Good day and welcome to the Conduent Fourth Quarter and Full-Year 2016 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event has been recorded. I would now like to turn the conference over to Alan Katz, Head of Investor Relations. Please go ahead sir.

Good morning ladies and gentlemen and welcome to Conduent’s 2016 fourth quarter and full year earnings call. Joining me on today’s call is Ashok Vemuri, Conduent’s CEO; and Brian Walsh, Conduent’s CFO. Following Ashok and Brian’s prepared remarks we will take your questions. This call is also being webcast. A copy of the slide used during this call was filed with the SEC this morning and is available for download on the Investor Relations section of the Conduent website. We will also post the transcript later this week. During this call, Conduent executives may make comments that contain certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. By their nature address matters that are in the future and are uncertain. These statements reflect management’s current believe, assumptions and expectations as of today, February 22, 2017. 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 From 10 Registration Statement and its quarterly report on Form 10-Q filed with the SEC. We do not intent 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 prepared in accordance with U.S. GAAP. For more information regarding definitions of our non-GAAP measures and how we use them as well as limitations as to their usefulness for comparative purposes, please see our press release which was issued last night and was furnished to the SEC on Form 8-K. With that, I’ll turn the call over to Ashok for his prepared remarks. Ashok?

Good morning and welcome to Conduent’s fourth quarter and full year 2016 earnings call. Today our primary focus will be on last year’s results since this was our final performance period as a part of Xerox. On our first quarter earnings call we will go into more detail about our going forward strategy and plan. That being said, it is important to note that we are reaffirming the goals we shared at our December Investor Conference and remain confident in the focus and underlying priorities supporting our company’s transformation. After providing an overview of our performance from last year, I’ll hand it over to Brian, where he will go into more details on the financials. From there we will open it up to Q&A. Let’s begin on slide three. I’d like to open by describing our vision and highlight some of our near-term focus areas. While we have been characterizing ourselves as a $6.5 billion startup, our long-term ambition is to become a sustainable leader of this industry. This will require outperforming on many dimensions, including but not limited to profitable revenue growth, deploying leading technology leverage process capabilities and best-in-class people delivering best-in-class solutions. As we begin this next chapter as Conduent, we are positioned well against this bold vision. We are a partner to some of the most admired companies in the world and every state in the U.S. We are currently a market leader in our industry and by investing in our people, technology and processes. We expect to retain this position. We have an aggressive change agenda and we’ll make continual productive change a facet of our culture and leadership approach. Later I’ll describe the progress we are making in our strategic transformation program, but I remain satisfied with the plans we are making and the…

Thank you, Ashok. In an 8-K issued last week we announced that we would be taking an impairment on goodwill and writing down our New York MMIS contract. The goodwill impairment is a non-cash impact of $935 million along with this impairment we also realized the deferred tax benefit of $107 million so a net impact of approximately $828 million. This was the result of the regular annual goodwill review of the commercial segment. Our focus continues to be to turn this segment around including our customer care offering. I want to be clear that there is no change to the long-term outlook for the profitability of the company offered in December, we remain confident in our turnaround efforts and plans for the future as we reposition for growth. The New York MMIS write down is the result of discussions that we are currently in with our client, which lead us to believe it is not probable that we will complete this implementation in its current form. Based on these discussions we have recorded a charge of $161 million, a $115 million of which is non-cash. We remain committed to servicing our existing Health Enterprise clients in New Hampshire where we have achieved certification as well as Alaska North Dakota where we are working on certification. New York we are working closely with the client on a mutually agreeable solution, we are committed to maintaining a good relationship with New York State and value the business we have across the number of other agencies within the state. While we are disappointed that we weren’t able to deliver on the MMIS contract as originally planned this move positions us with a more solid base of revenue and allows us to focus on other opportunities. As noted in our prior disclosures regarding…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Puneet Jain of JPMorgan.

Yes, hi. Thanks for taking my question and nice to see reiteration of fiscal year guidance. Can you comment on $170 million in business has usual savings you talked about in December, do you expect similar level of such savings that offsets investments in ‘17 and in ‘18?

