Conduent Incorporated

Greetings, and welcome to the Conduent Fourth Quarter 2022 Earnings Announcement. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your cell phone 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 of Investor Relations.

Thank you, Operator, and thanks everyone for joining us today to discuss Conduent's fourth quarter and full year 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 and full year, as well as providing a financial outlook. Cliff will then provide his closing comments. 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 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, 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, and good afternoon, everyone. Thanks for joining Conduance Q4 and full-year 2022 earnings call. I'll make some high-level comments about the quarter, the year, and 2023. In addition, I'll call out some exciting future opportunities as we, like others, slog through these somewhat uncertain times. First, let me say that Q4 and full-year revenue ended within the range of previous guidance, albeit on the low end. driven primarily by lower volume in our commercial business and some revenue implementation timing in our transportation business. EBITDA finished directly in line with our previous guidance, and margins also met expectations. Of particular interest is new business sales. The year finished strong, especially in our government healthcare business, where we won two large state Medicaid contracts in Q4. Commercial customer experience also progressed nicely through the year. Generally speaking, sales continue to improve each year, and we just need to keep that rolling. Now, as I step back and debrief the year, I would say it's a tale of many cities with headwinds and tailwinds, perhaps more headwinds than tailwinds. Inflationary events tended to bring interest rate tailwinds in the P&L. However, some of those same inflation-fighting trends create recession-like slowness to volumes which impacted our commercial business. Meanwhile, foreign exchange rates, primarily in Europe, created some headwind for our transportation and commercial businesses. On the upside, we received a modest tailwind from the remnants of government stimulus through pandemic snap volumes. The blending of all that in a company with strong businesses and a large and strong client base brought us to the low end of our full year guidance. Our operational performance continued to improve in 2022 as well. Technology uptime is now a hallmark of success for us. However, having been a chief information officer for two Fortune 500 companies, one never says we have arrived when it comes to technology or information security. But we can say that we've had a strong and concentrated effort around technology discipline and standards. In addition, operational process improvements has helped with readiness, especially in our call center space and staffing. We worked hard in 2022 to ensure we operated with a culture of inclusion and fairness. Any company with 50 plus thousand production folks knows how important culture, values, and leadership are for client retention. This all helps our associates to act as strong ambassadors for our clients in the treatment of their end customers. In that regard, we received recognition from General Motors, Toyota, H&R Block, and several other top 50 companies for supplier excellence. Regarding culture, we're proud to have been recognized by Newsweek as a top 100 most loved workplace. as well as receiving several awards from others in recognition for diversity, disability inclusion, gender, and thriving in a remote culture. Finally, we received industry leadership recognition, especially in customer service by Nelson Hall, Everest Group, Gartner, and others. That all said, more should always be expected when it comes to financial progress. 2023 brings with it a year where past or legacy performance-related losses finally run off and we return to more normalized loss rates as a percentage of revenue. At some level, it's just math. When onboarded sales ramp outpaces losses, all else being equal, you have growth. All else is equalizing for us in 2023, and it will be a transition into growth year. Every year since 2019, we've made progress and decreased the year over year decline while fixing the foundation. That foundation phase is over. In 2023, two of our three businesses will grow and our government sector will be poised for growth in 2024 after the runoff of two or three large state contracts lost due to legacy performance. Now, Steve will discuss our net ARR numbers in his remarks. But as we've discussed in the past, assuming the baseline business remains steady. Now, of course, the economy can sway that assumption and did so in 2022. But with a steady baseline, if that net ARR number remains positive, over time growth must manifest. And that number was positive, again, at $114 million, up quarter over quarter. As Steve will mention, all three of our sales metrics, net ARR, or annual recurring revenue, Annual contract value and total contract value were up in Q4, which again is a positive sign once we finish out running stimulus and legacy losses. Regarding that government business, we are still quite optimistic. We won significant contracts in our state-of-the-art Medicaid claims platform. From what we can tell, the only platform in the industry built from the ground up as cloud native. The government healthcare pipeline has never been stronger. Now we must implement with precision. Steve will go into more detail regarding government's performance and why, as we've now outrun the stimulus grow over, we see blue skies ahead in the back half of the year. There are many reasons to be quite bullish on Conduent. It wasn't that long ago that we were worried about our commercial business. It declined modestly in 2022 and will grow in 2023. Transportation declined in 2022 and will grow in 2023. Government is the business requiring a little more explanation. Revenue declined 12% in 2022, driven by continued stimulus P-SNAP grow over and prior losses manifesting, as I previously mentioned. However, the strong upside from new sales ramp will reverse that trend by the end of 2023. We also have geographies and entrees into new client opportunities generated by a business development effort new to Conduit. We rolled out a new one-of-a-kind digital payments hub in partnership with BNY Mellon that will enable real-time bill payments to governments and businesses, real-time disbursements for disaster relief and reimbursements, and client-to-vendor payments providing cost reduction benefits to clients. We're beginning to integrate these capabilities into our current offering sets and we are seeing traction and sales. For payments, we definitely see real opportunity in our current client base as well. Finally, we're in the middle of planning our investor event for the last part of March. We intend to show the three-year growth trajectory for the company. We think there are acceleration opportunities as well, centered on portfolio rationalization, unique investments, and go-to-market opportunities that could enhance our posture even further with investors. Steve will now take you through more details around the quarter, 2022 and 2023. But the bottom line message is, we did what we said we'd do in 2022. We'll do the same in 2023. Once our government business gets through the last bit of 2023 headwind and reaps the rewards of the strong market and sales efforts, we'll experience the overall growth rates we've been waiting for. As always, we appreciate the patience from our investors, the confidence from our clients, and the perseverance and hard work from our team. I'll now hand it over to our CFO, Steve.