Conduent (CNDT) 3 May 232023 Q1 Earnings call transcript

Greetings, and welcome to the Conduent First Quarter 2023 Earnings Announcement. At this time, all participants are in a listen only mode [Operator Instructions].

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Giles Goodburn, Vice President of Investor Relations.

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

Cliff This and Wood, Investor President Joining the financial X-K. comments. Cliff follows: financials then Form you closing as call update; an a will of results quarter, package metrics CEO; section the Skelton, the Steve is press call Relations as our provide release Today's with on Conduent the well of our of of detailed our a on well me morning This this and is the Cliff will financial are Steve his as available during information Web copy through and SEC is our overview being this site. filed as will were CFO. agenda walk outlook; and as webcast slides offer well providing business the as the the used as then

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

see our well the our as for comparative and use the non-GAAP please For definitions how purposes, usefulness more measures we to limitations information of press regarding release. them, as

And like call turn to to would I the over Cliff. now

Conduent's and here QX Giles, you, joining being We Thanks call. for earnings Thank appreciate good you morning, everyone. today.

some of our some As timing Steve, EBITDA, provide cetera. a of et bit will And and depth. into about sales, go custom, of the is and course, level revenue, high the characterize more quarter nuance comments

questions. As reach can shifted as team earnings. tell, we forego immediate to and with should here we'll of we've new out of migrate sell-side Investor you our set But perspective our to Relations folks follow-up free any as thus, to following feel questions always, a analysis kind

of will the events, with Despite quick our internal in of First, to beat in adjustment and our due Commercial revenue Government muted volume. get Again, business, and have should expectation but we previewed top both These is that in this help will, the XXXX. that positive growth part in into line we investor offset period onetime changes let's start client-driven Steve do March. of in partially our details, the and businesses, which briefing some they revenue those, and somewhat trends of the numbers. QX, in milestone will bolster view by all in specifically business run believe a our expectations Government late volume, a remainder continued, our Steve prior talk volume Transportation core increased growth about rate

trajectory. pleased especially a higher our that again growth year-over-year We're we've was and certainly with leading As improvements client in ARR which regarding the $XXX discussed past, indicator in number is at retention. net million

for we're Slowly that but XXXX takes stimulus past previously surely, some in volume spot sweet XXXX range time. you. However, outrunning from we that and out the outrunning landing and growth government laid

the pain of and expectations, bit a milestone the puts settlement. But I client about of changes note and talk takes look the by and primarily expense the essentially those internal discrete, Regarding driven in a little EBITDA, regarding legal as favorability we before segments. at business. will exercise. onetime Again, adjustments gain Transportation are bolstered our the exceeded Steve

project Our new we leadership team in Transportation that level operational discipline installed portfolio. more as set

predictably QX were as earnings year-over-year sales investor business briefing. referenced our in we and lower New

know As discussed, was we QX we to promise to opportunities some and We as sales with strong expect enhanced give QX and in some opportunities late you QX however. large QX, and quite that pushed and beyond. QX performance us see bracket do

and segment of based overall pipeline know, base. contracting it contracts, regulations. public on the But strong have can especially back timing is and across in the you As the entire forth sector, some meanwhile, to building

slowdown but taking simply on in cautious. appetite, modest economic but our the whether answer put line slower the capital is sector, to ratios see and RFPs more the not outsource appetite a Liquidity are makers discuss, more Steve always, with The is remain It's sales. and Now decision a fewer commercial in we time we often or sheet, don't detail I'm public of to little sector strong. a certainly time see is ink consistent affecting allocation do in our contract. strong very appetite reduction to paper asked the leverage ranges. a in as balance will

we're the future, we March. force in described Regarding late as in

significant business base health care payments. within time real rails described and opportunities, that we especially the in Our continue Steve and see is to government

speak. new some time fact, as solutions payment disbursement we In rolling real we're and out

we We And portfolio rationalization believe it's definitely discussed. in journey, continue opportunities to the a we're also underway. while multiyear

our being each work. culture, related a proud of place great Finally, we diversity become to to quarter, and progress increasingly

hard leadership. take care I'm remainder hard stay employees and know, our look business We for a thankful not I a I'm across strong with to work you base its people appreciative client great and As flock and XXXX. to working of of with also and day our but brand a and every most to or the its globe culture their forward a associates XX,XXX efforts. of

Steve I'll now financials. to detailed for a of turn the it over more Steve? view

Thanks, Cliff.

