXX, in of the how odd is this into how Government a we’ve going of the we’ve got

So overall, that is point coming we’ve our at and about expectation and continues pipeline be we net quarters, strong inked in ARR at business, government metric know that that positive in that a the hopefully got the fact the spike were get next to to healthcare then you late-stage very talked Cliff which those likely see deals up the metric again.

Steve Wood

wouldn’t the wouldn’t of the the I mean is overreact lumpiness a and is number positive slightly quarter, as a it’s I I good lumpiness due Zack, react that a long really as Yes way a to react sign. in positive upward, of number low quarter. big I wouldn’t to slope and - to

thought rolled we off would timing deal the it that it You one have. in had know

should number, You and a likely know see number. higher higher That’s future. a to not you any would to in when have we a individual something the you’re number not it’s also trend, seen react quarter much much

Zachary Ajzenman

Very Thank you. helpful.

Cliff Skelton

You bet. you. Thank

Operator

questions Skelton remarks. that’s we for time Cliff Thank have hand today. the floor back I’ll the you. all for to And closing

Cliff Skelton

us. thank Listen, joining for you everyone

growth in we this X% experiencing started years a There’s be negative definitely when very proud just much. a unstable to when everybody three you a company journey lot I’d our were mentioned lot for I I journey. year-over-year where lot and thank appreciate operating a that uncertain we today, rate, our to there’s finish continued associates, along our environment a and and of like opportunity, do. It’s now. mentioned, we the consider as and of shareholders to and to an joining Thank there’s their clients here’s future. ago different I As great XXXX. support

Operator

concludes Thank parties day! disconnect. today’s that conference. you. Have a great All may And

Conduent (CNDT) 2 Nov 222022 Q3 Earnings call transcript