Greetings, and welcome to the Conduent’s Second Quarter 2021 Earnings Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I will now like to turn the conference over to your host, Giles Goodburn, Vice President of Investor Relations. Thank you, you may begin.

Good evening, and welcome to Conduent’s Second Quarter 2021 Earnings Call. Joining me on today’s call is Cliff Skelton, Conduent’s CEO and Steve Wood, 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 afternoon. These slides as well as the detailed financial metrics package are available on the Investor Relations section of the Conduent website. 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 5, 2021, 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. For more information regarding definitions of our non-GAAP measures and how we use them as well as the limitations as to the usefulness for comparative purposes, please see our press release, which was issued this afternoon and furnished to the SEC on Form 8-K. And now, I’d like to turn the call over to Cliff for his prepared remarks. Cliff?

Thank you, Giles. Good afternoon, everyone. Welcome to Conduent’s Q2 earnings call. I really appreciate everybody being here today. Let me start by saying that Q2 was really a good quarter for us. It marks a milestone in our journey. If you think about the journey from two years ago, in August of 2020, excuse me – in 2019, when I said this was a fundamental and foundational turnaround, I think you’ll be quite pleased with what you’re about to hear today. Through the hard work of our 60,000 associates, we experienced some pretty good performance in sales, operational excellence, profit and top-line, all of which took place during a pandemic as we all know. I’m going to talk today a little bit about why we’re winning? And how improved quality is driving value? And then I’m going to turn it over to our new CFO Steve Wood to talk a little bit about the detailed financials. I’m also going to touch on the importance in our confidence in refinancing our debt over the next few months. So if you please turn to Slide 4. I think you’ll see that Conduent’s revenue came in at $1.26 billion, up 1% year-over-year marking the first quarter of year-over-year revenue growth since the spin in January of 2017. Overall, that performance was driven in large part by Government Payments and a return to near pre-COVID Transportation volumes, project revenue and new business rent. Meanwhile, adjusted EBITDA was $128 million equating to 12.5% margin. That’s up 170 basis points year-over-year, driven by mix of revenue and good expense management. Regarding new business sales, Q2 was the strongest sales quarter since the spin at $775 million in total contract value. That’s up 24% compared to our previous high sales quarter of Q2 of 2020. New…

Thanks, Cliff, and good afternoon, everyone. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let’s turn to Slide 8, to discuss the Q2 2021 results, starting with the P&L. As Cliff highlighted, we had a strong quarter in line with internal and external expectations with revenue above a $1 billion up 1% year-over-year. The trajectory of our revenue trend continues to be positive. Revenue growth was driven by increased stimulus related volumes in our Government Payments business, increased volumes across the Transportation segment, and new business ramp partially offset by lost business from prior years. Adjusted EBITDA for the quarter was $128 million, up 16.4% year-over-year, while our adjusted EBITDA margin for the quarter was 12.5% up 170 basis points compared with Q2 2020. The increase in adjusted EBITDA was driven by a strong revenue mix, continued progress across our range of efficiency programs, and a one-time item that affected Q2 2020. This was partially offset by lost business from prior years. Let’s turn to Slide 9 to go over the segment results. For Q2, our Commercial segment revenue declined 3.3% were increased volumes and new business ramp were more than offset by lost business from prior years. Adjusted EBITDA increased 4% while the adjusted EBITDA margin of 10.7% was up 70 basis points year-over-year. This was driven by efficiency progress, as well as a one-time item that affected Q2 2020. Our Government segment revenues grew by 2.1% for the quarter. This was primarily driven by stimulus volumes in our Government Payments business, as well as the ramp of new business in both payments and healthcare, partially offset by lost business from prior years. Government segment adjusted EBITDA increased by…

Thank you. [Operator Instructions] Our first question comes from Shannon Cross with Cross Research. Please state your question.

Thank you very much. I was wondering can you talk a bit about Commercial and what’s going on there in terms of lost business versus growth and how – we should the thing about margins given, the shifting portfolio and then I have a couple more. Thanks.

Yes, Shannon, let me start with the Commercial, I think the two parts to the Commercial story, one is sales and one is the net revenue. If you look at sales, some of this is timing; we’re envisioning a very strong Q3 on sales. On a relative basis, commercial sales lagged a little bit, the really, really strong Government and Transportation kind of success. And so we see a lot of that coming back in Q3. On a net basis, though that negative 3.3%, you see on Commercial is significantly improved, as you can imagine, into all the compares, prior, and what we’re seeing there is that net ARR number that we measure across our different segments, and in aggregate, it’s still very positive on Commercial. And it’s just a matter about running the legacy, the legacy losses. So it’s timing, and we just need a little more time to get that done. But let me just, let Steve add some color to it.

