Good morning and welcome to the Conduent's Fourth Quarter and Full Year 2017 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Alan Katz, Vice President of Investor Relations. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to Conduent's fourth quarter and full year 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. 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, February 21, 2018, 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 more information regarding the 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 Q4 and full year earnings call. During our prepared remarks, Brian and I will cover our financial and operational performance and highlight the progress we are making to transform Conduent into a profitable, predictable, sustainable and growth oriented enterprise. We will also provide our outlook for 2018. Last year we launched Conduent to deliver significant value to our shareholders, clients, employees and partners. We positioned our company to be more unified, focused, agile and better position to win in the markets where we compete. Our 2017 results are in line with our expectations following our first full year. In some areas, we exceeded our own expectations creating a sense of momentum and confidence to what lies ahead. We would not have been able to complete our first-year so successfully without the support of many stakeholders. I'd like to thank my management team, and all Conduent employees for their hard work and resilience, our clients for their continued trust and confidence, and our business partners for their continued support during a year of tremendous change and accomplishment. Slide 3 provides an overview of our results for the year. In terms of our operational performance, we met or exceeded our goals for the year. An early results from a strategic changes indicate we’re on the right path. Here are some highlights. Our revenue declined 6% in line with what we projected for our first year but when evaluating these results, it is important to view it from the perspective of our inherited history and the change we’re making to our go-to-market strategy. Prior to this spinoff, revenue had been on the decline for many years. We inherited an opportunity pipeline comprised of low margin single service line deals with weak underlying technology. Deal structures…

Thank you, Ashok. Let's start on Slide 9 with an overview of the fourth quarter financial results and I’ll walk through the P&L. Revenue of just under $1.5 billion was down 1% as reported and 2% on a constant currency basis compared with Q4 2016. The year-over-year revenue decline was driven by strategic decisions, lost business, lower volumes from existing clients and the impact from the Q3 divestitures. These factors were partially offset by the Q4 2016 revenue adjustment taken as a result of our decision to exit the New York MMIS contract, as well the ramp of new business. Gross margin of 18.9% was an increase of over 10 percentage points versus the prior year reflecting the impact of New York MMIS charge taken in Q4 2016. Adjusted gross margin which removes the impact from New York MMIS was up about 100 basis points compared with the prior-year period driven by our transformation program. SG&A was 21 million lower year-over-year driven by strategic transformation partially offset by corporate to synergies and investments. The synergies were approximately $80 million in the quarter. Q4 adjusted operating margin of 8.7% improved 190 basis points compared with the prior year driven by the operational improvements and adjusted gross margin and SG&A. Adjusted EBITDA in the quarter was $188 million, an increase of 9% year-over-year while adjusted EBITDA margin improved 180 basis points to 12.6% driven primarily by the improvement in our commercial segment, as a result of our transformation program, as well as modest improvement in our other segment. Moving below the operating margin line, restructuring charges were $25 million as we continue to close facilities and reduced headcount. Our pretax income in the fourth quarter was $4 million when looking at the year-over-year improvement remember that we had the impact of the…

Thank you, Brian. Before we wrap up, I'd like to pick up on the discussion that began last quarter around the way we're describing our company. Many of you have asked for additional clarification or how to think about Conduent. Looking at Slide 18, you might remember this chart from last quarter. It is a depiction of our value chain. At the highest level, we manage essential aspects of our client operations, while engaging directly with the people they serve. We manage millions of interactions every day 24 x 7 with patients, physicians, employees, customers and citizens. Across the full spectrum of the work we do whether its procurement, finance and accounting, customer experience, workers compensation, compliance or HR outsourcing, we work on behalf of our clients to manage data intensive repeatable individualized trend interactions happening at massive scale. We support these digital interactions with the range of industry-specific technology based workflow and business process solutions from our core offering. In each case we are managing large amounts of data and personal information and with each interaction, those we serve expect these interactions to be seamless, personalized, intuitive and secure. While our portfolio spans many segment, we're not simply in the tolling business or HR outsourcing business or the payments business. We are not simply a business services company. We're in the business of helping our clients manage digital interactions with the people they serve seamlessly, securely, personally and at massive scale. We are a digital interactions company and as part of next stage of work, we will undertake the important work of showcasing our assets, expertise and capabilities to demonstrate this distinctive position. In closing, we are off to a solid start for our new company. We are improving our performance. Our balance sheet is healthier. We are executing against our transformation. We're making the right investments in our technology platforms and elevating our position as an essential participant in our client's value chain. And as a next step, we are holding a unique and differentiated positioning that captures our value simply and provocatively, digital interactions. These are the essential components for supporting our ambition to become a leader in our industrial and ultimately over time a great company. I'll open the call now for Q&A.

