Conduent Incorporated

Greetings and welcome to Conduent's second quarter 2022 earnings announcement. At this time, all participants are on 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, Giles Goodburn, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Operator, and thanks everyone for joining us today to discuss Conduent's second quarter 2022 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 would like to turn the call over to Cliff.

Good afternoon, everyone, and welcome to Conduit's Q2 earnings call. As you know, quite a lot has changed, especially in the market since we last met. And while you will see that our financials are quite consistent with what we've been forecasting, we do have some interesting announcements and expectations we'd like to describe to you today. I'll start with some high-level narrative on the financials before Steve takes you through the details. I'll then describe some recent changes and direct you to some future sessions we intend to hold in order to go deeper on our future three- to five-year financial and strategic expectations. Let me start by saying that our Q2 results were exactly in line with what we thought they would be and what we had previously described to you as an expectation. In Steve's remarks, you will see renewed conviction regarding our guidance and the expected strong Q3 and Q4 of this year. I look at Q2 as the bottom of the springboard, to use a metaphor, for the runoff of the government stimulus volume from 2021 and the manifestation of our stronger sales and retention efforts coming to bear. among other positive and negative nuances like interest rates and foreign exchange. Another point to remember is that our numbers do not yet include the full benefit from interest rate increases that will manifest in later quarters. Regarding the financials, our adjusted revenue was $928 million, and a little more than that on a constant currency basis. That's in sync with what we previously guided to. For adjusted EBITDA, we finished the quarter at $87 million and a 9.4% EBITDA margin. Again, the thing to remember there is that's without a lot of that high margin stimulus volume that we became accustomed to last year. But it's also right in line with what we guided to. New business signings were strong in Q2. As it relates to annual contract value, our primary metric, it was one of our strongest quarters, driven in large part by strong penetration within our current client base and some partnership activity. Now, in order to provide an apples-to-apples compare, we look at ACV without the one-time government stimulus from either year. Q2 new business ACV was $177 million as compared to $172 million in Q2 of 2021. Net annual recurring revenue activity impact was positive for the seventh consecutive quarter. As I've talked about in the past, what's important to see is a consistently positive number, indicating future growth. And if the quarter over quarter trend line has a positive slope to it, it indicates an acceleration in growth. Meanwhile, Steve will dissect those numbers for you here in just a minute. There are a few other important investor comments I'd like to make as you might expect. First is an update on our transportation business. We previously told you that we intended to separate the transportation business with a focus on spin. We spent a lot of time with many of our largest public and private shareholders since our last earnings in order for us to better understand the outside-in perspective related to the market, our diverse suite of businesses, and how we are perceived strategically. I think it's obvious that the markets have changed in a reasonably profound way, especially valuations and sentiment in the public marketplace. We've paid attention to that, as have most of our large shareholders. We looked at previous assumptions regarding public company valuations, interest rates, and cash flow analyses, and we applied the new market perspective to those assumptions. Because the potential for SPIN was now public, we could also closely examine with the right experts SPIN costs and management distraction with increased alacrity. All of this led management and our board to a changed point of view. Our board and management carefully reviewed the changed outlook and now believes that the timing for a separation, certainly for a spin, is not now. We believe that same sentiment is likely held by a majority of our shareholders. Of course, there was a time in which shareholder value could have been maximized by a transaction such as a spin. But at this point, it's clear that the window of such opportunity is behind us. You should expect us to keep our heads down and continue to grow this business as part of the conduit family of products and solutions. And importantly, our outlook on the opportunities for this business and the rest of our portfolio increases every day. We have settled into a model without a need for large-scale transactions. Now, with that discussion behind us, we owe you some investor communications we believe you now deserve to hear. without the backdrop of a potential transaction. In future communication efforts, we will describe conduit assets that are either superior to the competition or assets that frankly no one else has. We intend to go deep on a description of those assets and strategies with our analysts, our investors, and our future investors as follows. We expect to have an investor day in late Q1 of 2023. We think it's going to be really important for you to understand our strategy and where we want to take this company and what you can expect from us over the next three to five years, both financially and strategically. And we want to kind of lean into that before Investor Day with some early reads as a primer to that Investor Day in late Q4 of this year to tell you basically what you can expect at a level of detail on Investor Day to include an early read on our long-term plan by line of business. In those two meetings, you're going to see a three to five-year growth plan which will be the outcome of a couple of things. First, the view of our three individual business lines. Given the last three years of stabilization, talent upgrades, portfolio improvement, and client retention, we will show growth expectations and margin expansion expectations over the next three to five years, absent any profound capital investments or inorganic solutions. Second, we're going to talk to you about what we're going to do with discretionary investment capital, and our strategy around a core suite of technology-enabled products. We think we have some solutions that are very, very shiny and impressive in the marketplace, providing growth opportunities that will create positive sentiment in the market. We will demonstrate these in a dialogue vis-à-vis five or six key technologies that are really unique to Conduent. We will contextualize these into opportunities with an investor perspective that transcends normal course and speed. Not only can these assets, when operationalized adequately, allow for accelerated revenue growth, our belief is that they will help our brand be perceived in ways that only technology companies can enjoy. And then lastly, we're going to come back to the capital allocation plan. What is it we're going to return to shareholders in terms of potential stock buybacks, debt pay down, or other possible inorganic opportunities? So, with those expectations laid out, let us get into what you came to hear about in the near term, which are the details of Q2. I'll now turn it over to Steve for that. Steve?