Conduent Incorporated (NASDAQ:CNDT) Q1 2024 Earnings Call Transcript

Conduent Incorporated (NASDAQ:CNDT) Q1 2024 Earnings Call Transcript May 1, 2024

Conduent Incorporated beats earnings expectations. Reported EPS is $-0.09, expectations were $-0.15. CNDT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Conduent Q1 2024 Earnings Announcement. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Giles Goodburn, Vice President of Investor Relations. Thank you. Please go ahead.

Giles Goodburn: Thank you, operator. And thanks, everyone, for joining us today to discuss Conduent’s first quarter 2024 earnings. We hope you had a chance to review our press release issued earlier this morning. 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 Q&A and 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 morning on Form 8-K. 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 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.

Clifford Skelton: Thank you, Giles. Good morning, everyone, and welcome to Conduit’s Q1 2024 earnings call. Today we’re happy to report that we have analyst Q&A at the end of our session, as Giles mentioned, as well as a normal report from myself and our CFO, Steve Wood. Q1 marks yet another quarter on our journey that, like others, fought through things like COVID, the shift to a largely work-from-home model, and the many changing winds in the economic stage. As Steve and I have previously discussed, we’re very clear-eyed on what we have to do to take this company from what was an operational turnaround to a more narrow, nimble, and growing company. We’ve said a couple of things. One, rationalization of our portfolio will help us reduce drag and create bandwidth.

It will also free up capital for the purpose of reducing debt, buying back our stock, and other opportunities. We said there would be pain before gain. The timing of divestitures is not perfect, and some margin deterioration will take place in the near term and then expand to normality. 2024, in our plan, is the trough year in both revenue and EBITDA, exacerbated by an average sales year, if you will, in 2023, a phenomenon experienced by many of our competitors as well. Our growth trajectory expectations in 2025 and 2026 will require different talent. We’re making progress in mitigating that. More to come in our next earnings on that subject. Suffice it to say that we’re adding and changing talent at the senior level to the company. We have to revitalize our sales engine, which we are doing.

While timing is always a factor and Q1 performance lagged, the first half of the year will be reasonably strong. Again, while we must execute well, it doesn’t take a lot of examination to understand that growth enabled by a different talent base, a stable operating platform, cash generated by divestitures, and the interlocked cost take outs, of course, with reduced debt, makes for a more valuable company. That’s the journey we’re one-third into. So what about the Q1 numbers? Q1 was a strong revenue quarter for us at $921 million, exceeding expectations. As you may recall, Steve guided Q1 revenue to be down 2% to 3% year-over-year, and we were essentially flat. He guided adjusted EBITDA margin to be below our full year guided range, and that’s where we landed at 7.5%, in line with expectations.

Now, for what it’s worth, the year-over-year EBITDA compare is a little misleading because of a one-time item in Q1 of 2023, without which we’d have been in striking distance to flat year-over-year. While we’re quite pleased with our revenue and EBITDA performance, we’re less pleased with the timing of sales. Q1 missed expectations, primarily driven by the timing of new business ARR. As you know, we talk about sales in three categories, new logos, new capability, and add-on. We definitely saw some new logo and new capability business slip to Q2. The engine is now moving us in the right direction. We have, and are developing partnerships with other outsourcing firms in the CX space, especially, to drive sales. Our client partnership teams are beginning to penetrate that white space in our portfolio, and we’re teamed up with partners such as Microsoft for GenAI across the BPO and CX arenas to enhance quality, throughput, and efficiency.

With respect to net ARR, that number was still positive at $17 million, but lower than desired. And that’s not worrisome given the Q1 to Q2 timing and the fact that this trailing 12-month number can be unduly influenced in either direction by a large deal rolling off. Steve’s going to talk about that further, as well as implications for Q2. As I mentioned, we believe the first half sales should be reasonably strong. We’re seeing tailwinds in our commercial business, especially. Some weakness in our government business, and kind of down the fairway in transportation. Net-net, with the kind of diverse platform we have here at Conduent, the cycles often offset one another, and thus far, 2024 reflects those offsets. Last year, we had some weakness in commercial and strength in government.