[Operator Instructions] And our first question today comes from Frank Atkins of SunTrust.

First one would be on signings. Can you talk about how much of the new signings is industry specific or has some sort of technology component and then was there any one-timeish impact in that signing somewhere?

So let me take that question. In Q3, we had mentioned that we had about $200 million of signings that you know skipped or missed the timeline by which we could have qualified them to be in Q3. So that's $200 million that slipped into Q4. In terms of most of the signings and business are a combination of technology and domain-based capabilities that we have built for our industrial solutions or for our verticals. So all of the new business that we're signing has to necessarily be technology platform-based either or has to be a software-based and is a vertical solution. So whether it's compliance in the financial services, whether it is a better outreach in the PBM market, whether it is more sophisticated way of doing claims management in the payer space et cetera. So these are all – the direction that we're moving in is – to a more verticalized solution, which is of course technology and domain-based.

And could you give us a quick update on headcount mix by geography and how that's diversifying? And then also what do you see out there in terms of the labor environment and talent acquisition?

So maybe I'll start with you headcount mix. Headcount, we ended the year at 90,000 employees versus 96,000 in 2016 and we do have a shift to lower cost geographies. Inside of that, we also have some insourcing that we've done on the technology side, that's increasing our headcount, as we insource some of the things we had previously outsourced.

On the talent part, I would say I mean – we’ll operate out of locations and geographies where the availability of talent is there and it makes economic sense for us to do business. Clearly, as we are moving into more sophisticated technology zone we will be looking for talent both in the U.S. as well as outside the U.S. I think we’re continuing to be challenged by being able to find that at scale, but this war for talent has been going on for a while and we have to attract people, based on the kind of value proposition that we want to create.

The next question comes from Brian Essex of Morgan Stanley.

Maybe for your Ashok, as you shift your strategy towards technology and analytics driven platform business, what percentage of your business right now would you consider platform. And maybe what do you anticipate that reaching in the future and then what is the margin profile of this business relative to the rest of the business that you have?

So Brian the percentage of work that we deliver on platforms at this point in time is about 60% to 65%. So it's a fairly healthy – that's one part of our business that's actually – we've been maniacally focused on and that's one that we are driving. And that also interestingly is the one that's finding the most reception in our client base. With regard to, obviously as we do more of work on platforms and you know – the more software we deploy the margin profile dramatically improves. We've not seen the benefit of that dramatic improvement as yet, but our focus is onto continue to drive that because we're talking about bundle services, low labor concentration, or low labor utilization allowing us to reuse the platforms because these are multiuse platforms. So the idea here is that, even though we're beginning only now to see some of the impact of the better margin performance as we deploy our software and platforms. The expectation based on the deals that we have already signed and the deals that we're working on that, that margin profile will definitely improve. But from a delivery perspective at this point in time between 60% to 65% of what we deliver is, on platforms. But the efficiency of that, the multiuse of that are the fact that, we need to bundle that better to provide seamless transactions at scale needs to get better. Therefore, the investments that we're talking about in our technology platforms and infrastructure.

And I need to follow up, on the contracts that you’ve remediated it seems as though, you know that that's at least kind of help the bleeding a little bit, but how profitable can those contracts be going forward. And maybe remind us – are these commodity contracts, are these higher value contracts and how do we think about, how this plays in your customer relationships if they are commodity contracts in terms of why you would need to invest in those businesses?

