Conduent Incorporated (NASDAQ:CNDT) Q3 2024 Results Conference Call November 6, 2024 9:00 AM ET Company Participants Giles Goodburn - Vice President, Investor Relations Cliff Skelton - President and Chief Executive Officer Steve Wood - Chief Financial Officer Conference Call Participants Pat McCann - NOBLE Capital Markets Marc Riddick - Sidoti & Company Chris Sakai - Singular Research Operator Greetings, and welcome to the Conduent Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a re ...

Group 1: Earnings Performance - Conduent reported a quarterly loss of $0.14 per share, better than the Zacks Consensus Estimate of a loss of $0.16, but worse than a loss of $0.09 per share a year ago, representing an earnings surprise of 12.50% [1] - Over the last four quarters, Conduent has surpassed consensus EPS estimates three times [2] - The company posted revenues of $807 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 1.10%, and down from $932 million year-over-year [2] Group 2: Stock Performance and Outlook - Conduent shares have increased by approximately 1.6% since the beginning of the year, while the S&P 500 has gained 21.2% [3] - The company's earnings outlook is mixed, with current consensus EPS estimates at -$0.14 on $819.5 million in revenues for the coming quarter and -$0.53 on $3.38 billion in revenues for the current fiscal year [7] - The Zacks Rank for Conduent is currently 3 (Hold), indicating expected performance in line with the market in the near future [6] Group 3: Industry Context - The Outsourcing industry, to which Conduent belongs, is currently in the bottom 10% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor sentiment [5]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-Q _______________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37817 CONDUENT INCORPORATED ____________________________________________ ...

Financial Performance - Q3 2024 revenue was $807 million, a decrease of 13.4% year-over-year from $932 million in Q3 2023[3] - Adjusted revenue for Q3 2024 was $781 million, down 6.0% from $831 million in Q3 2023[3] - Pre-tax income for Q3 2024 was $159 million, compared to a loss of $313 million in the prior year[5] - Adjusted EBITDA for Q3 2024 was $32 million, with an adjusted EBITDA margin of 4.1%, down from 7.2% in Q3 2023[3] - Revenue for the three months ended September 30, 2024, was $807 million, a decrease of 13.4% from $932 million in the same period of 2023[21] - Net income for the three months ended September 30, 2024, was $123 million, compared to a net loss of $289 million in the same period of 2023[23] - Total operating costs and expenses for the three months ended September 30, 2024, were $648 million, down from $1,245 million in the same period of 2023, representing a 48.0% reduction[21] - Adjusted revenue for the three months ended September 30, 2024, was $781 million, a decrease of 6% compared to $831 million for the same period in 2023[49] - Adjusted net income for the three months ended September 30, 2024, was a loss of $24 million, compared to a loss of $44 million for the same period in 2023[49] - Adjusted operating income before adjustment for divestitures was a loss of $11 million for the three months ended September 30, 2024, compared to a loss of $15 million for the same period in 2023[50] - Adjusted EBITDA for the three months ended September 30, 2024, was $32 million, down from $60 million for the same period in 2023[50] - The company reported a comprehensive income of $137 million for the three months ended September 30, 2024, compared to a comprehensive loss of $308 million in the same period of 2023[23] Cash Flow and Liquidity - Cash and cash equivalents at the end of September 30, 2024, were $393 million, down from $498 million at December 31, 2023[25] - The net cash used in operating activities for the three months ended September 30, 2024, was $(13) million, compared to $(11) million in the same period of 2023[26] - The company generated $208 million in net cash from investing activities for the three months ended September 30, 2024, compared to $(22) million in the same period of 2023[26] - Free Cash Flow for the three months ended September 30, 2024, was $(29) million, compared to $(33) million for the same period in 2023[53] - Operating Cash Flow for the three months ended September 30, 2024, was $(13) million, compared to $(11) million for the same period in 2023[53] - The Adjusted Free Cash Flow for the three months ended September 30, 2024, was $(6) million, compared to $(35) million for the same period in 2023[53] Debt and Assets - Total assets decreased to $2,841 million as of September 30, 2024, from $3,162 million at December 31, 2023[25] - Long-term debt decreased significantly to $718 million as of September 30, 2024, from $1,248 million at December 31, 2023[25] Business Operations and Strategy - The company completed the sale of the Casualty Claims Solutions business for $224 million in cash during Q3 2024[4] - Conduent repurchased approximately 3.9 million shares of common stock as part of a $75 million share repurchase program[6] - FY 2024 adjusted revenue outlook is projected between $3,185 million and $3,215 million, down from $3,320 million in FY 2023[9] - The company achieved a net annual recurring revenue (ARR) activity metric of $46 million[1] - New business signings for annual contract value (ACV) totaled $111 million in Q3 2024[1] - Conduent was recognized as a leader in all five categories in the NelsonHall 2024 NEAT Report for Healthcare Payer Operational Transformation[7] Non-GAAP Measures - The company reported its financial results in accordance with U.S. GAAP and also discussed non-GAAP measures to provide better insights into business trends[32] - Adjusted Revenue, Adjusted Profit Before Tax, and Adjusted Net Income (Loss) are calculated by excluding items such as amortization of acquired intangible assets and restructuring costs[35] - Adjusted EBITDA is used to assess operations, representing income before interest, taxes, depreciation, and amortization, adjusted for specific items[42] - Free Cash Flow is defined as cash flows from operating activities minus costs for additions to land, buildings, and equipment, used as a liquidity measure[45] - Adjusted Free Cash Flow includes additional adjustments for litigation recoveries and transaction costs, providing insight into cash generation capabilities[46] - Revenue at Constant Currency is adjusted to exclude the impact of foreign currency translation, aiding in understanding business trends[47] - The company provided a Full Year 2024 outlook for Adjusted EBITDA Margin, excluding certain items that may materially impact reported results[48] - Management emphasizes that non-GAAP measures should not be viewed in isolation from U.S. GAAP results, as they provide additional transparency[32] - Adjusted Operating Income and Adjusted Operating Margin are calculated by adjusting for non-cash items and other identified items not indicative of ongoing business[41] - The adjusted effective tax rate is provided to facilitate comparisons between actual and adjusted rates, offering insights into underlying business results[39] - Total non-GAAP adjustments for the three months ended September 30, 2024, amounted to $(183) million, compared to $296 million for the same period in 2023[50] - Total non-GAAP adjustments for the nine months ended September 30, 2024, were $(3.44) million, compared to $1.49 million for the same period in 2023[51] - Adjusted Effective Tax Rate for the nine months ended September 30, 2024, was 19.7%, compared to (158.4)% for the same period in 2023[51] Earnings Per Share - The company’s basic net income per share for the three months ended September 30, 2024, was $0.75, compared to a loss of $1.34 per share in the same period of 2023[21] - Adjusted Diluted EPS for the three months ended September 30, 2024, was $(0.14), compared to $(0.09) for the same period in 2023[51] - The effective tax rate for the three months ended September 30, 2024, was 22.2%, up from 7.8% in the same period last year[51] - Adjusted EBITDA Margin for the three months ended September 30, 2024, was 4.1%, compared to 7.2% for the same period in 2023[51]