Yes, good morning. We do have our business as usual savings that we have to actually deliver this year and next year, when we put together the $700 million of the transformation target it included $170 million of business as usual savings that we had to drive in ‘16 related to contract losses and renewal price downs. The rest of the $530 million is all the transformation initiatives we put together to drive efficiency for the company to reduce overhead to simplify those are truly transformational savings and changing the way we work that are not there to offset the business as usual pressures in the business. When it comes to the business as usual pressures in the business we’ll continue to have contract losses, we will continue to have price downs as a result of renewals and contract-by-contract, we will have to come up with those offsets, but that’s outside of the transformation program going forward.

Got it. And can you also help us understand various puts and takes in the cash flow guidance, you’ll obviously have incremental charge related to the New York contract, but the guidance remains the same. So can you comment on what offsets the charge and how much of $83 million revenue reversal will flow through in 2017?

Sure, so let me first start by talking about New York and then I’ll move to cash flow overall. So for New York, in 2016 before the write-down we had about $60 million of revenue on the contract and we lost about $30 million and we used about $75 million of cash. As we think about going into 2017, the fact is probably we will complete the project as originally contemplated, we most likely won’t have the $60 million of revenue and we will try to manage to a breakeven outcome from a profit perspective, which would be a good year-over-year improvement. And then we have the $46 million of the write-down that is a cash charge, but that is lower than the cash usage in the prior year. And keep in mind if the project had continued in its original form the milestones were pushed out beyond ‘17 so we would have been using cash this year. So from that perspective it will actually be a little bit of good news. Moving to cash flow overall, our free cash flow was down to negative in 2016, we had a number of one-time items, we had our Health Enterprise payments related to California and Montana of $155 million, we had separation related payments including the lease buyout some about $90 million. we stopped our factoring in program at year end and hurt free cash flow right about $130 million. So those are behind us, we will now have cash interest expense of $155 million to $165 million, but those other one-time items go away with a profit improvement that we’re driving we’re confident we can meet our cash flow guidance that we gave back in December.

Got it, thank you.

And the next question will come from Brian Essex of Morgan Stanley.

Thank you, good morning, this is Ivan sitting in for Brian. Could you help us understand exactly in a little bit more details as in the Other segment any additional color on how many contracts to live in there, how are they structured, what’s the duration? And you did mentioned that at some point you will try to manage that segment towards breakeven, can you update us on a timeline for flipping into profitability?

Yes, so I think at this point we probably won’t back off the timeline of three to four years that we gave although we will try to accelerate that as much as possible and make faster progress as we can. If we look at the Health Enterprise part of it, we have our Montana, California, Alaska and North Dakota, and New York Health Enterprise contracts, that makeup the Health Enterprise component. And then our education business includes our Student Loan business and some others smaller businesses related to education, but there’ll be multiple clients inside of that part of the business. But again if you look at the loss $75 million was Health Enterprise, $11 million was student lending and the overall education business in that Health Enterprise was made up of about five contracts and they all have different expiration dates. And obviously we are trying to manage all of them to profitability or at least to breakeven.

Great, thank you. And a quick follow-up, this question is for Ashok. How our clients receiving these contract negotiations, I mean obviously you’re getting credit and you guys are definitely rolling up your sleeves and doing exactly what you were set out to do, but how should we think about how clients are receiving that I did notice that gross margins held in pretty this quarter. I expect that's due in part to more disciplined contract guidelines. Any color on how clients are feeling about those negotiations would be helpful.