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

and Slide X sales key metrics. to turn our discuss Let's

specific results how expectations with in and we sales that as briefing. out and sales investor and pipeline macro which earnings pattern were and quarter we our briefing next investor growth partially QX fit our out we QX in commercial Commercial into compare budgets playing a lighter near sales would tough in This our not Our in referenced the stopping was year light. of slower our as our term adjusting very In build expectation their we XXXX XXXX. we in expected managing QX messaged anticipating some be line a build where the a from the additionally, saw lower clients to quarter slowing, to segment, Government but were pipeline we're recent know driven and their deals, Transportation our in to XXXX QX be typically importantly activities. I procurement compare RFP QX, than factors, first expected timing attributed again some called we the strong prior the that of presentation or we Similarly, and in saw for as and

land can that as the let flavor expecting Before I QX we've quarter, to into half, be how give where to said individual as talk because about plays the quarters you before, a we're and lumpy. first me

was were business drivers of QX. the quarter ACV this our in in XXXX, revenue, the In impacts recurring was stage range briefing. a QX to achieve strong in close on from commercial XX% terms stand-alone, compared but for XX% of deals prior were TCV at XXXX, business in the second some first We new slipped first X% expansion us would at would performance at signings laid where over of additional somewhere long compare quarter our late to we million. APAC keeping deals, to as large expect in some was of with out activity we and half net QX expect other impact XXXX expectations The or the of similarly positive XX% The we effects being in There losses, our grow Annual in play half this target changes, a same the were in as strong to the measure pipeline ACV just This European down ARR $XXX Most of put combined XX%. that very and XXXX. our $XXX the which also CX growth handful QX sales investor sales segment metric, and QX from the pricing compared QX million anticipated. was behind to into us to businesses. again the wins, of year, down signed term contractual XXXX. $XXX ARR, against down XXXX. million,

notification will timing and As predict XX of measure fluctuate a month this reminder, timing on revenue, not the does such, as of quarter-to-quarter. the from but is based trailing

recently. our losses notified some laid of themes levels We the in also experienced briefing we out lower with of consistent that investor

to nonrecurring couple on of on X. here accounts up or add-on of new existing a sales the of the implementations such well extra slide, to covered was revenue, driven just We've QX revenues, into compared on. slightly pointers Slide XXXX. NRR, to Nonrecurring Turning comment as is NRR deals. by many certain both metrics but previous as as as categories

lower strong levels was into the logo quarter in existing business despite of add-on Our new the accounts sales.

quarter large contract of X.X years, signings quarter. was average the in reflecting length lack the Our in deal the

slightly down $XXX year-over-year discrete affecting double from smaller compared million. was for couple the XXXX, Slide QX on to million tail approximately million little positive Adjusted and aggregate, of bit of impact couple internal this as compare when stimulus to a with X from QX in to click items into rates cover revenue QX discuss of segments, interest of government headwind expectations. a I'll X.X% our business a XXXX, our a $XXX was of XXXX currency. constant year-over-year and that X% or onetimers quarter in some and And turn still now that QX in Let's BenefitWallet financial of our But was results. in offset There's items. $XX XXXX million given the ahead $XX the we about the

we what the of is we're period now consistent in transitioning we're within you our $XX this a if So flat, the long back, said. downward investor peel towards underlying will briefing. of But net-net, being business where in year is through which you ranges moving million sequentially take from those growth that with we've for outlined most transition the then trajectory and a

compared to $XXX and XXXX, some as quarter were the aggregate, when the year on guidance get in the margin deep with quarter minute, in we QX But progression for adjusted our was X.X% a to full expected million out segments. laid the year-over-year $XX see as progression million XXXX. was when you'll and of how X.X quarterly the points for line QX in we EBITDA unusual earnings we the down the as it's items we EBITDA margin There in in quarter, you dive Adjusted what call. for XXXX in compared