This year, the opposite. Regardless, the lumpiness is sometimes accompanied by luck, unluck, and one-timers that can often skew the narrative. Now, speaking of narratives, Steve will get deeper on the subject in his remarks, but the divestiture activities associated with our rationalization efforts and the resulting financial reporting will take on a new reporting challenge of its own. As these divestitures monetize in the P&L, we will be transparent on the revenue, EBITDA, and cash. But as I mentioned, margins in a given divested business can vary considerably, especially in this high-interest rate era. Thus, we must pay attention to the timing expectations. Weathering the cyclical variation will be important as 2024 finishes, setting the new baseline for the future remaining income.

Therefore, as you can imagine, there will be some challenges in comparing the remainder of 2024 to previous years. But this is the foundation for our future and part of the plan. Regarding divestiture activities, there’s a lot going on. We closed our curbside management and public safety business in a sale to Modaxo for $230 million plus debt. As part of Constellation Software, Modaxo is a global collection of technology companies passionate about changing the face of public transportation. We will begin the transition ASAP, and we will partner up in the process. We’re also well on our way to closing the benefit wallet asset transfer and expect the final tranche to transfer this month. We’ve definitely been busy in the M&A arena. There’s more to examine and more to do on that portion of our journey.

Thus far, we’ve used proceeds for debt repayment and will continue to do so in the near term with increasing optionality over time. We’re also around $44 million into our prescribed $75 million stock buyback plan previously discussed. We remain committed to reaching the outlook performance previously discussed, particularly on top line. Again, we must continue to improve on the new logo, new capability sales going forward, and we’ll continue our disciplined approach to cost containment while bringing in some new senior talent. We will stay focused on EBITDA margins as we drive out stranded cost and modify how we work so that we optimize our cost structure. Profitable growth is a mission, and we’ve learned that there is always cost refinement opportunity in a transaction-driven company.

But we also see partnerships and GenAI as becoming even more important in the future. Despite some of the hype you see in the marketplace, real progress is being made. As you may be aware, we collaborated with Microsoft on an initiative to drive innovation using Microsoft Azure Open AI services. We now have three projects underway, all showing progress and promise and hope to go live on all three in the near term. As always, efficiency improvement becomes even more important in a more focused, narrower company. In addition to teaming with Microsoft, we’ve partnered with Oracle regarding our electronic benefits and tolling platform database with Oracle, now in the Azure cloud. Think of this as a multi-cloud or cloud within a cloud, now that technology providers are becoming less proprietary and more dedicated to joint outcomes for their clients.

This Oracle database cloud now running in Azure allows for reduced latency, reduced complexity, and a more efficient model on a unit cost basis. We also continue to achieve recognition for our culture and our products and our services. NelsonHall placed us as a leader in customer experience services transformation, and for the third year in a row, we’re in the GovTech top100. Finally, Newsweek recognized Conduent as one of America’s greatest workplace for women and diversity in 2024. Now, this journey is just that, a journey with puts and takes. We have more work to do, as I mentioned, but we’re on the flight path to the growth zone we previously laid out. Our associates, 57,000 of them, work hard every day for our clients. Our client base is loyal.

That client base includes roughly half of the Fortune 100. Now, we have the products. We have the people. We will soon have more of the talent we need. We just have to stay the course, and we will. Thank you for being here. I’ll now turn it over to Steve Wood for the financial details.

Stephen Wood: Thanks, Cliff. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let’s turn to slide five. Before we launch into a discussion on the quarter itself, I want to highlight again the progress that we’re making towards our billion dollars of deployable capital exiting 2025 that we’ve previously laid out to you in our investor briefing and again in our Q4 earnings update earlier this year. As Cliff mentioned, we announced earlier today that we have closed the sale of our public safety and curbside management businesses. We’re closing in on a third transaction that we’d expect to close within the quarter, and that will take us somewhere near the midpoint of the range we’d earmarked for you for after-tax divestiture proceeds.

To date, we’ve deployed around 30% or $300 million of our $1 billion target against debt prepayment and share repurchases, and I’ll cover more of this detail in a minute in my presentation. Suffice to say, we’re where we said we’d be vis-a-vis this key component of our overall strategy as we narrow our business around a core set of solutions that we believe can deliver long-term growth. As a result of these transactions, our reported numbers will start to deviate from the whole code guide that we laid out at the beginning of the year. And so I want to outline the approach that we’re going to take for the balance of the year in terms of how we report and guide the remainder of 2024, how we lay out the quarterly progression, as well as how we continue to reassert the medium-term outlook that we talked about in our investor briefing last year and again in our Q4 earnings call last quarter.