Yeah Ivan. So anytime you open up a contract negotiation, you have to be extremely careful and you have to ensure that a conversation with the client around that clearly amplifies the benefit to the client as well. But the remediation of these contracts is a multitude of things. Number one it's also incumbent upon us to ensure that we are delivering to the contract that we have signed. We are driving a higher degree of automation and better processes delivering them with appropriate optimal solutions. Delivering them from the right locations, and ensuring that the delivery -- the quality of the service delivered does not invite penalties. So there is a whole host of these things that go into the remediation. Also from a client perspective there are situations where the change management whether we have been chartering for the change management, whether those change managements that the clients are requesting for are appropriate and can be delivered. So we're factoring those things as well. But clearly our conversations with the client do indicate to us that there are certain situations where we may not be bringing in the kind of value that our clients proceed when they signed. And so there is a mutually agreed to point where we decide that may not be worth continuing. There are situations where the service level agreements have changed considerably from the time they were signed. And there are situations where we are reemphasizing the fact that the -- our performance will only improve if we get a return that is investible to provide them a better service. So overall I think the reception that we've had with our clients has been I would say positive. I wouldn't say it is overly positive. And the other factor to consider is if you look at the decline in our business between healthcare and commercial 25% of that is what I label as self-inflicted. We continue to hold the business with our clients we're driving a higher degree of service line penetration not seeing it yet, but that is a conversation that we're having. So there is a whole host of these things that are going on with more active conversations with our clients.

Thank you. I'll jump back in the queue.

And next we have a question from Craig Atkins of SunTrust.

Thank you for taking my questions. Wanted to follow on that question, was there an impact in 4Q revenue of carrying back some of lower margin business? What do you see going forward in terms of revenue visibility?

Yes so if you look at the Commercial and Healthcare segments the revenue decline there we would say about 25% of that revenue decline was because of decisions we made to exit contracts. And then the other 75% would be slower new business ramps, so lost contracts that we didn't want to lose and some volume issues with some large clients. But about 25% would be decisions that we made.

Okay, great. And wanted to ask what was headcount as of year-end, and is it your intention to provide some operating metrics in terms of utilization or headcount by GO [ph] or attrition going forward.

Yes so the headcount at the end of the December 31, 2016 was 96,000. As of February 15 it is 91,000. And to your second part of the question, we intent to provide a greater degree of metric that is more amenable to the industry that we belong. So it’s not just about utilization headcount we’re also going to disclose recruitment numbers, attrition numbers, things like service line penetration, productivity geographic mix, client concentration a whole host -- PCV signings et cetera a whole host of thing that we think would provide the better color to our business to all of you. We're also seeking input from the market in terms of what more they would like to see. So we factor those in as well.

Okay, great. And last one from me, if we look at free cash flow as a percent of adjusted EBITDA, what are those things that are going to push that towards that 35% range in 2018? And then as you look at industry peers, do you think there is a reason that that could go north of 35% going forward?

So I think if you look back historically we've been in the 35% range, we've just had a lot of one-time items in the prior year that brought it down. So, I think we have line of sight to getting there, getting to the 20% to 30% this year and getting to 35% and beyond and really beyond 2018-2019 it’s hard to tell but we could potentially improve more, but right now we see it the way we’ve held it.

Okay, great. Thank you very much.

And our next question comes from Jim Suva of Citigroup.

Thanks. Just a quick clarification before I ask my main question, during your prepaid remarks there was a mention about not selling and offering anymore I think was in the CFO commentary if I heard correctly or something. Can you explain what that offering was that in reference just to the State of New York or is it referring to all healthcare exchange or what was that comment about not an offering being out anymore?

There are Health Enterprise platform and when we exiting Montana and California back in 2015 we actually -- Xerox actually also communicated they wouldn’t be selling it and would be focused on existing states currently. And we just reiterated that with the exit of New York are likely write down of New York and it’s not going to finish the way it was initially contemplated based on that we just want to reiterated the fact that we wouldn’t be selling this platform again.

Okay, that’s what I thought. And so then my follow-up question is with you not focused on it any more for future state, that almost sounds like you deemphasizing it so with those states then you will eventually transition them off your platform or you continue to really keep investing in those? I’m just trying to figure out about hey what’s the real strategy here with the state you have going on or are these platforms in the few quarters or years we are going to see you take more scaling and running off right downs?

No, so the other state that are on the platform so Alaska and North Dakota they are going through the certification process with CMS the Centers for Medicaid and Medicare. And then we have New Hampshire which is already certified, we’ll continue to service those contracts that are in -- they are largely passed the development phase two are still pending certification, but they are operating and we will continue to support those.

Okay. And then if you can -- and then my last question, can you just really help us understand bridging the gap of in December you gave financial goals and today you reiterated them and that's very really clear. However you had a big write-off of your New York contract which was supposed to be starting to eventually turn positive, how do you bridge the gap of keeping those goals, or when you gave those goals did you know that New York was going to go away or did you win something big to plug the gap?

