Conduent(CNDT)2024-08-07 18:15Financial Data and Key Metrics - Q2 2024 adjusted revenue was 29 million with a 3.6% margin, exceeding expectations [5] - Net ARR turned negative for the first time at -3.325 billion and 425 million, with adjusted EBITDA down 12.8% to 245 million, driven by contract terminations and lower SNAP volumes [19][20] - Transportation segment revenue increased 1.4% YoY to 3 million [22] Market Performance - Commercial sales showed strength, particularly in CX and BPaaS spaces, 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 1 billion capital target, with 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]