Firstly, the approach that we’re intending to take for this quarter is to compare Q1 performance on a whole code basis. There’s only a small fragment of benefit wallet assets that weren’t retained during Q1, with the first transfer happening on March 7th. And so there’s about a net $3 million negative impact in the quarter, top and bottom line, as we think about Q1 performance against last year. When we come to Q2, and for the remainder of the year, we’ll be backing out the completed divestitures and reporting on an adjusted basis, with our normal reconciliations back to GAAP in our filings and in the appendix of our presentations. Later in this presentation, I’ll give you our expectations as to how this will look for Q2 on an adjusted basis, consistent with our past practice of guiding the upcoming quarter.

In our Q2 earnings, we’ll be updating our full year guidance to be on an adjusted basis, considering completed divestitures and expected progress on removing stranded costs, which is underway. It’s important to note here that we will continue to work on removal of stranded costs throughout 2024 and into 2025, and so the annualization of these won’t be fully reflected in our numbers until the back end of 2025. Finally, we’ll continue to provide you with an updated walk to our 2025 exit rates, so you can bridge between our actuals, our 2024 guide, and the 2025 exit rate outlook we’ve laid out. Let’s get into the slides, turning to slide six and reviewing our key sales metrics. As Cliff mentioned earlier, Q1 did turn out lighter than we expected in terms of new business sales, with ACV coming in at $99 million as compared to $125 million in the 2023 compare.

We did have some deals earmarked to close in Q1 that have pushed into Q2 or later. As a result of this, we’re expecting sequentially to be stronger in the second quarter at approximately $150 million of ACV, and putting us at approximately $250 million of ACV for the first half of the year. This will still be behind our pacing for 2023, because in Q2 2023, as a reminder, we booked our large transit contract with the state of Victoria in Australia, which yielded $65 million of ACV. Our full year expectation on ACV attainment is around $650 million, and that’s about 2% higher than 2023. Despite the softer performance in Q1, there are some encouraging signs. We’re seeing renewed urgency to address cost through outsourcing, both in the CX and BPaaS spaces, where we play strongly with a broad set of offerings, and we expect this to translate into more opportunities as we go through 2024.

The net ARR activity metric, our combined measure of wins, losses, pricing effects, and other contractual changes, was positive this quarter, but substantially lower at $17 million. There’s going to be a rollercoaster effect emerging in this metric as we go through this year that is worth spending a few minutes explaining. Based on the above full year sales outcome, we expect the metric to stand at around $100 million by the end of 2024. However, there was pronounced asymmetry in our notified losses last year, with them being far more weighted towards the back half of the year, and additionally the effect of the Australia transit deal, which yielded around $48 million of ARR in the second quarter of last year. What you’re going to see is this net ARR activity metric going negative in the second quarter, and then recovering strongly in the third and fourth quarters.

Firstly, as the Australia transit deal rolls out of the trailing 12 months, and then as the more elevated losses in the back half of 2023 also roll out of the metric. As I said, full year expectation is that we exit the year with this metric standing at around $100 million, and that’s the important number to anchor on. This is based on our current view of Conduent before we take out divestitures. However, I don’t believe that divestitures will have a material impact on the shape of this rollercoaster effect as we progress through 2024. As a reminder, this trailing 12-month measure does not predict the timing of revenue, but is based on the timing of notification, and as such will fluctuate, as you have just seen, from quarter to quarter. Turning to slide seven, we’ve covered many of the metrics on the previous slide, but just a couple of extra pointers here to comment on.

It was a lighter quarter on renewals, but our win rate remained solid. NRR sales performance was more in line with expectations, and as I said earlier, it was the new business ARR deals that slipped and drove the lower outcome. Our average contract length in the quarter was 2.5 years, reflecting the lack of large recurring deals in the quarter. Now let’s turn to slide eight and discuss our Q1 2024 financial results. Revenue for Q1 2024 was $921 million, as compared to $922 million in Q1 2023, essentially flat, and down very slightly on a constant currency basis. I’ll cover the segment-level hydraulics in a minute, but the overall view is that we continue to make progress with flattening the historic revenue declines and moving the business through a transition phase and then towards a trajectory of growth.

