Good afternoon, and welcome to the Conduent Q2 2019 Earnings Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Alan Katz, Head of Investor Relations. Please go ahead.

Good afternoon, ladies and gentlemen, and welcome to Conduent's second quarter 2019 earnings call. With me today I have, Cliff Skelton, our Interim CEO; and Brian Walsh, our 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 afternoon. These slides as well as the detailed financial metrics sheet are 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 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, August 8, 2019, and are subject to a matter 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 US 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 this afternoon and was furnished to the SEC on Form 8-K. I would now turn the call over to Cliff who will begin his remarks on slide 3. Cliff?

Good afternoon, everyone. It's great to have this opportunity to introduce myself to the investment community. I joined Conduent as President and Chief Operating Officer in June and earlier this week was named Interim CEO and a member of our Board of Directors. Along with my colleagues, I spent the last seven weeks meeting with Conduent's clients, our vendors and our partners as well as employees throughout the organization. And what I learned on those visits was that our primary focus here at Conduent really needs to be on operational excellence. We need to establish a best-in-class service and sales delivery capability, while furthering our technology enablement, all of which are critical to our pivot to growth and our long-term success. That said, we have the capability, we have the assets to successfully execute this next phase of our journey. Now by way of background, the last 20 years of my career included leading large-scale transformation efforts, while serving as a Chief Information Officer, a Global Head of Technology and Operations at two Fortune 500 companies. In addition to having had the privilege of holding key operational and technology roles on the client side and some of the largest financial services companies in the world. This experience provides a unique viewpoint for understanding client needs and the direction for our overall corporate strategy. There's an opportunity here at Conduent to empower our employees around the mission and unlock tremendous value through transformation. Along with a loyal and diverse client base, we have strong platforms and significant talent within this organization. Well of course, there is room for improvement in how we manage our processes and our people. If we modify our practices and motivate our employees and put the right people in the right jobs, we can unleash the value…

Thank you, Cliff. Before I begin my prepared remarks, I'll note that throughout this presentation and in the exhibits in the appendix, we will provide both GAAP and adjusted numbers which provide a clean compare by removing the impact of the divestitures that we completed in 2018 and 2019. Now let's start on slide five with an overview of the second quarter financial results. I will go through a few of the key line items on the P&L. Revenue was approximately $1.1 billion, down 3.2% compared with our Q2, 2018 results adjusted for divestitures. This was driven primarily by the runoff of business, we lost in prior quarters and strategic decisions, partially offset by the ramp on new business. On a constant currency basis adjusted revenue was down 2.6%. When excluding the impact of divestitures, adjusted EBITDA in the quarter decreased 7% year-over-year to $114 million with an adjusted EBITDA margin at 10.3%, a 40 basis point reduction. While we continue to make progress in our cost transformation program, these savings were more than offset in the current quarter by both investments in the business and revenue pressure. Restructuring spend was $26 million, driven both by continued headcount-related cost reductions and the ongoing facilities and data center consolidation program. Our pre-tax loss in the second quarter was $1.12 billion, compared with the profit of $54 million in Q2 2018. The loss was primarily driven by the goodwill impairment. The goodwill impairment, which is non-cash and is adjusted out of our guidance metrics, was driven by the change in our outlook this quarter. We impaired the goodwill of all of our reporting units as the fair values were found to be below the associated carrying values. As a result, we recorded a pre-tax charge of approximately $1.1 billion. We continue to…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Bryan Bergin with Cowen. Please go ahead.

Hi. This is actually Jared Levine on for Bryan today. So in terms of a potential strategic review will it be more likely to expect another round of kind of non-core business divestitures? Or would it more likely be a broad-based kind of selling to business off in pieces? And I just have one follow-up after. Thank you.

Hey Jared, we're – this is Cliff. Thanks for your question. We've just started the examination with our Board, so we don't have an exact plan, but all opportunities are under review both so in pieces as well as the whole company, but there's lots of work to be done before we can give any update in that category.

Great. Thanks. And then in terms of the sales force decline can you quantify what that was year-over-year and sequentially? And what are the investments being made in terms of the sales force?

So we're down to about 240 sales force, we were at 290 previously. Some of the investment has paid off. Some of the churn has caused us reduction. Our view is continued investment in the sales force not just from a numbers perspective but from a quality and a sales leadership perspective is what's needed next. So as I said we're down about 50 but we see that ramping back up and pretty quickly.

Great. Thank you.