Core Viewpoint - Momentum investing focuses on "buying high and selling higher" rather than traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investors often face challenges in determining the right entry point for fast-moving stocks, which can lead to investments with limited upside or potential downside [2] - A safer approach may involve investing in bargain stocks that have recently shown price momentum, utilizing tools like the Zacks Momentum Style Score to identify promising candidates [3] Group 2: Conduent (CNDT) Stock Analysis - Conduent (CNDT) has shown a price increase of 15% over the past four weeks, indicating growing investor interest [4] - The stock has gained 18.9% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer timeframe [5] - CNDT has a beta of 1.46, suggesting it moves 46% higher than the market in either direction, indicating fast-paced momentum [5] - CNDT holds a Momentum Score of B, suggesting it is an opportune time to invest in the stock [6] - The stock has a Zacks Rank 2 (Buy) due to upward revisions in earnings estimates, which typically attract more investor interest [7] - CNDT is trading at a Price-to-Sales ratio of 0.17, indicating it is relatively undervalued, as investors pay only 17 cents for each dollar of sales [7] Group 3: Additional Investment Opportunities - Besides CNDT, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, presenting further investment opportunities [8] - Investors can explore over 45 Zacks Premium Screens tailored to different investing styles to identify potential winning stocks [9]

Momentum investing revolves around the idea of following a stock's recent trend in either direction. In the 'long' context, investors will be essentially be "buying high, but hoping to sell even higher." With this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving that way. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades. Even though momentum is a popular stock cha ...

Group 1 - MedRisk has acquired the Casualty Claims Solutions business from Conduent, including Strataware® products and services, enhancing its offerings in workers' compensation and auto casualty bill review solutions [1][2][3] - The newly acquired business will operate under the brand name StrataCare, which has a significant history in the industry, thereby expanding MedRisk's portfolio for various stakeholders [2][3] - The acquisition reflects MedRisk's strategic growth and commitment to improving service and outcomes for its customers in the managed care sector [3] Group 2 - MedRisk, founded in 1994, is a leading managed care organization focused on physical rehabilitation and medical bill review for the casualty claims industry [4] - Conduent provides digital business solutions across various sectors, leveraging advanced technologies to enhance client operations and customer experiences [5]

