Good morning and welcome to the Conduent's Third Quarter 2017 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 is being recorded. I would now like to turn the conference over to Alan Katz, Investor Relations. Please go ahead.

Good morning, ladies and gentlemen, and welcome to Conduent's third quarter 2017 earnings call. Joining me on today's call is Ashok Vemuri, Conduent's CEO; and Brian Walsh, Conduent's CFO. Following our prepared remarks, we will take your questions. This call is also being webcast, a copy of the slides 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. As many of you would have seen, we have added mixed sale based metric sheet to the Investor Relations section of our website. Hopefully, you will find this new information helpful. During this call, Conduent executives may make comments that contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 that by their nature address matters that are in the future and are uncertain. These statements reflect management's current beliefs, assumptions and expectations as of today, November 8, 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 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 prepared in accordance with U.S. GAAP. For 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 this morning and was furnished to the SEC on Form 8-K. With that, I will turn the call over to Ashok for his prepared remarks. Ashok?

Good morning, everyone, and thanks for joining our third quarter earnings call. Together with Brian, I will cover our financial and operational performance and the progress we are making to transform Conduent into a profitable, predictable, sustainable and market-leading enterprise. On Slide 3 we provide an overview of our performance for the quarter. Q3 was a very solid quarter for us with meaningful progress on a number of fronts. While revenue declined 7% compared with third quarter 2016, 40% of this decline was the result of strategic actions taken to improve revenue quality. Examples include exiting unprofitable contracts, as well as accounts with limited cross-sell opportunity. We have also seized operating in defocused geographies and exited segments which do not have clear synergy with our core portfolio. Excluding strategic actions, the year-over-year revenue decline would have been approximately 4% and sequentially revenue would have been approximately flat. Profitability improved significantly this quarter. Operating margins improved 140 basis points versus a year ago. Adjusted EBITDA increased 11% sequentially and 3% year-over-year. Adjusted EBITDA margins improved to 11.8% in the quarter, this is up 130 basis points sequentially, and 120 basis points year-over-year. We also made progress across our go-to-market priorities landing several high-quality wins and renewing 98% of eligible contracts this quarter. We grew net sales headcount for the first time in over 24 months and reorganized our client facing teams into two companion organizations; one focused on account management, and the other on new sales. Total pipeline was $13 billion at the end of the quarter, growing 9% compared to year ago. Despite this progress, we need to still improve our current revenue trajectory in our core portfolio. Looking briefly at our key segments, we made great headway on the turnaround of our commercial business with margins improving 240 basis…

Thank you, Ashok. Slide 9 provides an overview of the third quarter financial results and a walk through the P&L. As Ashok discussed, revenue of nearly $1.5 billion was down 7.3% as reported and about 7.5% on a constant currency basis compared with Q3 2016. Year-over-year revenue decline was driven by loss business and lower volumes, as well as strategic decisions including the run-off of the student loan business and New York MMIS [ph], not renewing certain non-profitable contracts and the prior year government healthcare losses. In the quarter, approximately 40% of the year-over-year revenue decline was the result of these strategic actions; all of these factors were partially offset by the ramp of new business. Gross margin was 17.6%, an improvement of 80 basis points versus the prior year period reflecting transformation driven savings and improvements in the other segment. These items were personally offset by dis-synergies investments and the impact of the revenue decline. SG&A declined by $20 million year-over-year also driven by strategic transformation, partially offset by corporate dis-synergies and investments. Dis-synergies were approximately $19 million in the quarter and $59 million in the first nine months of the year. Given these trends year-to-date, our full year estimate for dis-synergies is now approximately $75 million. Q3 adjusted operating margin of 7.5% improved 140 basis points compared with the prior year driven by the improvements in gross margin and SG&A. Adjusted EBITDA in the quarter was $174 million, an increase of 3% year-over-year while adjusted EBITDA margin improved 120 basis points to 11.8% versus the prior year. This improvement was despite a $3 million impact to adjusted EBITDA from the hurricanes. Adjusted EBITDA growth was driven by the commercial segment, as well as the other segment. Moving below the operating margin line, restructuring cost increased by $14 million…

