Conduent Incorporated (NASDAQ:CNDT) Q3 2023 Earnings Call Transcript

Conduent Incorporated (NASDAQ:CNDT) Q3 2023 Earnings Call Transcript November 1, 2023

Conduent Incorporated misses on earnings expectations. Reported EPS is $ EPS, expectations were $0.02.

Operator: Good morning, and welcome to the Conduent Third Quarter 2023 Earnings Announcement. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Giles Goodburn, Vice President of Investor Relations. Thank you. You may begin.

Giles Goodburn: Thank you, operator, and thanks everyone, for joining us today to discuss Conduent’s Third Quarter 2023 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. 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 limitation to their usefulness for comparative purposes, please see our press release. And now I would like to turn the call over to Cliff.

Cliff Skelton: Thank you, Giles. Welcome everyone to Conduent’s Q3 earnings call. Well, these are certainly interesting and not always positive times we live in, so I hope you and your families are well. I’ll turn it over to Steve in a moment for the detailed financials. But let me first say that today marks my 18th quarterly earnings since arriving here at Conduent. I can tell you we’ve come a long way since August of 2019. It will always feel like work in progress, but since then we’ve accomplished a lot. We upgraded our systems and stabilized our environments. We optimized our infrastructure, including reducing our datacenter footprint by 80% with around 29 datacenter closures. We’ve re-engineered our sales team, sustaining 2020’s 2X improvement in TCV.

See also 30 Most Interesting Cities in America and 30 Most Fertile Countries in the World Heading into 2024.

Q&A Session

We now retain and sell more business than we lose as demonstrated by our net ARR number each quarter. Our net promoter score increased by 30 points, and we received several supplier excellence awards from clients. Our [taken up stat] availability is 3.9 plus, and we’re now almost entirely a cloud-enabled company. We’ve upgraded and continue to upgrade talent. We have a healthy culture built on teamwork and personal accountability. And we’re finally beginning to outrun the revenue lost from the days of poorer quality. The journey has now shifted to new challenges not yet satisfied. We need a more nimble portfolio of solutions and go-to-market capabilities, and that is underway. We need to double down on our best technologies and solutions and continue to grow in areas we’ve always excelled at.

We’re on that. We need to capitalize on breakthrough capabilities like immediate payments, and we’re certainly on that. We communicated these imperatives in March of this year, and we continue to execute on those commitments. But we have more to do before the fruits of our labor will be rewarded further. We are systematically executing on the strategy. We outlined to make Conduent a more nimble technology-led business solutions provider known for delivering experience, performance, and value for our commercial, government and transportation clients. Each quarter brings with it timing issues, episodic events, macro trends, and more. That said, we’re fortunate to have a more healthy portfolio diversity than most of our competitors, which is necessary to weather those issues.

This quarter was no different. Overall, our revenue and EBITDA exceeded expectations for Q3 in $932 million and $92 million, respectively, with a strong quarter in our government segment, offset by milestone timing and transportation. Contract directed milestone attainment in both government and transportation can bring with it variation based on a combination of needs of the client, implementation performance, and a jointly held clear understanding of requirements. Some of that played out positively and negatively in Q3. Our Commercial business is less influenced by back load and milestones, but is more correlated to volume and buying trends, often associated with macroeconomic conditions and circumstances. In that regard, sales in commercial lags slightly, offset by a strong and consistent sales quarter in transportation and government.

When it comes to sales, strong quarters are often buoyed by a single large deal as we’ve seen in the past. However, consistent singles and doubles are critical and Q3 reflected that theme with $154 million of ACV and a continued positive net ARR of $103 million. The mission is to continue our trajectory of strong sales, better retention, and outrunning the long tail of past losses while at the same time focusing on pipeline. Our new business pipeline is stronger than ever and grew 13% quarter-over-quarter. Now as I mentioned, the toehold for our future is in what we describe back in March at our Investor briefing, where we outline three key themes, among other things. First, rationalize and optimize the portfolio to create a more nimble and constantly growing company.

The end goal of this rationalization is to create a more synergistic portfolio of technology led business solutions. As you are aware, we recently announced the disposition of our BenefitWallet business, which is scheduled to close beginning in Q1, 2024. And our work continues with focus and rigor. Second, we described our confidence in our government healthcare suite of solutions and the uniqueness of that cloud native platform. We continue to see traction there exemplified by our award by the state of Texas for the CMdS solution. The horizon is bright for continued success. Third, we described a very unique capability for immediate payments, utilizing both the real-time payment network rails as well as the FedNow network with a unique switching capability in partnership with BNY Mellon.

We’re the only company of our kind with such capabilities. Where there are bills or disbursements, there are opportunities. And we’re beginning to capitalize across all three segments with the first wins coming from government and transportation. More to come there as states, municipalities, and a few large companies begin to socialize and operationalize their plans. Immediate payment is a bit like GenAI, which we’re also driving, especially in our customer experience business. Everyone sees the value, but the systemization and monetization of the concepts take time. Now, Steve will go deeper on the financials to include cash flow timing and the outlook for the rest of the year, as well as provide explanations for the lumpiness here and there.