So, I'll start it. The six contracts that we’re remediating are standalone customer care contracts and them losing money even in the fourth quarter, they lost money but they improved year-over-year. Now that we've remediated through today five of the six, we're going to start to see, every quarter we're expecting to see year on year improvements in 2018. And we expect by the middle of the year to get to breakeven or better on these group of contracts. And we're still working aggressively to remediate the six contracts which we expect to have done over the next couple of quarters. This is not part of what we're looking to divest in the 250 to 500 million. We do have a lot of important big relationships here that – where we do other offerings and have other offerings, but we'll continue to look at the portfolio and we'll make the best decisions for the company. So we continue to look at it.

I guess you know what I'll getting and those, is there a good rationale. I mean, I understand that there are important relationships, but it seemed as though in previous quarters some of the comments around those contracts so that they were relatively commodity in nature. So I guess the question would be is it really that critical to hold on to them?

So some of them are commodity so, we have to take a look at every options that's available to us. I think the first way to look at this is to try and see if you can remediate them, make them much more efficient, drive lot more automation and technology into it and see how they perform. We have to remember that a lot of the experience business is bundled with other services. The end of the value chain in the digital interaction space is still the experience part of it. Now do we need to be picking up phone calls for all of these things maybe not? Are we shifting to chat? Are we shifting to web-based? Yes. Are we moving the whole experience part from a low-end commodity based to a higher end? Yes. So we'll see how they perform. And as I said you know none of the options are off the table. And we're very clear that we are not signing or interested in signing any deal which is a standalone experience business.

And next we have a question from Shannon Cross of Cross Research.

I was wondering can you talk a bit about what leads you to see the improvement in revenue through the year. I understand that first half has some tough comps because you divested revenue. But specifically, what are you hearing from your customers. What are you seeing in terms of signings that may be to believe that you should be in a whether organic revenue growth rate by the end of the year? Then I have a follow up. Thank you.

So if we look at the strategic decisions we took in 2017 as we go through the first half of 2018, we start to lap those decisions. So the first couple of quarters will be harder comparison and the comparison get easier in the second half. And we'll also have new business that's starts to ramp in the second half. So if you look at both commercial and public sector, we'll have tougher compares Q1, Q2 and then they get easier and we'll see more new business come in, in the second half of the year.

I agree. I’m just wondering what leads you to have comfort about the new business that’s coming in. How much of that is sort of signed and then the pipeline at this point or you know how much is that it’s just based upon conversations you're having with potential customers?

Yes, so a lot of - we’re ramping and talking about is already signed and there is a transportation deal for example in public sector that's going to go live in Q2. We expect transportation inside of public sector to grow in 2018. We have the government healthcare and payments contracts that have been running off, we’ll wrap those as we get through Q2. So you take a look at public sector and we can see based on the new business that we've already signed plus the lapping of those other contracts, the revenue trend improving. Commercial, the same thing we've signed a lot of new business in commercial in the last two quarters that will ramp. And again a lot of the strategic decision we’ll behind us. We continue to have a strong pipeline at 13 billion. We're very focused on the sales investments in driving in your signing that deliver revenue, but we have a line of sight to a large portion of it.

And then my second question is just on use of cash. You talked about especially with the divestitures that you would utilize cash for debt paydown or acquisition. How do you sort of balance the two and how are you thinking about acquisitions you haven’t done any obviously you’re trying to divest right now but how you sort of thinking about that in timing? Thank you.

Yes, so we’ve specifically called out acquisitions because we do realize that there are gaps in our capabilities there are adjacencies that we could expand into. We’re not talking about Big Bang acquisitions more tuck-in in the nature. And we have said that the acquisitions will actually be funded by conversion of EBITDA to free cash flow obviously as we generate more cash with regard to divestitures we will balance the opportunity for reducing debt vis-à-vis acquisitions and we’ll do this in a way that is both fair to our shareholders as value creating for our shareholders as well as that for the company.