Thank you, Brian. Before we wrap up, I'll spend a few minutes to present a more distilled picture of our company; our offerings and how we are positioned in our client's value chain. Hopefully, this provides some context for our broad portfolio and illustrates the role of technology in our business model. As you can see on Slide 17, we are an essential participant in the value chain of our clients. Across the range of industries and service situations, we are the interface with the people they serve whether they are patients, employees, citizens, doctors or insurance members. We work on behalf of our clients to manage data intensive repeatable individualized interactions happening at massive scale. Our service offerings are delivered through a combination of technology platforms bundled with a range of complementary business services covering all stages of end user interaction; from enrollment, to transaction processing, from account management to customer care. To gain an appreciation for the scope and scale of our business here are some reference points; we manage approximately 50% of the automated tolling systems in the U.S., we manage customer care interactions for some of the largest telecom, healthcare and auto manufacturing brands in the world, we process over 50% of the workers' compensation claims in the U.S., we manage the funding for a range of government payment programs across the country ensuring approximately a $100 billion is provided to citizens for their benefit every year, and we provide full HR outsourcing and benefit administration to some of the largest companies in the Fortune 500 list. Together our deep client base, broad offering portfolio, and decade's long operating history provide the basis for our bold ambition to become an industry leader. We are a partner with some of the largest and most valuable companies in…

[Operator Instructions] And our first question today will come from Shannon Cross of Cross Research.

Thank you very much. Ashok, maybe you could follow-up on what you just -- you commented about your commitment to the company and address some of the news articles that have been out there related to the CEO opening at Infosys, I don't know perhaps how you think about the opportunity at Conduent; just anything more you can give to comfort investor's concerns.

Yes, I'll do that and first of all, thank you for the question Shannon, it gives me the opportunity I think to clear the air a little bit. So I wanted to emphatically state that I'm committed to Conduent, our client's, employees and shareholders; we are in the midst of a very exciting transformation journey that is progressing well and I have the support of my clients, my board, and my team. This as you all know is a multiple year journey and I intend to see that to completion. I'm committed to building Conduent that is an industrial-leading profitable and market-leading enterprise that will be sustainable over many years. I intend to be part of that journey for years to come and cannot think of a more exciting and professionally satisfying place to be than here. Given the above, whenever I have been approached for an assignment such as you described, I have not engaged and rejected any such overture. As far as I'm concerned, that is the end of that.

Thank you, that should clear the air. And I guess just one follow-up question, just talking about some of the remediation of the contracts that are out there right now, you know, you remediated too during the quarter; I'm curious as to what the conversations are like with the customers, how you're thinking about margin potential on some of these contracts that have been challenged and sort of the scale of how they are re-signing them? I mean, are they smaller contracts, are they -- are you just able to basically say, look, we can't do this unless you give us more margin; just -- how is that working? Thank you.

Good morning Shannon, it's Brian. We had been working a number of contracts over the last year that were smaller. What we talked about last quarter was having a handful of large contracts that still needed to be remediated and we made progress in the quarter, in Q3 on two of those and so they are larger client relationships, and then in addition, in the other segment we made progress on MMS contract. In the discussions with the clients we need to meet our profitability requirements or we need an exit plan, and that's kind of how we're framing the discussions when the contracts are losing money.

And the customers are willing to for the most part accept your terms and move forward or are you seeing a lot of pushback?

So in some of the smaller discussions there is some pushback and in that part of some of the strategic actions we've taken, but in the recent discussions, they have been going well and we'll see how they progress. But obviously, there is sometimes pushback but in general, clients that view as strategic want us to be their partner going forward will work with us; in general, they understand that a company's needs to make some money on a contract, and so the discussions have been going fairly well.

Great, thank you very much.

The next question will come from Brian Essex of Morgan Stanley.

Hi, good morning and thank you for taking the question. Brian, a quick question for you. You guys are starting to build-up some cash on the balance sheet, and I just wanted to get a better understanding of how much cash do you need to run the company? How much is restricted and how might we anticipate the prioritization of that cash whether it be for utilization of M&A or pay down of debt going forward?

