Conduent Incorporated

Greetings, and welcome to the Conduent Fourth Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Alan Katz, Vice President, Investor Relations. Please go ahead.

Good evening, ladies and gentlemen, and welcome to Conduent's fourth quarter and full year 2020 earnings call. Joining me on today's call is Cliff Skelton, Conduent's CEO, and Brian Walsh, Conduent's CFO. Following our prepared remarks, we will take your questions. This call is also being webcast. A copy of the slides used during the call was filed with the SEC this afternoon. Those slides, as well as a detailed financial metrics sheet, are available for download on the investor relations section of the Conduent website. We will also post a transcript later this week. During this call, condo and executives may make comments that contain certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 that by their nature address matters that are in the future and are uncertain. These statements reflect management's current beliefs, assumptions, and expectations as of today, February 18th, 2021, and are subject to a number of factors that may cause actual results to differ materially from those statements. Information concerning these factors is included in Conduent's annual report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law. The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results prepared in accordance with U.S. GAAP. For more information regarding definitions of our non-GAAP measures and how we use them, as well as limitations as to their usefulness for comparative purposes, please see our press release, which was issued this afternoon and was furnished to the SEC on Form 8-K. With that, I will turn the call over to Cliff for his prepared remarks. Cliff?

Thanks, Alan. Good afternoon, everyone, and welcome to Conduit's fourth quarter and full-year earnings call. I appreciate everyone joining today. Now listen, at the risk of stating the obvious, I think we'd all say that 2020 was quite a year. It was certainly quite a year for Conduin as well. However, despite the pandemic headwinds, we are quite proud of how the year ended for us. As Brian and I will discuss in a few minutes, we delivered results that surpassed even our initial outlook from February of last year. And we closed out the year stronger and better as a company. Now you've probably heard it said in past earnings that in parallel to our growth efforts, our success is heavily dependent on the continued improvement of the fundamentals. Think of it as sort of the foundational rails the company operates on. And I believe we made real progress in that category in 2020. Slide four gives a bit of recognition from a few of our industry analysts who also see that our hard work is really paying off here. In my remarks today, as always, I'll review the high-level financials as well as the sales and operational performance in 2020. As a follow-up to previous earnings conversations, I'll also quickly touch on a new key performance indicator, which will replace what we previously reported as renewal rate. The new metric will represent the net annual recurring revenue impact from the previous 12 months of sales and retention activities. I'll also discuss what we set out to do in 2020, the results from those efforts, and what we intend to get done in 2021. Now let's turn to slide five to get started. 2020 turned out to be a strong year. both revenue and adjusted EBITDA came in higher than our pre-COVID expectations and in line with the outlook that we gave on our Q3 call back in November. 2020 revenue was $4.16 billion and adjusted EBITDA was $480 million, equating to a margin of 11.5% for the year. Now I'll note that Q4 was a particularly strong quarter. We achieved revenue of just over a billion dollars and an adjusted EBITDA margin of 12.6%. Looking at the 2020 results, excluding the impact of COVID, revenue would have declined 4.1% in 2020 and Q4 revenue would have declined just half a percent compared to 2019. Now, as you may recall a year ago, the revenue decline was expected to be much larger. What we've seen in the marketplace is that the global business services market has experienced a lot of activity over the last few quarters. clients are shifting work to global providers, especially those who've been able to deliver in a secure and remote environment. We're certainly taking advantage of that in our sales efforts. Speaking of sales, we entered the year at 1.9 billion in TCV signings, well above our initial target of 1.6 billion for the year. Now let's turn to slide six to discuss that growth and that retention in more detail. Q4 new business TCV signings were $519 million, and the $1.9 billion in full year signings I just mentioned represents an increase of 94% compared to full year 2019. 2020 AR signings were $353 million, an increase of 26% compared to 2019. And regarding the new business mix, we had a healthy variation in signings this year, with progress made in all of our segments. Let me give you just a few examples of the types of deals we signed in the fourth quarter. In our commercial business, we signed a contract with a very large healthcare client in the payer space to expand our payment integrity offer to a new division for them. In the government space, we signed an expansion deal with the California Department of Child Support Services to provide digital payment administration services. And in the transportation segment, the Republic of Cyprus has selected us to provide the end-to-end installation of photo enforcement systems. While we historically have been very strong in the transit space in Europe, we're pleased to be able to expand our offerings in public safety. As previously mentioned, we give a little more context around net new business as a replacement for renewal rate. In addition to showing sales, TCV, and ARR for the quarter, We give a more holistic indication of anticipated forward annual recurring revenue on a net basis. The net ARR activity number provides the net ARR from trailing 12 months of sales, won and lost revenue from renewals including price changes and newly contracted volume changes, all of which should be realized in the P&L over time. Now, as you can see from the chart, in Q4, The trailing 12 months of activity resulted in $60 million in anticipated net new revenue. The number does not predict the timing of that revenue and is only a directional indication that we are selling and retaining more than we are losing in any given trailing 12 months. So let's turn to slide seven for a business update on how we perform versus our priorities in 2020 and what we're focused on in 2021. As always, Our strategy is measured by achieving growth, efficiency, and quality, driven by leveraging improvements in our people, our process, and our technology. Our 2020 priorities were centered on driving value for our clients, addressing COVID specific challenges, and improving our operating model. In terms of our focus on people, we responded quickly to the COVID-19 crisis, and we moved 30,000 plus associates to a work from home environment while keeping our people safe and our systems secure. We prioritize diversity and inclusion programs. Of course, these programs are not only in keeping with our own core values here at Conduit, but are very important to our base of clients, our associates, and future talent. And lastly, we drove utilization of shared services to improve efficiency and leverage best practices. Regarding process improvement, we standardized our governance process around client implementations and technology changes. We standardized and centralized our sales and our client partner processes, and we improved processes in risk management, talent acquisition, and change management. From a technology perspective, our goal was consistent and high-quality service delivery. We stood up our IT command center, driving improvements to platform monitoring, and improving incident problem and change management outcomes. And finally, information security was and must always be at the forefront of all our activities. Now, these results were impressive. Despite the headwinds from COVID, we achieved much of what we set out to accomplish at the start of the year, categorizing our growth efficiency and quality pillars. In terms of growth and efficiency, as mentioned, revenue and new business signings, EBITDA and margins exceeded expectations. We made real progress on quality and we significantly improved our technology platform readiness and uptime and we drove operational defects down. All of this resulted in significantly improved client MPS scores and associate engagement scores. Of course, these two outcomes definitely go hand in glove because a more motivated associate base creates a more motivated and loyal client base. In terms of our 2021 priorities, we'll use the same people, process, and technology levers to better serve our clients. We need to continue this improvement journey. Now, if our 2021 plan seems similar to the 2020 plan, you are correct. You've heard us use the same terms of growth, efficiency, and quality outcomes in the past. And we consistently talk about how people, process, and technology will help us achieve progress. If it seems similar, it's because this journey requires focused and disciplined effort that is communicated with consistency, resulting in repeatable outcomes. Our clients are expecting predictability, and with it comes confidence, resulting in retention and growth. So we're staying consistent in our approach. Now, before I turn it over to Brian to go through the detailed financials, let me just say this. Given everything that happened in 2020, I'm very pleased with our performance. We've delivered on our commitments to our clients, to our associates, and to our investors, and I'm proud of every one of our 60,000-plus teammates. But we have a lot more work to do. We made great progress last year, and we have a solid plan on how to continue this journey in 2021. I'd like to now turn it over to Brian for a detailed look at our financials, and I'd like to thank everybody for joining us today. Brian? Brian?