And our next question comes from Puneet Jain of JPMorgan.

So you are in the final year of your cost takeout program and the other segment is also going to be breakeven this year. So how should we think about diverse of margin expansion and level of investments beyond this year. And then as you move past restructuring payments should we expect any change in your use of cash priorities from next year?

Yes, so on the first one, we take a look at what was the first question.

Margin expansion and levels of investments beyond this year?

So our margin expansion as we look at this year we have 225 million of incremental cost savings coming from the transformation program. In the midpoint we’re calling 65 million of adjusted EBITDA expansion and the rest will be used for investments and other offsets as we need them. We have investments that are going to ramp in our technology platform investment Ashok mentioned a $200 million three-year program part of that is CapEx, part of that OpEx. So that will take a lot of our investment and then we have to continue to make the go-to-market investments we talked about. When we think about the long-term margin profile the company if you look at the midpoint of our guidance for 2018, we get to 12.6% margin roughly from a 9.8% margin that we started with in 2016. So we’re half way towards our long-term model of 15% we’ll continue in the out years to get margin improvement by pulling back in some of the - investments eventually by revenue growth and by takeout. There always be cost takeout even though the formal program will be over at the end of this year we will always have cost takeout programs in place to drive margin expansion.

Go ahead.

I was just going to say everything we see today we are confident in our long-term model that we've been talking about.

And should we expect change in use of cash maybe capital returns could be on the table as you move past restructuring payment?

Yes, so right now we’re focused on acquisitions and paying down debt, restructuring the business obviously we’re calling for 50 million to 75 million of restructuring in 2018 which is down from a 100 million 2017. So restructuring will be less of a cash use and it will help us generate more free cash flow. When we get you know we’re really focused on the divestures and paying down debt and acquisitions in 2018 as we get out to 2019. We’ll have to see what makes the most sense for the company.

So next we have a question from Bryan Bergin of Cowen.

On the cumulative gross savings you currently ahead by 75 million what’s the potentially for outperforming that total savings target. And if you can what are the areas that are most likely to drive that?

So, we’re ahead by 475 so we’re ahead by 45 million and we’re focused on over achieving the whole program but right now we’re confident we're on track for the 700 million. We believe that 225 of incremental savings gives us what we need to drive the investments and the profitability improvement this year. And in the areas that would overachieve if we over achieve would most likely be real estate which Ashok talked about and G&A those are areas that we've been very focused on. They have been overachieving up this point and we stay focused on them.

And then on signings, can you comment on the new business bookings trajectory particularly within the public sector. And then just overall mix within the pipeline can you just comment how that has changed?

So in terms of signings, we're fairly comfortable with the way that’s progress - renewals have been high, new business signings. I would actually say it’s been sort of middling but you have to remember that we have introduced a lot more stringent conditions in order for people to sign new business. That level of discipline and rigor has allowed us to improve the quality of the pipeline for sure, but then of course it's been - it’s much tougher to get a deal approved past us. I would say that commercial has obviously done extremely well because of -how much of a laggard it was and we paid specific attention to it. In the case of public sector you have to remember that decisions that are taken a few years - a few decisions that were taken prior to 2016 has sort of - or losses that we had prior to 2016, the impact has been felt, now that's the way the public sector business is longer-term deals, sale cycle is longer. I feel very confident about how we are progressing in the transportation and the payment space especially in the public sector space where is the way we’ll continue to concentrate. In the commercial space clearly we are seeing a huge amount of traction in the high-tech, in the retail and industry space. We are seeing transaction in the banking and insurance space, and I think the one call out for us would be the entire pair space in commercial which is doing extremely well. We’re beginning to see traction in Europe, but I think it will take some amount of time before we actually see that ramp up as aggressively as the commercial business in the U.S. is.

The next question comes from Jim Suva of Citigroup.