We’re not quite there yet, but we’re getting closer. You’ll see when we dive into the segments that transportation had a better quarter. We’re full bore on our large transit implementation in Australia, and so there’s a strong contribution from implementation revenues associated with that. New business revenue ramped, including the impact of the transit deal, exceeded lost business rolling off, but there was a slight drag from volumes, mainly in commercial. Adjusted EBITDA was $69 million for the quarter, as compared to $90 million in Q1 2023, and the adjusted EBITDA margin of 7.5% was down 230 basis points year-over-year, as compared to Q1 2023. Most of that related to the booking last year in the first quarter of a favorable legal settlement for $17 million, which we called out at the time.

In the quarter itself, there weren’t any large unusual items, but you’ll see when we cover the segments in a minute, there was some variation there driven by mix and other factors. So let’s now turn to slide nine and go over the segment results. For Q1 2024, commercial segment revenues were $483 million, down 4.9% as compared to Q1 2023. There’s about a $3 million headwind in that number because of the beginning of the transfer of the benefit wallet assets at the end of the first quarter this year, which reduced our float revenue with an offset due to higher interest rates this year as compared to last. Other than that, the top line story for the commercial segment this quarter is one of working off the effect of some prior year lost business.

We expect the growth gap to narrow due to improving sales performance and the segment coming closer to flat as we exit 2024. Adjusted EBITDA for the commercial segment in Q1 2024 was $70 million, up 7.7% as compared to Q1 2023. And the adjusted EBITDA margin of 14.5% was up 170 basis points year-over-year, driven by operational efficiency with an offset as noted above due to the start of the roll off of the benefit wallet assets. Clearly as we complete this divestiture, you’ll see a reset in the commercial margins due to the high margin nature of the benefit wallet business. And this will be partially offset over time through our work to remove stranded costs and drive other operational efficiencies and improve operating leverage and margin mix as the segment begins to move to growth.

Unrelated to the commercial segment EBITDA, but still highly relevant to the overall picture, in Q2 you’ll begin to see lower interest expense as we’re deploying the proceeds from this divestiture to reduce debt. For the government segment, Q1 2024 revenues were $258 million, down 2.3% as compared to Q1 2023. The decreases were primarily due to some lost business from prior year, slightly lower volumes in our government payments business, partially offset by new business ramp, and the effect of a prior year item that was non-repeating. Adjusted EBITDA for the government segment in Q1 2024 was $55 million, down 33.7% year-over-year. As noted on the prior slide, this compare included the benefit last year from the portion of a legal settlement recognized in cost of services for $17 million.

That item aside, the remainder of the variation in margin is driven by the slightly lower payment volumes. Transportation segment revenues in Q1 2024 were $180 million, up 20% year-over-year. The implementation ramp from our large transit project in Australia accounted for around $19 million of this year-over-year impact. The balance of the improvement in the quarter was both better add-on revenue performance, as well as the non-recurrence of the project re-timing that occurred on some of our implementations this time last year. For the transportation segment, adjusted EBITDA for the quarter was $8 million, as compared to $3 million in Q1 2023, and the adjusted EBITDA margin was 4.4%. The predominant driver was the lack of the same impact last year on this project re-timing, with an offset from a slightly less favorable revenue mix.

Let’s turn to slide 10 and discuss the balance sheet and cash flow. Our total liquidity position remains strong, with close to $1 billion in cash and available revolving credit facility. We ended the quarter with approximately $424 million of total cash on balance sheet, and our $550 million revolving credit facility is almost completely unused at this point. Our net leverage ratio decreased slightly to two turns, and is comfortably inside our current target range of two to two and a half turns. Notwithstanding our recent prepayments against our Term Loan B, which I’ll talk about in a minute, we have no significant debt repayments until 2026. Capital expenditure in the quarter was 2.6% of revenue, and we expect it to be about 3% of revenue or slightly below that as we progress through 2024, although individual quarters may fluctuate slightly.

As a reminder, we updated this metric last year to include capital spent on product software, which hits operating cash flow. We received the final $22 million of our federal tax refund related to 2018 during the quarter. In the quarter, we repurchased 4.8 million shares at an average price of $3.48. As you will see from our filings, we also prepaid $164 million against our Term Loan B at the end of the quarter, and subsequent to that in April, we prepaid a further $95 million. In aggregate, we have current approval to repay debt up to $464 million from the initial proceeds of the divestiture program announced, and we will continue to provide further updates as necessary as we continue with the divestiture program. Let’s now time to slide 11 and cover our outlook for 2024.