Yes, Shannon, the one other thing I’d add in there and Cliff alluded to it, when he talked about that the net ARR activity metric. I mean, we’ve seen that now sequentially increase on a trailing 12 month basis for the last three quarters. Cliff talked about that in his remarks. And within the Commercial segment, the commercials contribution to that number has been positive and sequentially improving as well. So, if you think about the Commercial business, and we think about the base of the business, I like to think about the kind of two primary hydraulics that are driving where that business is going right now. It’s the net ARR metric for the Commercial segment, which as I said, we’re starting to see sequential growth in that metric. And then secondly, there’s the component of the legacy losses. And just a reminder about the legacy losses, we talked about those as being losses in 2019 and prior. And we’re really starting now to get into, what I call the thin end of the wedge of those legacy losses; we haven’t quantified them in terms of their overall number. But the number this year was more than twice as big last year, and the number next year is going to be half the size of this year. And the number in 2023 is going to be half the size of 2022. So, we’ve now got both of the hydraulics, again driven by improved sales performance, driven by improved retention. We’ve now got the hydraulics of the commercial segment, beginning to trend us in the right direction. So that as we move forward, that gives us increased confidence to that line of sight to get that segment back onto a growth 14. There’s just a little more time needed here. Shannon, that’s the bottom line.

Okay. And then with regard to the add-on business that you’re selling, what’s driving that it just, do you think customers increasing their programs? Or have you changed your sales comp structure or selling mechanisms to try to, add increased both revenue when I would assume reasonable, incremental margin, as well with those deals.

Lot of – I mean, the add-on businesses, both the ARR and NRR, and lot of that NRR business has increased confidence, it’s project volume. It’s add-on to the current volume, we have a little bit of it, or a portion of it is the stimulus volume. But it’s just – it’s a whole new improved account management game plan with different leaders in different talent with more to go there by the way. And frankly the growth in that add-on business is, even outpacing the growth in our global sales organization, improvement, which is also quite improved.

Okay. And then just my last question is, how much of this growth that you’re seeing or improvement? Do you think as just the market growing overall, versus better win rates for you? I’m just wondering about share – within your various business units. Thank you.

Yes, I wouldn’t say its market growing overall. I would say its improved performance. It’s – we have a different sales model. As Steve said, we’re burning through the legacy losses. We’re seeing marked improvement in Transportation, both from a retention perspective and a sales perspective, evidenced by that big Highways England deal. So, frankly it’s better sales performance, better retention. And now it’s just – and now it’s waiting for the confounding of COVID to burn through and those legacy losses have burned through but the markets, modestly improving, we’re talking 3% to 4% in different places. But, it’s still a little confused with a pandemic. So, I would not chuck it up to market growth.

Okay, thank you very much.

Our next question comes from Puneet Jain with JPMorgan. Please state your question.

Hey, thanks for taking my question. I have like a follow up to prior question. Obviously, glad to see revenue guidance being flattish within the overall range. How much of it would stem from near-term benefits that may not continue into next year’s like easy comps in Transportation, Government Payments in the public sector versus sales performance and improve competitiveness that could sustain beyond this year?

It’s a great question Puneet, it would be naïve for me to say that there wasn’t a little bit of tailwind here from stimulus that’s going to drop off. But it’s all of what you just said. And the problem with answering your question with perfect alacrity here is that we don’t really know where the puck goes on COVID when all the volume comes back in the Commercial space, when some of the Government volume falls off et cetera. But we here’s what we know for sure. The base business is doing quite, quite well. And if you think about the three areas of growth that you should think about in your model, and I would recommend you think about in your modeling, is what’s going on in the base business. And in that base business net of COVID, net of legacy losses, I would say, we’re in the pivot here, it’s going exactly the way we want it to go and it’s working. But then you got to overlay the burnout of, the burn off of the legacy losses, which is Steve says we’re going to thin edge of the wedge. And then you got to put into the model, where you think COVID is going, where’s the stimulus volume going? Where’s the – with this Delta variant? It’s just it’s so unpredictable. That’s why it’s difficult for me to say to you, that 1% year-over-year growth is attributable to this, because then it’d be partially wrong. But what we do know for sure is that base business is doing exactly what we expect it to do. And that’s going to bode well, for the long-term. Steve?

Yes, Puneet I just add one more to that. I agree with everything that cliff said. I think it’s a combination of those factors. It’s difficult to divine out exactly out. But as we were thinking about guidance, we remain positive in our outlook in terms of our sales performance, both in terms of new business, and add on sales. And obviously, as we’ve talked about, we’re benefiting from some of that short term tailwind from stimulus, but it’s a combination of those factors that are driving where we’re thinking about guidance.