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

to For XXXX, $XXX Commercial X.X% compared approximately currency. segment constant QX down in were adjusted QX flat and XXXX million, revenues as

second As the an included was that of offset the out I quarter quarter quarter million said, the BenefitWallet million a in merger. of expect drops year-over-year compare away tougher that we business $XX drove our and That ramp losses bank new effect business XXXX the with in to segment. top was show went some line a healthy, on but final when of due increase compare $XX modest a growth year-over-year next to and Commercial this

margin 'XX million, basis and for QX contribution from was EBITDA compared year-over-year. was efficiency. through the XX.X% XXXX the work QX was along of $XX as on up in the XXX Clearly, points with segment fall BenefitWallet continued up operational significant a Adjusted to EBITDA Commercial adjusted XX%

to error compared losses, services year-over-year revenues the QX was removal QX QX segment, as all health the in XXXX Revenue to contains the immaterial, the the quarter. in flat offset $XX XXXX from runoff the which benefit X.X% in and for government This the ramp through million. that with government of were the payments originated result and business. implementations stimulus reduced impact was segment Normalized Transportation million, of the government quarterly of was of sales $XXX year-over-year adjustment, The us the and item largely company the of of impact we an legal quarter government out-of-period Government revenues million strong relating adjustment of believe EBITDA an which in adjusted the in prior high a The of EBITDA are million, in our of volumes in a settlement million, stimulus certain lost periods million was XX, also reflected the business XXXX. the down to down in segment for however, in portion December through For effect this This, business. $XX volumes a XXXX. reduction XXXX QX decline of impacted the $X discrete XXXX quarter. X.X% correct in care adjustment, year our included $XX quarter recognized fall from balance revenue considered cost items, behind out-of-period impact margin the $XXX the majority and with from now. year-over-year. the Adjusted of for government to were

lines. the will During leading projects are as This to certain to time recognized projects $XX largely revised along in million, changes delivered subsequent client revenue due in-flight quarter, revenue variance approximately year-over-year. for some the of time explains lines requirements quarters adjustment which a over the we downward be revised to

recoup the in is associated the conclusion expect timing certain to but we Additionally, scope revenues on the able projects this to changes be with uncertain. that of

the adjusted adjusted for million compared driven XXX% $XX the was segment, quarter adjustments QX were EBITDA. these revenue through above, pull margin the For in by items as million was with noted XXXX. which $X to And X%, Transportation EBITDA EBITDA to discrete

projects next to normalize Transportation margin year these the second to in transition the through the We a number recover as we quarter of half segment go-live. expect and of

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

unused a million is total quarter this the our revolving in with credit and total on completely facility billion with almost ended sheet, Our of cash $XXX available million point. position facility. balance $X.X at remains credit combined approximately liquidity $XXX strong and revolving We the cash

leverage ratio of turns is range increased our X.X to net comfortably X target to but X.X Our sequentially turns. inside

first of are revenue. was until and no maturities debt the debt quarter dated XXXX. long significant Our we have expenditure repayments X.X% Capital in

cash in As updated our software, to year this you'll have on updated noted our full operating we've Slide XX, spent compare see flow. well updating as we which include the this hits to capital outlook related On I investor product XXXX this modeling briefing, considerations, that metric as the in measure. now

XXXX, We federal to to which in we $XX million are awaiting still a related refund continue to receive tax XXXX. expect

to Let's turn Slide now XX.

unchanged ranges point. Our full guidance XXXX year at this are

our growth XXXX called material out of year we segment the our have view We no changes update. annual trajectories in earnings level to full

at targets. multiple on to our to modeling view in year our product Our Except for point have is considerations the is update at to year that all outlook investments three other all full include unchanged this metric, revenue also paths the software this in businesses the point. their CapEx

of of outlook note that amount You'll from presentation we disproportionate the quarter. our reconciliations during a full year in planned. was charges on the first This the appendix restructuring took the

full the year adjusted be and $XXX quarter, EBITDA below to In us and of be we has revenue probably of low this and half the and earned we're our revenue margin to QX first expect year. XX% in of and on range. revenue similar adjusted full million revenue in terms half we year first full our year, of XXXX range XX% pace Last expecting for around in guided remaining the year. $XXX second to million is half slightly quarter the this the margin for course this the second in

we've financial for year We peeled impact to exceeded how our year. it planned and review for several be with second comments. QX line accretive outcomes when to also away, in the the were Cliff hand items. and of XXXX, That discrete initiatives expect some margin half mildly back XXXX. I'll Cliff? But closing had of we through In cost concludes conclusion, the expectations any to our overall our QX full for

joining. you Thanks, to for everyone XXXX. Steve. QX Thank view concludes our That of

the long way in a As is I've journey. said, three years. We've come consistently past a this

see being ahead. continue you horizon bright us. Thank a We to with for