Brian, so -- of the 4.68 that we have on the balance sheet at the end of the quarter; 1.16 is related to the deferred comp plan. We're going to pay $50 million out to employees in Q4 and $101 million will be paid out next year to employees related to the terminations of that plan; that is all restricted. In addition, there is about $25 million more that's restricted related to that plan that once we make the final payment that will free up for corporate purposes; so that's pretty much of the restricted cash. When we think about what we need to run the company, we probably need $200 million to $250 million balance to deal with working capital fluctuations and to deal with the international requirements we have to fund our operations overseas; so that's the cash balance we would look to target. Obviously, we want to continue to make progress in getting to our leverage ratio target of under 2.5 turns which we're nearly there, but that's how we view the cash needs of the company, and then the rest of it is available to invest into the business and we've said we would use our free cash flow to invest in the business with acquiring companies. And then, we've also said proceeds from divestitures would be used to invest in the business or opportunistically to pay down debt and our view hasn't changed on that.

Got it. And then caught -- you reached a preliminary agreement for the New York MMS contract, I understand you've accrued for some liability there. What do you anticipate might be the cash impact from the exit of that agreement?

So the cash impact is anticipated to be $20 million and about half of it will be split between Q4 and Q1, and then the other half of it will be spread over five years, assuming we finalize the agreement.

Okay, that's very helpful, thank you.

And the next question comes from Frank Atkins of SunTrust.

Thank you very much. I wanted to ask a little bit about the pipeline; how much of that is industry-specific or kind of higher value added work and what are you doing to maintain discipline on profitability in that pipeline?

So our pipeline -- we verticalized the company about a couple of quarters ago, that verticalization is actually helping us create more industry-specific solutions, tailor our platforms and our capabilities in addressing some of these problems. So if I take, for example, in financial services, our compliance business is finding great traction. I would act -- to your question, I would probably say at about 30% off the pipeline is of a higher value chain order. Clearly, we are not yet in the higher end of the analytic space with Phil doing the process work on that. But if I look at automation for example, we signed 50 new -- 50 RPA deals of which 20 were with net new clients; so that's a huge progress and where I think more and more of the deals that we will get in the future will be RPA oriented which is sort of distinct from labor kind of deals. So I continue to stay fairly satisfied with the way the deal pipeline is shipping out in terms of both the value, both the penner [ph] and the value that we are delivering to the clients; and I think some of that is becoming apparent albeit in a small way with the results that we have in the commercial segment this quarter.

Okay, great, that's helpful. And from a follow-up I wanted to ask; kind of a status update and some actions you're taking in terms of your global delivery engine, the mix of offshore versus on-site capacity, can you comment there?

So from where we started earlier this year, I think we've made significant progress on that, albeit, it's -- I think it's important to point out that as compared to some of our competitors, we are little behind. So today I would say one-third of our delivery gets done from global centers, we intend to increase that, we've increased that from about 20% to 33% now but we intend to increase that more. Of course we are impeded by the public sector business which does not provide us the opportunity to use the global delivery model as aggressively as we can do for the commercial sector. We've clearly identified the Philippines, India, Jamaica and Guatemala as our global delivery hubs, and that's where we intend to not only deliver services to our clients but also sort of consume if you will our own services from those centers which at this point of time are sort of concentrated in the U.S. So both on what we do for ourselves and how we deliver to our clients, we will be using the global delivery model much more aggressively.

All right, great. Thank you very much.

And the next question comes from Puneet Jain of JPMorgan.

Thanks for taking my question. So Ashok, like lot of software's under -- it's Oracle sales force are including AI-based chat box in this core solution. So what does that mean for Conduent's customer care business; does it deals that addressable market or increase adoption rate?

So Puneet as I was mentioning earlier, if you look at the sizable deals that we have done in the past two quarters; significant number of them -- and I pointed out, 50 of the new deals that we did in the third quarter were actually RPA based. So in terms of the improvement in performance of the entire customer experience value chain, some of it is remediation to the point Brian was making but remediation also needs to be driven by a lot more technology; so we are talking about replacing if you will, people on the seats with box on the scene if you -- you know, from a technology perspective. But clearly, when we go in for remediation and ask for an improved yield on the deals we are doing with our clients, they have the same expectations; so it's either a higher degree of efficiency, a higher degree of productivity, all of that only can be achieved by deploying any kind of technology whether it's robotics, whether it's a chat box because a significant amount of our customer experience business is chat, is web-enabled support etcetera, not just picking up the phones. So even on picking up the phones and the voice part of it, we're using a significant amount of AI, we're using -- we've created a lab, both in the U.S. as well as in Bangalore, India, which is focused on this particular aspect of the business. So my view of the customer care business is two-fold; one, is we need to go back and remediate with our clients the kind of contract that we have, the terms and conditions that we have there in, but also drive a higher degree of efficiency and productivity through automation, through robotics, through AI. Now what it will do in the short-term is that it will have any impact in terms of my labor number but I do not think it will have an impact on my revenue number and definitely, it will have a very positive impact on my profitability; so we are all in. Some of the names that you have mentioned are people that we are talking to, this is a very large ecosystem, we do not pretend to have all the answers or be able to create that level of technology competence within but we are fortunate that we have a significant number of players or willing to partner with us, not only the names that you have mentioned but also other companies much smaller in size but with technology jobs that are much superior to us.