Firstly, it’s important to reiterate that we continue to execute on the financial framework I laid out last March in our investor briefing, and the key message that Cliff and I are both conveying is confidence in our path to deliver the billion dollars of deployable capital by the end of 2025 associated with the revenue growth and margin targets we outlined. Turning to the outlook itself, you’ll see that our whole co-guidance that we gave in our Q4 earnings presentation remains how we think about the business, where we’re going to stay the course as is for the remainder of 2024. But as you heard me say earlier, this is the last quarter that it makes sense for us to give you this whole co-view. Next quarter, we’ll be withdrawing this and modifying our guide to show you the adjusted view of our business without divestitures we’ve announced that will close in 2024.

And this will become the basis of our 2024 guidance. In a minute, I’ll give you a range for Q2 as a marker, but as I said, more detail to come in the Q2 earnings call. Slide 12 is important because it gives you the walk from where we are now to that exit rate in 2025 and remains how we think about the journey we’re on over the next 20 months or so. And on that slide, you can see the various piece parts of the work we have to do. The loss of EBITDA from the divested businesses will drive what Cliff described as a trough in 2024. And you’ll see that recovering as we progress through 2024 and 2025 and work our way into the $100 million of cost efficiency related to stranded costs and other simplifications that we’ll be able to make to our operating structure as we continue to narrow the focus of the business.

Add to that our expectations of revenue growth as we move through 2025 and opportunities to drive margin expansion as we continue to work on our mix of business and you’ll get back to that midterm outlook. And again, to reiterate, we’re well on our way to generating the billion dollars of deployable capital with around 30% of that already deployed against debt prepayment and share repurchase. In terms of Q2, adjusted for the two divestitures completed, we expect adjusted revenue to be in the range of $795 million to $810 million. And seasonally, it’s also usually the low point of our installed base of revenue. And we would expect adjusted EBITDA margin for the second quarter to be in the low single digit percentages as we are early in our work to remove stranded costs.

Clearly, you will see this move up as we go through the quarters as I mentioned earlier. Finally, as we’ve started to pay down debt, you’ll also see our interest expense line reduce in the second quarter. And annually, based on the approximate $450 million of approval that we have to pay down debt, we’ll see a saving on interest expense line of approximately $45 million annualized at current interest rates. A lot going on here, but we hope we’ve laid out the pieces for you in enough detail, clearly with more to come in Q2 earnings. Additionally, we’ve got a busy conference schedule in the New York area in the second quarter, so continue as you do to reach out to Giles and the team for more information on that. That concludes my financial remarks for the quarter.

Operator, I’ll hand it back to you.

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Q&A Session

Operator: Thank you. [Operator Instructions] The first question is coming from Pat McCann of Noble Capital Markets. Please go ahead.

Patrick McCann: Thanks for taking my questions, guys. My first question is really for Cliff. How are you feeling about the performance of the new business signings as well as the overall macro trends, particularly through the lens of how the economy affects the commercial segment?

Clifford Skelton: Pat, thanks for the question. We haven’t done Q&A in a while, so thanks for being a little easy on us as we get going again. Listen, 2023 felt a little tight in terms of the macro trends and propensity to buy. It’s feeling like it’s starting to loosen up in 2024. The propensity to buy seems to be loosening up. The cost reduction efforts from our clients and the client base is becoming more profound, and we’re seeing that start to open up. Now, we had a slow start, as we mentioned. Steve and I both mentioned. But we see Q2 being strong and the remainder of the year being strong. So I’m feeling pretty positive about it. Like I said, we had a slow start, but we’re positive about the rest of the year, and we do see the macro trends becoming more favorable.

Patrick McCann: Excellent. And then to turn over to the financials, could you comment on what we should expect for progression over the rest of the year when it comes to divestiture activity and debt retirement?

Clifford Skelton: Let me start with activities for the remainder of the year and just say, obviously we can’t get into specifics, but I can say we’re not done and we’re still in the heat of the battle on M&A activities. Steve can comment here on use of proceeds and timing.

