Conduent Incorporated

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 a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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. Thank you, sir. You may begin.

Thank you, Operator, and thanks, everyone, for joining us today to discuss Conduit's third quarter 2021 earnings. We hope you had a chance to review our press release issued earlier this afternoon. Joining me today is Cliff Skelton, our President and CEO, and Steve Wood, our CFO. Today's agenda is as follows. Cliff will provide an overview of our results and a business update. Steve will then walk you through the financials for the quarter, as well as providing a financial outlook. We will then take your questions. This call is being webcast, and a copy of the slides used during this call, as well as the press release, were filed with the SEC this afternoon on Form 8K. This information, as well as the detailed financial metrics package, are available on the investor relations section of the Conduent website. During this call, we may make statements that are forward-looking. These forward-looking statements reflect management's current beliefs, assumptions, and expectations, 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 the U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP measures and how we use them, as well as the limitations to their usefulness for comparative purposes, please see our press release. And now I'd like to turn the call over to Cliff.

Thank you, Giles, and good afternoon, everyone. Welcome to Conduint's Q3 earnings call. It's great to have you all with us today. I hope everyone's staying well. These are certainly interesting times we live in. To start with, Q3 was a quarter where we continued to deliver on all the commitments we previously talked to you about, both in previous earnings calls as well as at the start of 2021. It's the consistent performance that I hope you'll come to more appreciate from Conduin as the quarters go on, and we're proud of it. I'm also pleased to report that we recently completed our debt refinancing, which we're also really proud of. and within the parameters and timelines we expected. Of course, we'll discuss that here in a moment. And then today, in addition to discussing Q3 and the refi, we'll touch on some recent accomplishments and talk to you a little bit about how we feel about the remainder of the year. So if you'll turn to slide four, you'll see that our revenue in Q3 came in at $1,038,000,000, virtually unchanged from the prior year and slightly up when compared to the strong Q1 and Q2 performance of 2021. Meanwhile, EBITDA came in at $130 million, very similar to Q2 of this year, and similar on a year-over-year basis when you compare it to last year normalized for cost-saving efforts we had last year, these one-time temporary cost savings we had last year. Margins remained flat quarter-over-quarter at 12.5%. Of course, that's somewhat benefited by the strength in our government payments business. Regarding new business sales, Q3 delivered $344 million. That brings our year-to-date sales to $1,475,000,000. That's a 4% increase over prior year, and that's so far, obviously. As you know, new business TCV can really be quite lumpy in any individual quarter, but we feel really bullish about the pipeline for the remainder of 2021 and into 2022 across really all segments. And we think that's a good signal for sales in new business sales anyway in 2022. New business ARR is also up versus a prior year at $297 million. And that was with $87 million in ARR contributed in Q3. Again, our belief is what you really want to look at is this annualized gradual improvement each quarter, because that's really what we think is the key to future growth, given what is always variation in timing of deals and revenue ramp. Finally, this net ARR metric we've talked to you about in the past, which is that trailing 12 months metric that we've discussed, was $132 million. This is our fourth quarter of positive net ARR. And while you may expect some occasional lumpiness there, it's up 25% compared to last quarter. As we've mentioned in the past, this net ARR metric is particularly important. It's really a much better indicator of growth and retention than other metrics that other folks use and like we've used in the past, like renewal rate. This is a really important metric because it's an indicator, once you've outrun legacy losses, it's an indicator of growth. And we'll talk more about it in a minute. In other highlights for Q3, we continued our pursuit of operational excellence with a focus on system uptime, quality service delivery, and other strong emphasis items like meeting or exceeding client expectations. Bonnie, we're privileged to have received a lot of accolades recently from various regions, analyst groups, and associations, and you'll see that here in just a few slides. With respect to our technology investments, we continue to focus on the data center consolidation efforts we talked to you about before, enhancing solutions, moving to the private and public cloud, and we particularly focused on efficiencies enabled by AI and machine learning, all of which our clients are highly indexed on. Finally, we completed the refi, as I mentioned before, of our debt facilities on October 15th. This, as you might imagine, was a key 2021 priority, and we're more than pleased with the timing and the construct of the package. Importantly, with this activity now behind us, we're redoubling our focus on a strong finish to 2021 and a good launch point to 2022, all necessary to maintaining our momentum in the next phase of this growth effort we've had underway. If you'll turn to slide five, you can see the consistent performance in net annual recurring and non-recurring new business revenue, despite any possible lumpiness you might notice in any individual quarter. As I mentioned, that $21 billion of high-quality opportunities in our pipeline is better than ever right now in terms of our confidence levels. Again, as mentioned, that really helps us out in our bullishness for 2022. Let's go back just for a minute to this net AR activity metric. The thing I'd like everyone to remember here is that while not tied to any particular revenue recognition date, the fact is that the metric is all inclusive. It includes deals we won, deals we lost, price changes up and down, and contracted volume changes. And as I mentioned, what's really key here is that once we've outrun those legacy losses, which we're rapidly approaching, and Steve's going to materialize for you in just a minute, This metric is the best possible indicator of growth. In the four quarters that we've been measuring this trailing 12-month metric, it's been positive and growing each subsequent quarter. Our strong ARR for the last six quarters combined with better client retention is driving the strength in that number. We expect the momentum to continue. On slide six, you'll note examples of our continued momentum in the markets. Whether it's awards like this Toll Excellence President's Award for Innovation, which recognizes a mobile app that allows customers to easily manage their tolling payments and E-ZPass accounts on their smartphone, or new digital solutions that enable our clients to improve business outcomes and deliver better end-user experiences, they're all acknowledgments of the hard work that we've had underway, and we're beginning to get recognized for that. Many of these awards also indicate a strong focus on ESG, and we are in a relentless pursuit of this notion of an inclusive and winning culture. Meanwhile, as we've discussed, this is always a journey. Each quarter, we intend to continue to show the market that we're achieving exactly what we told you we were going to achieve, and that's what we've done for nine straight quarters. Of course, there's always more to do, But each quarter will present another increment of success we can be proud of. And over time, this winning team of 60,000 associates will have achieved a consistent pattern of growth in operational excellence. And I can't tell you how proud I really am of all of those folks and the progress we've made so far. So again, I really appreciate everybody listening today. I'd like to turn it over to Steve to take you through a lot more detailed view of the quarter, or certainly the quarter's financials, and I appreciate your time today. Steve? Thanks, Cliff.