Conduent Incorporated

Greetings and welcome to the Conduit First 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alan Katz, Vice President of Investor Relations. Please go ahead.

Good evening, ladies and gentlemen, and welcome to Conduent's first quarter 2021 earnings call. Joining me on today's call is Cliff Skelton, Conduent's CEO, and Brian Walsh, Conduent's current CFO, as well as Steve Wood, our current Corporate Controller and incoming Chief Financial Officer. Following our prepared remarks, we will take your questions. This call is also being webcast. A copy of the slides used during this call was filed with the STC 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 the transcript later this week. During this call, Conduent 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, May 5th, 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 8K. With that, I will turn the call over to Cliff for his prepared remarks. Cliff?

Thanks, Alan. Good afternoon, everyone, and welcome to Conduin's first quarter earnings call. Thanks for joining us today. It's great to be with you. Today marks yet another quarter where Conduin has been able to achieve its goals and meet the expectations we discussed in prior earnings calls. As I've mentioned in the past, Our goal is to continue working on the fundamentals and pivot our company to growth. We think today marks one step closer to that outcome. Now, before I go through the Q1 financials, I'd like to obviously acknowledge the announcement we made this afternoon regarding our CFO succession. I want to take a minute to thank Brian for his hard work and dedication through the years. I very much enjoyed working with him and I wish him the very best in his new role. At the same time, I'm excited to welcome Steve Wood into his new role as our incoming Chief Financial Officer. I've known Steve for a number of years. He's a great partner and an experienced finance leader who will help drive the organization along the next phase of our journey. Importantly, this is a great example of our succession planning efforts. This transition will be seamless for our associates, our clients, and our shareholders. Now, in terms of the call today, I'll present a quick overview of the financial results, our recent signings performance, and why we're more confident than ever, and why we expect to see a turn of the top line very soon. I'll then turn it over to Brian to run through the more detailed financials. Questions will be at the end, as always. Meanwhile, this slide provides a cross-section of recently received awards and recognition that we're very proud of. So now let's turn to slide five to get started. Q1 was a strong quarter. Revenue and adjusted EBITDA were above both internal and external expectations, with revenue of over $1 billion and adjusted EBITDA of $115 million, equating to an 11.2% margin, up 210 basis points year over year. This was driven by revenue growth in our government payments offerings, new business ramp, and a focus on efficiency. Our new business signings in Q1 were also strong, which I'll discuss in more detail on the next slide. Despite a workforce that is mostly still working from home, operations and technology quality continue to improve, demonstrated by increased uptime and service levels meeting client expectations. The progress we made in our service delivery has brought us well beyond where we were a couple of years ago. In fact, several of our marquee clients recently awarded us with supplier excellence awards, which we're very proud of, including Toyota Financial Services and one other Fortune 100 client. Lastly, we continue to make progress on improving our culture and our associate engagement. In fact, we were just named to the list of best global company cultures by Comparably, and our Glassdoor ratings are much improved. It's great to see this recognition based on associate reviews, and we remain focused on fostering a strong culture. Let's now go through the details on our signings for the quarter. Please turn to slide six. On our last call, we discussed a new metric, net annual recurring revenue activity. This is a trailing 12-month measurement of the expected annual revenue impact to include signings, losses, Price impacts in any contractual volume changes. As a reminder, this isn't a financial impact for a specific time period, but rather a look at what will come into the P&L at some point in the future, on a net basis anyway. This is an indicator of the performance on sales as well as client retention. It's an important predictor of future growth once the lingering effects of prior years' losses burn off. and by that I mean losses prior to 2019. This burn-off, COVID dynamics and our continued net revenue gain make growth evident in Q2 of this year on a year-over-year basis. The net ARR activity metric was $87 million in the trailing 12 months ending Q1. There will be quarters here or there that may be higher or lower, but a consistently positive trend is the key. In terms of the new business ARR and TCV, we had a strong quarter, with TCV growing 10% and ARR growing 67% on a year-over-year basis. We think this is important because it shows not only long-term growth, but the singles and doubles needed for 2021 and 2022. Importantly, Q2 looks good, as we just sold a $178 million deal on our transportation business in Europe. which will be announced in a press release in the coming weeks. As you can see in the pie chart, our signings were generally split up in proportion to the sizes of our segments. This won't always be the case, but we thought that it might be helpful to show the diversity of our signings, especially given that COVID-19 and its impacts are still somewhat out there in the marketplace. Importantly, A