Got it. And divestiture targeting obviously increased and you intend to deploy cash in strategic acquisition. But as the run rate for divestiture increase, can you acquire fast enough to replace EBITDA and revenue impact from divestitures next year?

So the timing -- there will be a timing difference and we will work acquisitions as quickly as we can but they also have to be the right fit and has to be based on what's out in the market. So there could definitely be a timing issue but it is part of our 2018 plan to acquire companies, we continue -- again, we'll use cash that we generate, the free cash flow for that and proceeds from divestitures will be used for that or to opportunistically pay down debt and the timing will be gated on what's available and what the opportunities are.

Got it. Thank you.

And our next question comes from Bryan Bergin of Cowen.

Thank you. I wanted to start on cost takeout progress; can you detail how the year-over-year improvement is spread across your various categories? And then relative to your plan, any positive surprises or more challenging areas anticipated as you start to think about 2018?

Yes, so the $430 million is on-track for this year, that's cumulative savings and $210 million incremental year-over-year. The parts that are more positive as we mentioned was real estate, that was originally around the $35 million target and we'll overachieve that significantly. We've talked about customer care, customer experience remediation taking longer and not yielding as much this year, and although we're making progress, that is still true given where we are in the year, a lot of the impact will be in Q4 and beyond. So a lot of work this year around G&A and the support functions that's driving a lot of incremental year-over-year benefit and real estate, those would be the two areas that call out IT. We're making some progress to allow those benefits will come next year given the year of transition and there is a lot of transformation happening in the IT space.

Okay, thanks Brian. And then, can you just clarify on the guidance metrics for 2017 just as it relates to the dispositions and the 1% change on EBITDA versus and revenue? Thanks.

Sure. So on revenue, again we're sticking with the 4.5% to 6.5% decline, but given trends to-date and the impact of the Q4 divestitures, the divestitures being out of Q4, we're guiding to the lower end of that range. On adjusted EBITDA, about 5% growth is the guidance and that is -- there is $2 million impact in Q4 from not having those divested businesses any longer and then we had the $3 million impact from the hurricane in Q3. If it weren't for those two items, we'd be at the higher end of our original range, and so that's why we're calling about 5%.

Okay, thank you.

And next we have a question from Jim Suva of Citi.

Very much Brian in a shock. Could you maybe help me better understand or bridge the difference between total pipeline seem to meaningfully increase yet total signed contract value even if you adjust for the contract has slipped into Q4 for closing, it still looks like it's down meaningfully year-over-year; and quarter-over-quarter how should we think about that and what the $200 million, the combination of both of those contracts are $200 million each?

So the $200 million was in total new business TCVs for the two contracts. You know, we're making progress on sales transformation, this was the first quarter we actually increased the number of sales people we have, we're also doing a lot of work to clean up that pipeline and to progress the pipeline. So we had decent new business progress in the first half of the year, the third quarter was a little bit late because we had these two deals slip but we expect a strong Q4 and those two deals are now signed. But there has been a lot of work to realign the sales force and industry verticals and we've finally made progress in actually incrementing the number of sales people we have. So we feel comfortable where we are with the sales transition, and it was just a like quarter given the two deals.

Okay. Then a quick follow-up as, you mentioned you increased your headcount but I thought I heard seasonal; so was that increase just purely due to seasonal such as open enrollment and seasonal trends or was it due to increased total signings in new business?

So two things; one is that the overall headcount for the company on a sequential basis went up because of seasonal business like enrollment, as well as travel and retail industry. I think what Brian was pointing out more specifically and one we're excited about is, finally our net sales headcount, that is both net new sales people, as well as engagement management team as for the first time in 24 months become positive; so we are much more excited about that. We are also ramping up in anticipation for the deals that will happen in Q4, again, around enrollment, as well as around the travel and hospitality industry; but what is most exciting for us is that our net head sales count, both on the sales side, as well as the client engagement side has gone up.