I have a clarification question as that might be more appropriate for Brian and then a more strategy question probably for Ashok. So Brian the clarification question is on the revenue guidance I think it was minus 3 to flat. Does that include the divestitures that you've identified, you mentioned during this call you identified several more or would those be incremental we need to take out. And I think on the last earnings call you mentioned you identified about 250 million to 500 million where do we sit in the realm of, is that still the target had they kind of been whittled away? The strategy question for Ashok is, Ashok you mentioned you’re a lot more disciplined, a lot more stringent to get deals approved with multifaceted profitability and you’re just not doing deals to win deals that's very commemorable and I think why you know your profitability is improving. But I wanted to ask is your criteria now at the industry average or above the industry average or was just a catch up or how can we think good about the move to be more stringent and discipline versus the rest of the industry? Thank you.

So I'll start - all additional divestures - future divestitures are not in our guidance and when we close a deal, we’ll update guidance and provide the information. We are still working 250 million to 500 million of revenue to divest in and that is in process and we’re working it as quickly as we can but we’re balancing making sure we get the right buyers with the right price point. And the same goes for future acquisitions, we've included nothing in our guidance for acquisitions and as we said in our commentary, we have 300 million available to do acquisitions with. And as we do those deals, we’ll include them in our guidance.

Perfect.

Yes, so in terms of the criteria you know the way we're looking at it as we have a set of aspirational goals. We look at the industry leaders in this particular space and in the various segments that we compete in, and we see what their margin profile or the kind of transactions that they’re doing. Of course this is a function of - we have to be pragmatic in terms of how much the market can bear and where we are at this point in time. So it’s a journey for us but we definitely have aspirational target. And as we set those targets and be pragmatic about being able to be a little flexible about it, we will cross our catch up. So it’s not just a catch up its more than a catch up. We're just not doing this from a one year perspective, some of these transactions are three and five years. So we intend to catch up and we intend to overtake and we are using our competitors and we’re using what we have done traditionally, how we can do that better. We are also seeing what the market can bear. There are transactions out there quite honestly which we have done at lower margins than our aspirations and expectations are because of the belief that as we bundle more transactions into it, the profitability paradigm will improve. Again as I tell everybody, you cannot make revenue out of profit, you can make profit only when you get revenue but so we have to balance the two and but we have to be very disciplined about the kind of transactions the terms and conditions, the contractual agreement, the tenure and where we are delivering these services from and how we delivering these services.

And our next question comes from Mayank Tandon of Needham & Company.

It's actually Kyle Peterson on for Mayank today. I just want to touch a little bit, come on organic revenue growth realized that there is a lot of moving pieces, some of the divestitures and kind of revamping the sales force and rightsizing contracts? I guess some of that dust is settled, kind of what are you guys looking at in terms of organic revenue growth opportunities for the business?

So in 2018 at the midpoint of our guidance, organic is declining 1.5 points which is in line with the commentary we previously gave where we said flat with the help of M&A. As we look into the future years, we’d expect 2% to 3% growth organically and then to get to industry level growth rates with the help of acquisitions that's been our model and we’re still working towards that model. And again we’ll see revenue improve in 2018 quarter-by-quarter as we lap our strategic decisions. A lot of the revenue decline we’ll see in 2018 will be driven by the strategic decisions and then we'll have the new business and other normal losses starting to get positive as we go throughout the year.

And then I guess just a little bit. If you guys could touch on I know you guys mentioned essential divestiture proceeds could be here for additional acquisitions or kind of debt paydown. On the debt side, have you guys kind of thought about which pieces of the debt pack you guys would maybe kind of prioritize whether it would be kind of one of the term loans or any possibility for any action on the senior notes?

So, we are looking and spreading a lot of time on this and we’ll do what makes the most shareholder value - makes the more sense from a shareholder value perspective, so we’ll talk about it more as we get there.

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

Okay thank you. Thank you, everybody. Quite pleased with the performance I have to again thank everybody in Conduent, our clients and our partners for helping us through this fairly interesting first year. We continue to hope to expand the performance in 2018 and to turn ourselves into a profitable growth company, not just meeting competitor standards but exceeding them as well. Look forward to talking to you again. Thank you very much.

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