Our next question comes from Puneet Jain with JPMorgan. Please go ahead.

Hi. Thanks for taking my question. Nice to see focus on balanced cost reduction. Is there a way to think about a magnitude of incremental investments versus impact from lower revenue on margin – EBITDA margin expectations?

Yeah. Hi, Puneet, if we look at the guidance change it was about 65 at the midpoint. It is split pretty evenly between three things. One would be Q2 under performance. The second would be revenue pressure expected for the year and then the third would be overall spend not decreasing as much because of the balanced approach we talked about.

Got it. Got it. And is there any time line for the strategic review? And Cliff it's been around two, three months since you joined the company. Could you share your initial thoughts on Conduent's positioning? And which areas need the most attention?

Yeah, Puneet great, great question. I've been here around seven weeks now. I can't give you an exact time line on the strategic review. As I said, we're just getting started with our Board and we can give you an update at the next earnings call as to how that's coming and how much longer it will take. I would say from a viewpoint from the balcony if you will of our company and where we are and what we need to do different I think that's the gist of your question. I think we've done a really good job with cost-reduction efforts. We've done a good job with trying to drive sales improvement. I think what we need to do now is slightly tweak the approach around process and people so that we're not just driving cost out without a view towards the quality and the client impacts of those cost reductions. So we're going to spend a lot of time and a lot of efforts in making sure we've got the right people specifically on our infrastructure environment and making sure we've got the right sales executors and the sales leaders in our sales execution effort. So it's a little bit of a different approach. It's a lot of -- it's the same strategy but it's a little twist on the approach to make sure we've got the right process controls in place in client impact viewpoint as we make these investments and as we make these efficiency improvement efforts.

Got it. Thank you.

Our next question comes from Shannon Cross with Cross Research. Please go ahead.

Thank you very much. I was curious you went through a litany of issues with the company and I just place it at the last question a bit. But can you talk a bit about what you see are the most -- again not trying to see the glass is half full, but just where you're seeing the most opportunity? And I know it's going to take a while so you're not going to be able to give us timing on turnaround. But how do you think about, how you plan to spend the next year in terms of repositioning? Again I understand you've only been there seven weeks.

Yeah, Shannon. So my view is we've got a lot of great foundational attributes here. We've got great people. We've got a great client base. From my point of view we've got what we call good bones in our company but we've missed a couple of steps on process and the right people on the right jobs and so that's going to be a high priority effort right away. We're going to -- we expect to look at the organizational model and how we're going to market both from a sales perspective as well as how we run our operations. And you'll see over time slight tweaks to that as we try and get to better execution. So I think at the end of the day when we look at growth, we've got to look at new logo growth and we've got to look at new business in our current client base and we've got to build a better reputation across our client base so our sales folks can be more confident in their abilities. With respect to new logos, it's really sales skills, market reputation and platform capability that we've got to focus on. And with respect to the ability to grow and penetrate our current client base, we've got to improve our relationship management skill and the quality and confidence and the quality of our platforms. And we just haven't -- we haven't done quite as good a job in that particular area over the course of last year. And my belief is these process steps and the people improvement steps are going to help make that happen.

Great. Thank you. That was really helpful. Brian, can you talk a bit about cash flow? It was lower than we had anticipated and I understand there were one-timers in it, which we had, but it was still lower. So, I guess, what gives you the confidence in second half? I feel as if every company I'm listening to this quarter is talking about a big second half cash flow. So I guess from your standpoint with the recurring revenue base you have and what you see coming through just maybe you can talk about where the specific puts and takes will be as we look to the second half of the year. Thank you.

Sure, Shannon. So if you look at cash flow through the first half, free cash flow is down about $200 million and it's driven by a lower EBITDA and the pressure on EBITDA, higher CapEx year-over-year of about $33 million in the first half and a negative working capital somewhat related to an IT vendor that we had on payment hold, but we went through an audit that freed up in Q2. When we look to the second half, EBITDA ramps in the second half for us, even though we reduced guidance we typically. Based on our seasonality, we'll have higher EBITDA in the second half. From a CapEx perspective, we will actually decline in CapEx in terms of last year in the second half, and then we expect working capital to be neutral in the second half, so those are the things that give us the confidence to deliver the revised guidance.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Cliff Skelton for any closing remarks.

Well, thank you all for joining us today. We really appreciate your time and we look forward to a great next quarter announcement and watch the progress so appreciate your time.

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