So, we do not know when New York was going to go away when we get those goals although we’ve pointed out the risk at our December 5th event. But you look at New York and it lost $30 million in the prior year it used cash it did generate $60 million of revenue, but from a profitability prospective it will begin to use if we can manage this to breakeven in ‘17. Obviously we do lose the $60 million of revenue that we have in the prior year and we’ve said that from a -- the guidance we gave in December was that revenue will decline at a similar rate to 2016 decline in ‘17. And so we are now looking at $6.4 billion of GAAP revenue and there is going to be a decline of roughly 4% off of that. So there is revenue issue related to New York, but from a profitability prospective it should allow us to drive some good news.

And let me just also add that even though we were not aware of this and it has happened now on the New York deal. Clearly we -- given our PCV signings for the year which are $6.9 billion with the all strategic transformation that we are doing, this not only on the cost side but on the operating model as well. We feel that sticking to that guidance is the right thing to do.

And then the longer-term outlook of 2018, I believe you gave revenue growth of flat to positive momentum, but with the State of New York going away is that still valid and intact? And if so help me bridge that gap.

It is. So, again New York generate $60 million of revenue it would have generate something similar, but it’s now out of our base. And so we’ve reset the base and again we think will decline about 4% this year of that lower base and then will flatten out as we get into next year and then grow beyond that that still valid. Although we’ve reset the base by taking the $60 million out for New York.

Great, thank you so much for the clarifications, greatly appreciate it.

Thank you.

The next question will come from Shannon Cross of Cross Research.

Thank you very much and good morning. My question to start with there is basically could you talk a bit more about what you’re doing on the sales force side in terms of go-to-market? And you talked about 75% of the revenue in commercial that went away the declines was not really what you wanted some of that sounded like contracts you wanted to keep. So I'm just curious I know it’s early only seven weeks in of your own company, but how are you thinking about go-to-market how you incentivizing your sales force and what does the competitive landscape look like right now?

Yes so let me take that one-by-one, so number one we have reoriented our go-to-market by verticalizing the company. So our go-to-market pivot if you will is vertical industry focus we’re driving a lot more of our solutions, our capabilities and customizing them to particular industries and issues within those industries whether it’s on the commercial side, whether it’s in healthcare or whether it’s in public sector. We intend to ramp up our sales force we have about 300 odd people for a company our size so obviously that’s very short in terms of boots on the ground, we intend to ramp that up to about 20 odd percent. We’re also repurposing our service delivery leads, clearly there is a lot more credibility if service delivery leads are in the market and facing off against clients. 80% of our revenue comes from transaction based pricing revenue model. So we intend to increase that that requires us to monetize and deploy more platform based solutions. We’re driving a higher degree of automation especially in certain parts of our business like customer care, where there is a desperate need for that. So the go-to-market is going to get more verticalized we’re going to have -- we will have more feet on the ground. We’re also narrowing the geographical focus where we do business so clearly we’ve identified North America and parts Western Europe as our core markets where we will drive higher degree of service line penetration. Even in the service line penetration we’re looking to see where the commonalities of our various services, we have a wide spread of services, we’re trying to drive the commonalities of that and sell them in a much more bundled fashion. And some of the confidence we get in that is because we have done a few of those now, and we feel confident that we seem to be getting the right sales model. Pricing remained stable as far as we can see as we are moving to value based pricing more from fee based, we’re finding that we’re able to bundle our capabilities better and provide an end-to-end solution, which is actually taking the conversation away from unit based pricing to a much more outcome based pricing, which is exactly where we want to be. I think the last part of your question on in terms of -- what was the last part…?

Competition. Hello?

On the competition, I mean we have a very wide spread of competitors both in our Commercial space and Public Sector. Given our size, scale, given the client base that we have, we feel actually fairly confident that we’re able to spend on our own against these competitors. There clearly are some situations where unlike in the past we will not necessarily continue to try and win every deal, there we have a much more sophisticated qualification criteria. We have devolved [ph] some of the pricing mechanism and the pricing decisions into the field and that is allowing us to take, while we have set guardrails allowing us to take faster decisions on a go or no go basis.

