Conduent Incorporated

Good afternoon and welcome to the Conduent Third Quarter 2022 Earnings Announcement. 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 this 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, Investor Relations. Thank you. You may begin.

Thank you, Operator, and thanks, everyone, for joining us today to discuss Conduit's third 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, Files 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 US 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.

Thanks, Giles. Welcome, everybody. Glad to have you with us today. Let me begin by saying that Q3 felt pretty good for us. Our adjusted revenue came in at $977 million, right where we expected it to be, and adjusted EBITDA at $105 million with a 10.7% margin, both slightly better than expected. So very pleased with how Q3 came out, especially given the economic conditions we're all experiencing these days. Our new business ACV signings were quite strong at $191 million, one of the best Q3s we've had, and so we like our overall sales performance, especially from our account management teams. Net ARR activity continues to be positive at $70 million. Now, as I've discussed in the past, that net ARR activity metric is going to be lumpy from quarter to quarter. And what we want to see is a positive number every quarter because it means we're selling more than we're offboarding or losing, if you will. One loss or win, especially in the public sector, can skew any individual quarter, but not the historical trend. In addition to having a strong sales quarter, we also see an expanding pipeline that bodes well for the future, especially in the public sector. Steve's going to get into that here in a moment. We're also optimistic because we've got a lot of big deals on the horizon, again, especially in the public sector. We expect to land a few of these, which should be meaningful. A couple of other key highlights in Q3 that we're quite proud of. We were named as a leader in customer experience in all four categories examined by ISG. These categories were digital operations, AI and analytics, work from home, and social media. Just to put that in a little context, only four or five customer experience firms achieved leader in all four categories out of 25 plus companies reviewed. Also Newsweek named Conduent among its 2022 top 100 most loved workplaces. If you think about it, that's quite remarkable given the number of companies evaluated. This is from all industries and all sectors. So to finish in the top 100 is quite a feat. Now there are a lot of ups and downs on the horizon here to include what's happening in the economy, what's happening with interest rates, what's happening with the notion of a recession. and how it all impacts our clients and their end customers. These macroeconomic factors are certainly considerations for our future planning. Nevertheless, we're at a point in time where the hard foundational work, so necessary for referenceability and retention, transitions in some regard to our planned pattern of growth. We've taken several tactical actions along this path. We integrated our separate sales and marketing teams into our lines of business. The idea here is that we're under leveraging our current client base and not utilizing strong relationships to expand our share of wallet from our client base. And there's likely more integration to come. We've stood up a strategic growth team, which consists of a team of business development, product, marketing, and technology leaders to penetrate new industries and establish new logos. to utilize relationships, especially in North America, to open new doors of opportunity. To characterize our technology-led solutions as just that, unique technologies that exceed that of the competition and thus attracts new clients. The bottom line here, we have in many cases technology solutions that are not getting the adequate light of day from companies or public entities that don't know us just yet. Also, we begin to roll out our digital payments capabilities including real-time payments and other forms not being utilized, especially in the public sector. Remember, we have millions of bills running through our back office. Those are millions of opportunities for end customers to more easily pay their bills while generating faster revenue and lower costs for our clients. We've made changes to our leadership team to better align capabilities in our transportation business and our strategic growth team. There are massive international and domestic opportunities in the public sector, specifically government healthcare and transit and tolling. We have those on the near-term horizon. We also continue to see large opportunities in customer experience. While retail volumes in some areas are feeling the pain, other companies are now more open to outsourcing as a means to drive cost reduction and digitization. And the products we've struggled with in the past have been enhanced and are now selling. especially in our commercial segment. For example, through Q3 2022, the human capital solutions business has closed six new logo deals across its offerings. Going forward, suffice it to say, losses and stimulus are rolling off at higher margins. Given price competition and the economic landscape, we've got to sell even more high-value deals, especially in the public sector and non-CX areas of commercial. We are driving more rigorous implementation efforts as there is a backlogged or sold revenue waiting on milestones to be completed. When we win some of these big deals, which we will, we must execute the implementation with near perfection. Our sales to revenue process must go faster. We are further streamlining expenses in our business and especially from our shared services. While our real estate footprint is much reduced, It must shrink further as we've settled into what is predominantly a work from home model, especially in the commercial sector. Regarding the future, we expect the economic headwinds to be slightly stronger than the tailwind components in Q4 2022 and in 2023. And while we continue to be optimistic in our three-year plan, in no uncertain terms, the next year will be challenging. But in the primer, we expect to demonstrate our journey from substantial decline to a business that is flat to slightly up in the next year or so. Relatively speaking, that represents significant progress. And finally, when it comes to strategy and capital allocation, more to come in our investor and analyst presentation. But we see the opportunity in the obvious areas of either debt and equity buybacks and or internal investments, which will stimulate growth. We also see a few pruning events we hope to describe to you soon. We're fine-tuning these decisions with the board and will be prepared, as we previously discussed, to go deep with you in December and in the spring. So, a lot of work to do, yet a lot of opportunity. Our teammates, our clients, and end customers are resilient. We wish this growth plan was moving a little bit faster and external conditions were more accommodating, but what we can control is achievable and we've come a long way from prior years of substantial revenue declines. and we will continue to tell you what to expect from us, and then we will achieve it. With that, let me ask Steve to take you through a more detailed look at Q3 and beyond, and thank you all for your time today, Steve. Thanks, Cliff.