Greetings, and welcome to Conduent's Second Quarter 2022 Earnings Announcement. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Giles Goodburn, Vice President, Investor Relations. Thank you. You may begin.

Thank you, operator, and thanks, everyone, for joining us today to discuss Conduent's Second quarter 2022 earnings. We hope you had a chance to review our press release issued earlier this afternoon. Joining me today is Cliff Skelton, our President and CEO; and Steve Wood, our CFO. Today's agenda is as follows. Cliff will provide an overview of our results and a business update. Steve will then walk you through the financials for the quarter as well as providing a financial outlook. We will then take your questions. This call is being webcast and a copy of the slides used during this call as well as the press release were filed with the SEC this afternoon on Form 8-K. This information as well as the detailed financial metrics package are available on the Investor Relations section of the Conduent website. During this call, we may make statements that are forward-looking. These forward-looking statements reflect management's current beliefs, assumptions and expectations 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 to the usefulness for comparative purposes, please see our press release. And now I would like to turn the call over to Cliff.

Good afternoon, everyone, and welcome to Conduent's Q2 earnings call. As you know, quite a lot has changed, especially in the market since we last met. And while you will see that our financials are quite consistent with what we've been forecasting, we do have some interesting announcements and expectations we'd like to describe to you today. I'll start with some high-level narrative on the financials before Steve takes you through the details. I'll then describe some recent changes and direct you to some future sessions we intend to hold in order to go deeper on our future 3- to 5-year financial and strategic expectations. Let me start by saying that our Q2 results were exactly in line with what we thought they would be and what we had previously described to you as an expectation. In Steve's remarks, you will see renewed conviction regarding our guidance and the expected strong Q3 and Q4 of this year. I look at Q2 as the bottom of the springboard, to use a metaphor, for the runoff of the government stimulus volume from 2021 and the manifestation of our stronger sales and retention efforts coming to bear, among other positive and negative nuances like interest rates and foreign exchange. Another point to remember is that our numbers do not yet include the full benefit from interest rate increases that will manifest in later quarters. Regarding the financials, our adjusted revenue was $928 million, and a little more than that on a constant currency basis. That's in sync with what we've previously guided to. For adjusted EBITDA, we finished the quarter at $87 million and a 9.4% EBITDA margin. Again, the thing to remember there is that's without a lot of that high-margin stimulus volume that we came accustomed to last year. But it's…

Thanks, Cliff. As we've done in the past, we are reporting both GAAP and non-GAAP numbers. I would like to point out that certain non-GAAP measures adjust for the Midas divestiture. This is similar to past practice. The reconciliations are in our filings and in the appendix of the presentation. Let's turn to Slide 5 and discuss our key sales metrics. Our primary sales metric, ACV, grew 3% for the quarter as compared to Q2 2021, when normalizing for onetime volumes in 2021, which included government stimulus. This was also up approximately 7% sequentially, and we now have posted sequential growth in this key sales metric for the past 4 quarters, evidencing our continued strong underlying sales performance. This sales performance was particularly strong in the Commercial segment with one of the highest levels of ACV signings since spin at $124 million. New business ARR was slightly down and the new business TCV for the quarter was impacted by an unfavorable compare from Q2 2021 when we signed large long-term deals with Highways England in the Transportation segment and New Hampshire Department of Health and Human Services in the Government segment. The net ARR activity metric, our combined measure of wins, losses, pricing effect and other contractual changes was positive for the second quarter. As a reminder, this trailing 12-month measure does not predict the timing of revenue but is based on the timing of notification, and such will fluctuate from quarter-to-quarter. Finally, the quality of our sales pipeline remains very healthy, and we have the highest value of late-stage pipeline since the third quarter of 2017 with strong coverage across all 3 segments. Let's now turn to Slide 6 and discuss some of the key sales metric trends. As I mentioned earlier, our trend on new business ACV, our…

Thanks, Steve. I think what you heard here from both Steve and me is that we're exactly where we expected to be at this juncture in the year. You'll recall the comment I made back in February when I called this a settling year. The year is playing out the way we expected it to. And equally important, we're now beginning to lay the groundwork via our sales efforts and improve retention to continue those sequential improvements as we move toward 2023, especially important now that the transportation decision is behind us. Yes, there are uncertainties and some headwinds still. Steve laid out some of those for you in his remarks. But more importantly, we now have a Commercial segment that is returning to a base level of growth, we have a Government and Transportation segments that are proven to be good businesses during uncertain times. And that combined with the likes of our BenefitWallet business means we believe we have a solid set of assets to continue to drive benefits to our shareholders. We look forward to being able to share those with you later this year and early in 2023, as I laid out earlier. As always, I'd like to thank our clients, our associates and our shareholders for their continued support. Stay safe, everyone. Now we'll open up the lines for some questions. Operator?

[Operator Instructions] Our first question comes from Bryan Bergin with Cowen.

This is Zack Ajzenman on for Bryan. Maybe starting on the transportation news. With the pivot away from the spin, how are you thinking about the balance of the portfolio from an asset divestment and simplification standpoint?

Look, I appreciate the question, Zack. There's a lot of, as you know, many attributes to the Transportation business that make us very optimistic for the future, things like smart cities, infrastructure, payment opportunities, data analytics. We see this as a bright future. Now I think what you're really asking is: Do we still have an appetite? And the answer is we are uniquely focused on growing the business as part of our portfolio. And I can tell you there's not an ounce of energy being spent on anything other than that right now. So that's where we see the transportation business going.

That's helpful. And maybe touching on Government. Can you give a little more color about the growing volume of late-stage deals here? It sounds like it's really driving some of the incremental confidence and potential upside in that business.

Yes, let me start and then Steve can fill in any gaps that he sees. Look, I mean, if you look at our overall pipeline, in aggregate, it's pretty similar to where it's been in the last few quarters. But what's changed is things have moved further to the right in the sales cycle. So late-stage deals are much more -- much higher percentage of the pipeline. Specific to Government, we see a lot of opportunity, specifically in government health care. And with the modularity managed out of the CMS, we also have a lot of opening opportunities that we just didn't see earlier in the year. And I mean, very, very strong pipeline.

Yes, Zack. The only other thing I'd add to that is these -- in many cases, these are deals that we've known have been around for quite a long period of time, but obviously, some of that contracting got sort of elongated because of COVID. And so we're seeing some of that backlog now sort of work its way through into the late stages of our pipeline, and that's really the driver of the comment. We're quite excited about the size of that pipeline and the opportunities that may present themselves in that segment as we move forwards.

We've reached the end of the question-and-answer session. I'd like to turn the call back over to Cliff Skelton for closing comments.

Listen, I'd like to thank everybody for joining. I'm sure we'll have ongoing conversations with our analysts in other settings going forward, so there's lots more we can peel back. But we feel pretty confident that the quarter delivered what we said it was going to deliver and that we intend to keep doing that over and over again and tell you what we're going to do, and then we're going to do it. And so we're proud of that. And as I said earlier, and Steve reinforced, not only is this a settling year but the springboard is at the bottom. And we see a very strong Q3 and Q4, both from a sales revenue and an EBITDA perspective. So we look forward to talking to you not only in Q3 results, but as we get into Q4 on the game plan for Investor Day, which we alluded to. In that plan, we plan to go much deeper on the base growth opportunities for the 3 lines of business. We're going to elaborate on some of those technology plays that I talked about and how that can double down on our growth into the next 3 to 5 years. And then we're going to provide the framework and the details around what you can expect on capital allocation. So we're looking forward to those conversations as well as the next set of earnings, and we appreciate everybody's time today. And thank you for joining.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.