Thank you that was very helpful. Just one last question, actually one of the challenges I think prior management had when they guard in there and most of that was there were a lot of contracts that sort of surprised them and I think New York, California again that was the healthcare side of things. I'm just curious as you’ve looked through your portfolio did you feel pretty confident now that you may lose the deal here or there. But generally speaking the contracts you have right now ones renegotiated or ones that you want to keep or do you think there’s other large ones along the side again New York still big I'm not sure that would be. But other large contracts that perhaps you’ll want to get rid of overtime. I'm trying to figure out how far along you are in terms of contract pruning effectively rather than just renegotiating contracts you have?

Yes so it’s work-in-progress and thank you for recognizing that we’re only 35 days into the new company. So it is something that we will continue to work on, but the core philosophy now is to drive more repeatable scalable and predictable business. We are not in the business of trying to capture a headline by doing a big deal that we do not even understand how to start working on it. So it is going to be about redeploying our asset, it’s about continuing to invest in the assets that we have a market presence in, a size in and a credibility and capability in. I don’t think we are in the business also of signing long tenure contracts necessarily, because process and technology changes happen so rapidly that really does that make sense to -- and it’s difficult for us to take a view on where this will go in let’s say five years or beyond.

Thank you for your time.

And our next question comes from Keith Bachman of Bank of Montreal.

Hi, thank you very much. I have two questions. The first one Ashok is for you. More philosophical, when you say you want to grow the company eventually grow in where and what I mean by that is Conduent or Xerox or CSE particularly had been at the very low end of the BPO market. IBM was in the call center business and sold to Synnex, you are in the transportation business, which most of the other traditional IT service providers aren’t in. And so as you think about it philosophically are you trying to move up into higher end portion of the BPO market to compete more directly with the Genpacts [ph] of the world? And if that is in your intent, how do you move into the higher end of the BPO world and still enjoy the benefits of margin expansion?

Yes, so Keith we have a mix of -- very, very wide mix of businesses that we do. So we do business process outsourcing, which is transaction processing, we do up care. If I look at my care business that ranges from very low end technical support, all the way to supporting for example pharmaceutical companies and nursing and pharmaceutical specialist, et cetera more detail drugs and their side effects to doctors. So in that itself we are fairly wide range, in that we have to move up the value chain. Secondly we do software business, we actually build software, for example we talked about Midas+ or Vector, these are software that we deploy in our clients. So we have that software business, which is financially the way you sell it, the way you metric it is all very different from a traditional unit based pricing care business. And thirdly, we do a significant amount of custom development, we deploy that. But the thing that we have to really work on is to take all these various service capabilities, find the common thread between them and sell them not as standalone or individual services or capability, but as a bundled solution, end-to-end bundle solution that -- and driven by a significant amount of outcome based pricing. So we want to be cautious about what areas we want to get into, we are in many, many areas, so we have to narrow our focus, we want to drive growth in for example in the commercial business, which I thought of being underperforming, we see tremendous opportunities, if you take the care business we see automation, we see robotics, we see analytics, we are probably one of the largest collectors of data in the public sector and the commercial space. So we have got to now start deploying analytics capability, mining capability, warehousing capability on to that. Some of our businesses and you name one of the competitors, we may not be advantageously positioned with regards to their core competency, the only way we can compete therefore is to bundle that service or capability into a much more wider and more holistic solution out to them. So our focus is going to drive profitable growth, drive a business that is scalable, take advantage of our scale benefit, a business that’s repeatable and a business that we do not venture into things that probably don’t have a gross for this enough capabilities, enough clients and more if you will that we have, where we can drive a higher degree of service line penetration and go deeper into these clients rather than expanding in a much more wider fashion.

Okay, great. I look forward to having follow-up conversations on that. The second question I want to ask is on the source of savings. In this $700 million of target cumulative savings it appears that 50% is procurement, G&A and IT, that’s a fairly large number, call it more than almost 6% of revenue savings from procurement, G&A and IT. Just if you could flush that out a little bit on what you’re anticipating, how you drive those savings from those buckets?