Understood. You’re clearly benefited from improved sales performance execution. But if you look at the industry overall, many peers are also investing heavily in areas like automation, AI pursuing acquisitions in those areas. How are you going to respond to that? Like – given like the balance sheet constraints? Maybe talk about your M&A strategy? And how are you going to invest in some of those technology tools and solutions to stay competitive?

Yes. So, we also are investing in AI machine learning, several different partnerships with some automation companies and AI companies across the spectrum, specifically in our commercial business. We’re also investing in some fraud automation tools, that are starting to bear fruit and helping us in quite nicely in our own internal fraud management, but also enabling us to sell some of those capabilities, not just in the government space but outside. So we’re doing that as well. It’s on an incremental basis. It’s not a big bang. We’re not making a lot of noise about it. So we two are very invested on with our clients and individually on automation, AI and machine learning. With respect to M&A, we’ve said all along, we want to be planful and paced. We don’t, we’re not looking to for a big bang in the near term. And so what my view is, as the market watches us, they need to see us growing organically. And we don’t want to confuse the market by saying what a bunch of inorganic growth yet to say that we will or won’t do M&A is too early to say, what I can tell you is, in the near term. We’re looking at lots of adjacent opportunities, and partnerships and potential tuck-ins and other things like that. But we’re not in a position in our maturity cycle where we’d say the way we’re going to win is for through a large M&A. That doesn’t mean it’s off the table, in fact, is very much not off the table. It just means we got a few other things closer to us right now. And the balance sheet will support that along the way. And Steve, I don’t know if you want to talk about capital or the balance sheet, but I think it’s capable of doing lots of things here.

Yes, absolutely. I mean, I don’t look at the balance sheet as necessarily being a constraint to do, to do some of the things that either we’re doing some of the things that are in our near term. I think, as we’ve talked about how we allocate CapEx and other activities, we’re working through the tail end of some very, very significant activities that are secured the foundational strength of the business and then that has allowed this, quality now to permeate to the fact that we can now start selling to our existing clients more on you’re seeing that coming through in the results. So, as we’ve talked before, over time, our CapEx mix will change. It will be tempted more to drive, new business and invest – and investments in strategic initiatives. So, I think we think about that inside of the overall sort of range of how we’re thinking about our current capital allocation. And I’m not viewing balance sheet is a huge constraint on us to be able to do some of those things in the medium term.

That’s good to know. Thank you.

You bet. Thank you, Puneet.

[Operator Instructions] Our next question comes from Bryan Bergin with Cowen. Please state your question.

Hi, yes, it’s actually [indiscernible] on for Bryan, My first question, can you characterize clients willingness to sign deals currently, and how that might have changed over the last three months? And in terms of the pace of deal ramps, what you’re seeing there?

I think there is a couple – there’s a couple chopping reception there. Jerry, what I think what you said is clients propensity to buy, was that pretty much the question?

Correct, and how that’s changed over the last three months?

Yes, it’s hard to give you a perfect answer, because the answer varies by segment. And certainly, it varies by industry. But there’s a lot of RFPs out there in the public sector and that becomes a reputation of quality price and an execution game. That hasn’t changed. And it’s been pretty consistent. In the Commercial space, believe it or not it, I would say the propensity to buy is increasing, there was a little bit of a dip in the heart of COVID. A little bit, but frankly, that the industry and the market really didn’t stumble in terms of our ability to sell or their propensity to buy. It’s been pretty consistent.

Okay, great. And then in terms of international plans, what – which geographies do you think are under penetrated and the most attractive opportunities for you currently?

Yes. So if you think about a Transportation business specifically, where we see the most international opportunity. As I mentioned earlier, we just sold a towing deal in UK. We do see some more towing expansion internationally in Europe and frankly in South America, we think there’s some opportunity in that space. So I would say our international expansion is really focused primarily in the transportation business a little bit in our customer experience business, we see some opportunities popping up. But those are the two big ones with the nearest opportunity in transportation.

Got it. Thank you.

You bet.

Thank you. There are no further questions at this time. I’ll turn it back to management for closing remarks.

Thank you. I really appreciate the questions today. And with everything going on in the world, and the unpredictability of COVID I hope everybody stays well. I know our Analysts team has been very busy with a lot of other earnings. So thank you very much for taking the time out of your day to be with us. I hope everybody’s well. Thanks.

Thank you. This concludes today’s conference, all parties may disconnect. Have a great evening.