Stephen Wood: Yes. So I think the way that we think about it is the way that we’ve laid it out in the midterm outlook slide. We’ve talked about essentially the quantum of revenue that we see being divested, the margin characteristics that we see being divested, the proceeds that we’ve already announced, which is around $495 million of after-tax proceeds. And you heard in my remarks that we’re expressing a degree of confidence that we can get into around the midpoint of the range of $600 to $800 that we earmarked and is essentially our waterfall to the progression of $1 billion of deployable capital. And I would say at this point, Cliff mentioned that the early priority is debt repayment. We have an amount approved of somewhere in the region of $450 million.

And so we’ll be working through that and then clearly we’ll be talking further later in the year on how we think about capital allocation when that becomes pertinent against divestitures as we continue on the progress. But that’s how we’re thinking about it.

Clifford Skelton: Lots of activity, Pat, obviously, and it’ll continue through the rest of the year.

Patrick McCann: Got you. And if I could ask just one more quick follow-up to that and then I’ll pass the floor along. Just when it comes to the M&A environment, when you’re looking to make more divestitures, how do you view the current environment, specifically when it comes to, I guess, getting fair value for the businesses you would be divesting? How is that looking right now?

Clifford Skelton: Look, I don’t think there’s ever been a situation where we were worried about valuations and fair value. I think it’s been pretty consistent, even when money was tighter, as it’s starting to loosen up here a little bit or at least conceivably starting to loosen up. The whole PE environment is starting to open up and the appetite is increasing. So inbounds are voluminous, if you will, and opportunities are quite strong. So you know as well as I do what’s happening in the economy and the whole private equity kind of landscape. It’s feeling more sanguine and we’re seeing that. But from a valuation perspective, we haven’t seen any much inconsistency. Steve, any thoughts on that?

Stephen Wood: What I would add to that is, you’ll have seen from what we’re doing, is we’re divesting really quite discrete assets within the portfolio. And Conduent’s got a lot of assets in the portfolio. It’s a very broad portfolio of assets that were put together over a period of time. And so our approach is to target things that I would say have scarcity value on the outside and also potentially don’t create the one plus one equals three internally in terms of being synergistic to the way that we think about cross-sell and how we sort of build the RemainCo portfolio for the business. And so because we’ve been very targeted and because the assets are more discrete, I think we’re pleased with the valuations that we’re getting for the assets.

And then clearly we’re divesting these at multiples that are considerably above where we are. And I think as we go along that journey, clearly you’ll continue to see us targeting these discrete assets where we expect to get strong multiples of them because the alternative to that is we’ll keep them in the portfolio.

Clifford Skelton: Just one topper to that, Pat. We said a year ago that our criteria for what we would consider divesting was based on several different things. One was scarcity value, as Steve just said. One was sort of growth versus anchor inside of our own portfolio and how fast, everything’s growable, but how fast is it growable or recoverable? And then finally, from a technology perspective, where do we have technology that we could capitalize on internally versus synergistically capitalize externally? It all has went into the math equation as we considered what we might or might not divest and what we might or might not keep in RemainCo.

Patrick McCann: Excellent. Most helpful. I appreciate it. And I’ll pass the floor along. Thanks, guys.

Operator: [Operator Instructions] The next question is coming from Michael Matheson of Singular [ph] Research. Please go ahead.

Unidentified Analyst: Good morning, you guys.

Clifford Skelton: Hey, Michael.

Unidentified Analyst: Hi. Congratulations on executing the divestitures. You’re marching right along and looks very good. My questions kind of relate to revenue opportunities for RemainCo. You mentioned you have a collaboration, actually three of them, underway with Microsoft. I just want to clarify, is that related to your payments business, these collaborations? And do you see that particular collaboration as driving cost reductions or revenue opportunities by offering more capabilities? I’m kind of curious what that’s really driving toward.

Clifford Skelton: Yes. So thanks, Michael. The collaboration that you’re referring to is specific to Microsoft and GenAI and utilizing their platform in a co-marketing partnership or go-to-market partnership as well as utilizing that technology. We have three very strong pilots underway. One is in document management. We would think of that as our claims process, mostly in healthcare. We’ve got a big one around customer experience. Like many in the industry, people see real opportunities with GenAI in terms of voice-to-text and all kinds of different streamlining opportunities in the customer experience arena and utilizing GenAI to solve problems so you don’t need a human. When you refer to payments, the one endeavor we’re underway with in the payment industry is on fraud reduction.