Yes, I’ll ask Brian to detail that out. But I think the broad statement on that is clearly as we move from a construct, which was more hardware oriented, which were sort of manufacturing company oriented, the cost structure supporting the business is very different in a services business. So intuitively walking in one can make out that the G&A expenses et cetera, probably skewed against what a services business that I have seen before, I’ve worked in before. So that’s one part of it, but I’ll ask Brian to detail out in greater detail.

Yes I would just add that if you look when the business was under Xerox actually like R&D and marketing was pushed to the BPO business because it had the greater growth opportunity. And if you look back at the overhead when you see us as a standalone company it was lower than what it is at the point of separation. And we're -- and the G&A front, we're focused on finance, marketing, legal market, human resources and we have benchmarks reaching these functions and we're managing the functions to the benchmarks. We're trying to simplify everything we do again focusing on what a services company would do versus a technology company. When it comes to procurement, part of procurement is facilities, we have a very large facility footprint we're trying shrink, and then we're trying to work -- standup procurement organization and drive savings with our vendors. And then IT, IT again it’s about consolidating data centers, it’s about limiting the number of servers we have, it’s about bringing some things in-house that we currently outsource. So there is a lot that goes into the IT part of it too. So there is a lot of detail that goes behind all of these, but essentially it’s taking back some of our IT infrastructure and getting an overhead that supports the business and it’s affordable.

Okay. Fair enough, I’m going to sneak one more if I can and then I’ll see the floor, but your expected annual interest expense call out $160 million a year just for round numbers how are you going do M&A and still work your debt down, I’m I think you said this year probably limited M&A, but even if you look at ‘17, as you’re trying to grow your skill-sets to get into perhaps new areas or augment your existing areas, how do you complete the M&A and still manage your debt and interest expense?

So, we're going to fund the M&A through free cash flow generation. And so that’s why it’s very modest this year and as we generate free cash flow we’d use it to fund the M&A. And then from a debt pay down perspective, we'll make our mandatory payments, which are pretty small this year. They get a little bit larger in ‘18 and we'll do other things opportunistically to manage down the interest expense if and when we can. But really it’s generating the free cash flow to fund the M&A.

Okay, thank you.

And we'll pace it, when it’s affordable.

And our next question comes from Bryan Bergin of Cowen.

Hi, thank you. Just a question on policy, have you noticed any change in clients’ behavior just due to the uncertainty in the current political environment, and really anything surrounding their willingness or their pace to engage with their perception of outsourcing?

Well, not in great detail, I think it’s still wait-and-watch for a lot of people. But clearly indicators are with potential regulatory overhang getting reduced, conversions in certain specific industries, financial services for example, pharmaceutical industry that seems to have picked up momentum but yet only conversations nothing sort of converting. But the pace of the conversations has gone up. I would probably say that some of the recent developments on our side, I’ve also been triggered, I guess as a reaction to potential changes in the Healthcare space. We do expect Public Sector spending to pick-up in areas that would play to our benefit whether it’s infrastructure, transportation, tolling, et cetera. And we think that those conversations that are beginning to happen will gain momentum as things become more clear.

Okay, that was helpful. Then just on ‘17 guidance, anything further you can provide on cadence of revenue and profitability measures, I heard you mentioned cash flow seasonality anything else to call out otherwise?

So a couple of points on guidance. One, we're going to -- when we do our Q1 earnings call, we plan to give more detail around 2017. And then we plan to do annual guidance, not quarterly guidance. With that said, Q1 from a seasonality perspective is a lower profitable quarter compared to Q4, so keep that in mind from the seasonality perspective, you can see that, if you look back at the historical numbers. So those would be my comments.

And I think as I mentioned earlier we intent to provide a higher degree of operational metric disclosure as we go ahead. Given that what we’ve provided in the past is probably the expectation should be to see a lot more of that from our side, whether it’s segment information, client concentration, whether it's PCV. The mix from a horizontal vertical perspective service line penetration for sure, revenue productivity and so on and so forth.

Okay, thank you very much.

And this concludes our question-and-answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.