fairly high percentage of our signings were driven by expansion opportunities we see with our existing client base, demonstrating their confidence in us. The real opportunity we see for our future lives in our current portfolio, where there are numerous outsourcing opportunities right at our fingertips. Now let's turn to slide seven to discuss some of the progress we've made over the past two years and what outcomes those changes are driving in the business. I won't go through each bullet on the page, but I will hit on some general themes. The thing to remember here, at least in my opinion, is that running and growing a company is always operationalized by focusing on the people, the process, and the technology. And we have created concentrated efforts across that spectrum. Regarding people, talent and teamwork will trump many obstacles. We've made some great progress on top grading talent, and are continuing to bring new talent into the organization. While never done, the high level heavy lifting is nearly complete. We're focused on our culture, engaging with our associates and focusing on diversity and inclusion. We invested resources to ensure we're developing an environment where all associates feel they can be themselves and valued for their contributions. We've invested in training and development programs for selling and account management to drive stronger engagement and support of our clients. In terms of process, efficiency programs are key to margin expansion and lower cost of delivery. We're seeing the benefits from utilizing best practices in shared service centers. We've increased our touch points with our clients, and this has enabled additional cross-sell opportunities. We saw this positively impact our signings this past quarter, Now this seems like an obvious one, but an outside-in approach is what our clients expect if they're to give us more business. The key is to understand how we can help clients solve their problems as opposed to pushing products and services. As for technology, investments in our infrastructure and data centers have led to improved platform uptime. We're mostly through our data center migration plan, which is slowly but surely bringing state-of-the-art technology to bear and minimizing legacy platforms and infrastructure. The launch of our command center last year provided oversight, coordination, and proactive monitoring capabilities to react quickly and ensure seamless delivery of service. Finally, we take an every-client, every-time approach to technology and operations. It's not just about internal efforts, but more about the client and in-user experience and impact. Now these efforts have driven some important outcomes in terms of growth, efficiency and quality. Our operational improvements have led to better delivery, which in turn has improved client retention. It's never perfect and never will be, but we will never be satisfied in this category. Margins have improved and we continue to invest in incremental system upgrades. New bandwidth is created so we can increasingly focus on growth and we see a real improvement to both internal and external expectations. Let's turn to slide eight to quickly discuss why our confidence is increasing based on market opportunity coupled with our improvement efforts. In the commercial segment, the addressable market is $146 billion. We continue to invest in automation and digitization within our CFM offerings positioning us to capture share and improve margins. We're definitely seeing revenue improvement and volume upside in our CXM space. We also have particularly strong offerings in the financial services side of the BPS, or what was traditionally called the BPO market, where we are integrating cloud-based software, again focused on automation and technology integration. Within our health, wellness, and benefit administration offerings, We see the opportunity to grow through product and end user interface enhancements. And within the healthcare space, given the size, growth trends, and client relationships that we have across the industry, we're very well positioned for automation around claims processing and services. But even more importantly, we think there are many more BPS and CXM offerings that can be deployed across the healthcare market. Within the government space, we see a market opportunity of almost $30 billion. We've seen strong interest in our new offerings around fraud tools and innovation in our payments capabilities, which can also be utilized in the commercial space. The government market is growing quickly, and we think these new offerings will differentiate us. Lastly, within the transportation space, we see a market opportunity of about $11 billion, given our current offerings. We see the potential to expand that addressable market size in the coming years through geographic expansion and potential expansion into the commercial marketplace. Overall, the key takeaway here is there is significant room for growth in the markets in which we currently play. It's simply up to us to take advantage of it. Now, before I turn it over to Brian to go through the financials, I want to close with just a few final remarks. I'll repeat what I said on our last call. Consistency is key. We need to keep delivering on our commitments to our associates, to our clients, and to you, our shareholders. I'm confident in our ability to do so. This company is in the pivot. It will be a growth company, and we're very close to declaring it so. Our team is leading, and we're attracting talent. And we'd love for you all to stay on this journey with us because what we've embarked upon is working. I'd like to now turn it over to Brian for a detailed look at our financials, and I thank you so much for your time today.