Financial Performance - Adjusted Revenue for Q2 2024 was $811 million [5], a decrease of 4.7% year-over-year [11] - Adjusted EBITDA for Q2 2024 was $29 million [5], a decrease of 54.7% year-over-year [12] - The Adjusted EBITDA margin for Q2 2024 was 3.6% [5] - The company is targeting revenue between $3325 million and $3375 million for FY 2024 [24] - The company is targeting an Adjusted EBITDA margin between 4% and 5% for FY 2024 [24] Sales Metrics - New business signings ACV (Annual Contract Value) for Q2 2024 was $142 million [5] - Net ARR (Annual Recurring Revenue) Activity Impact (TTM - Trailing Twelve Months) was $(49) million [5] - Q2 2023 New Business TCV (Total Contract Value) was $1345 million, while Q2 2024 was $276 million [11] Divestiture and Capital Deployment - The company has deployed 66% of its $1 billion capital target as of June 30, 2024 [6] - Approximately 57 million shares have been repurchased [6] - Debt repayment has led to lower leverage over time [6] Balance Sheet and Cash Flow - Adjusted Free Cash Flow for Q2 2024 was $(55) million [17] - The company had $307 million of cash at the end of Q2 2024 [17] - The net adjusted leverage ratio was 1.7x [17] - Debt Prepayment was $300 million [17]

Financial Data and Key Metrics - Q2 2024 adjusted revenue was $811 million, down 4.7% YoY, and adjusted EBITDA was $29 million with a 3.6% margin, exceeding expectations [5] - Net ARR turned negative for the first time at -$49 million, but recovery to positive is expected in Q3 2024 [13] - Adjusted EBITDA margin is expected to improve sequentially, reaching 3.75% to 4.25% in Q3 2024 [33] - Full-year 2024 adjusted revenue is projected to be between $3.325 billion and $3.375 billion, with adjusted EBITDA margin in the range of 4% to 5% [27] Business Line Performance - Commercial segment revenue declined 3.8% YoY to $425 million, with adjusted EBITDA down 12.8% to $41 million [17] - Government segment revenue fell 9.3% YoY to $245 million, driven by contract terminations and lower SNAP volumes [19][20] - Transportation segment revenue increased 1.4% YoY to $141 million, with adjusted EBITDA at $3 million [22] Market Performance - Commercial sales showed strength, particularly in CX and BPaaS spaces, with $82 million in ACV [12] - Government and Transportation segments saw strong add-on business from existing clients, with a strong pipeline in Government Healthcare [12] - Transportation segment benefited from the implementation ramp of a large transit project in Australia, offset by a pricing adjustment in tolling business [22] Strategic Direction and Industry Competition - The company is focused on portfolio rationalization, with $1 billion of deployable capital, 66% of which has been used for debt prepayment and share repurchases [8][32] - Divestitures have reduced net leverage to 1.7x, with a target of 1x by 2025 [25][32] - The company is investing in generative AI initiatives, with promising pilots in fraud detection and document management [40][41] Management Commentary on Operating Environment and Future Outlook - Management expects sequential improvement in EBITDA margins through 2024 and 2025, driven by cost efficiency programs and stranded cost removal [15][16] - The company is confident in achieving its 2025 exit rate targets, with a strong sales pipeline and cost reduction initiatives [32] - Management highlighted the importance of cross-segment opportunities, particularly in public sector markets for human capital and finance solutions [38][39] Other Important Information - The company repurchased 43.3 million shares, including all shares previously owned by Carl Icahn, simplifying decision-making and capital allocation [24][46] - Capital expenditure in Q2 was 3.6% of revenue, expected to be around 3% for full-year 2024 [26] - The company is partnering with a leading cybersecurity firm to address PII and PHI identification in data breaches [42] Q&A Session Summary Question: Impact of Carl Icahn's share divestiture on decision-making - The divestiture simplifies decision-making, as the board is now smaller and more aligned on capital allocation and strategy [45][46] Question: Confidence in full-year targets - Confidence is driven by cost efficiency programs, sequential EBITDA improvement, and a strong sales pipeline [47][48] Question: Potential for additional divestitures - No major divestitures are expected, but opportunistic offers for discrete assets may be considered [50][51] Question: Microsoft AI partnership and client receptivity - The partnership with Microsoft is focused on proven AI pilots, particularly in fraud detection and document management, with strong client interest [55][56] Question: Government Direct Express contract status - The contract is complex and risky, with a high probability of retention despite informal negotiations with another bank [57][58] Question: Future capital return to shareholders - The company has deployed $880 million of its $1 billion capital target, with $120 million to $140 million remaining for future allocation, potentially for shareholder returns [60][61] Question: Outsourcing trends in healthcare and other sectors - Outsourcing interest is increasing in healthcare, logistics, and public sector markets, with a focus on nearshore and offshore capabilities [65][66] Question: Geographic markets for outsourcing - Traditional markets like the Philippines and India remain strong, with some exploration of new regions like South Africa and Egypt [68] Question: Revenue model for GenAI and Microsoft collaboration - The collaboration is focused on hosting solutions in Azure, with mutual benefits from increased GenAI adoption [69]

Conduent (CNDT) came out with a quarterly loss of $0.14 per share versus the Zacks Consensus Estimate of a loss of $0.26. This compares to earnings of $0.01 per share a year ago. These figures are adjusted for nonrecurring items. This quarterly report represents an earnings surprise of 46.15%. A quarter ago, it was expected that this company would post a loss of $0.15 per share when it actually produced a loss of $0.09, delivering a surprise of 40%. Over the last four quarters, the company has surpassed con ...