Great. Now I fully understand and thank you so much for the details and clarification, much appreciated.

And next we have a question from Keith Bachman of Bank of Montréal.

Thank you and I apologize for the background noise, I'm over in Europe today. I had a question on revenues, particularly for calendar year 2018; I was hoping you could at least provide some directional metrics associated with it. Then I break it down in a couple different areas; A) organic revenue, what do you think your base business will -- can it be a positive number? B) I assume that you're going to have what you call strategic actions where effectively you're going to continue to walk away from business you can't make profit because presumably some of these deals will come up in calendar year '18 as well as '17, is that going to be an impact in '18? And then the last question is, the net between divestitures and M&A, if you could just -- I didn't quite hear the number about what the impact of that's going to be in calendar '18? And then I have a follow-up. Thank you.

So Keith, directionally we feel good about our positioning and the transformation program that [indiscernible] which is not just about cost saving but reorienting the way to equal to market, the capabilities we build, the kind of solutions that we sell into the market; I believe we are on-track. As is typical, we intend to provide the official '18 guidance on our Q4 earnings call in February, but having said that, that's also a result of some of the things that you mentioned; they are -- there will be an impact as a result of the transactions that we close out in the short-term, it will be impacted by some of the decisions that we will take, especially around long-tail and strategic decisions around deals that we do not want to entertain as and when they come up for renewal. But keeping in mind all of these portfolio actions which are part of our plan, they are tracking to our expectations, we believe that our longer term targets that we have established remain unchanged but we will give a much more clearer picture as we come into our Q4 earnings call in February.

Okay, but just to be clear there will probably be strategic actions that impact topline growth, that's a fair assumption that we're assuming for calendar year '18 as well?

So clearly anything -- the vast will impact us and as we go through contract remediation, if there are decisions we take to exit, there will be impacts; some of that's been contemplated in our modeling. And again, we're -- getting to the point where a lot of those discussions are getting behind us and we're making progress, but we have to see how the rest of them go.

Okay. And then my follow-up and then I'll see the floor is; excuse me, on the previous comments surrounding EBITDA growth -- making these decisions to get out of business that I think is entirely appropriate, but we'd have to -- just our EBITDA assumptions for next year for calendar year '18; so the growth potential -- as you said, there is going to be a timing difference between M&A and perhaps disposition, so probably have to adjust that down I would assume? And that's it for me, and again, I apologize for the background noise.

So for the transactions completed to-date, the EBITDA impact if you trended out is $7 million. And again, we've said $2 million of an impact in Q4 and that's on revenue of about $80 million if you turn the revenue out; so it's about 8.5% to 8.7% EBITDA margin which is lower than the company average. So those are the transactions to-date; as we progress, the additional transactions we're working, as we're closer to having final deals and complete transactions will give those impacts and there will be a timing difference and we'll start to look at the business with and without those transactions and show you both views when we get into '18.

Okay, fair enough, many thanks.

And this concludes our question-and-answer session. I would like to turn the conference back over to Ashok Vemuri for any closing remarks.

Yes, thank you and thank you everybody for joining us for the Q3 call. I would actually characterize our Q3 journey to be fairly exciting. I'm very pleased with the performance on our commercial business, we've seen our cross-selling, our service line penetration metric really improve; the fact that we were able to close out contract remediation's with two of our very large clients in a sort of a probably service sector -- service segment, excuse me, has been very gratifying. We signed quality deals albeit two slipped over into Q4 signings, these are substantially large and we are excited that we were able to close that. We've made significant progress on our strategic transformation, we highlighted real estate. I'm finally glad that we've got our sales and engagement team in place, obviously that number will only increase as we go forward, and as we redefine and implement our go-to-market strategy. Divestment; and we talked a lot about divestments but we want to now start talking more about amplifying our core because we don't want to -- not only tell you the business we don't want to be in but also talk a little about the amplification of the businesses that we believe we are in. So with that it's been a satisfying quarter and I'm happy that I was able to clear the air about myself; so I think which is -- which could have been a distraction. But thank you again very much for joining us on this call and hope to see you and talk to you in the quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.