Greetings, and welcome to the Conduent First Quarter 2024 Earnings Announcement. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Giles Goodburn, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today to discuss Conduent's first quarter 2024 earnings. We hope you had a chance to review our press release issued earlier this morning. 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 our business update, Steve will then walk you through the financials for the quarter as well as providing a financial outlook. We will then take Q&A, and Cliff will then provide his closing comments. 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 morning 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 their usefulness for comparative purposes, please see our press release. And now I would like to turn the call over to Cliff.

Thank you, Giles. Good morning, everyone, and welcome to Conduent's Q1 2024 earnings call. Today, we're happy to report that we have analyst Q&A at the end of our session, as Giles has mentioned, as well as the normal report from myself and our CFO, Steve Wood. Q1 works, yet another quarter on our journey that, like others, fought through things like COVID, the shift to a largely work-from-home model and the many changing winds in the economic stage. As Steve and I have previously discussed, we're very clear eyed on what we have to do to take this company from what was an operational turnaround to a more narrow, nimble and growing company. We've said a couple of things. One, rationalization of our portfolio will help us reduce drag and create bandwidth. It will also free up capital for the purpose of reducing debt, buying back our stock and other opportunities. We said there would be pain before gain. The timing of divestitures is not perfect and some margin deterioration will take place in the near term and then expand to normality. 2024 in our plan is the trough year in both revenue and EBITDA, exacerbated by an average sales year, if you will, in 2023, a phenomenon experienced by many of our competitors as well. Our growth trajectory and expectations in 2025 and 2026 will require different talent. We're making progress in mitigating that. More to come in our next earnings on that subject. Suffice it to say that we're adding and changing talent at the senior levels of the company. We have to revitalize our sales engine, which we are doing. While timing is always a factor and Q1 performance lagged, the first half of the year will be reasonably strong. Again, while we must execute well,…

Thanks, Cliff. 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 5. Before we launch into a discussion on the quarter itself, I want to highlight again the progress that we're making towards our $1 billion of deployable capital exiting 2025 that we've previously laid out to you in our investor briefing and again in our Q4 earnings update earlier this year. As Cliff mentioned, we announced earlier today that we have closed the sale of our Public Safety and Curbside Management businesses. We're closing in on a third transaction that we'd expect to close within the quarter, and that will take us somewhere near the midpoint of the range we had earmarked for you for after-tax divestiture proceeds. To date, we've deployed around 30% or $300 million of our $1 billion target against debt prepayment and share repurchases, and I'll cover more of this detail in a minute in my presentation. Suffice to say, we're where we said we'd be vis-a-vis this key component of our overall strategy as we narrow our business around a core set of solutions that we believe can deliver long-term growth. As a result of these transactions, our reported numbers will start to deviate from the holdco guide that we laid out at the beginning of the year. And so I want to outline the approach that we're going to take for the balance of the year in terms of how we report and guide the remainder of 2024, how we lay out the quarterly progression as well as how we continue to reassert the medium-term outlook that we talked about in our investor briefing last year and again in our…

[Operator Instructions] The first question is coming from Pat McCann of NOBLE Capital Markets.

My first question is really for Cliff. How are you feeling about the performance of the new business signings as well as the overall macro trends, particularly through the lens of how the economy affects the Commercial segment?

Pat, thanks for the question. We haven't done Q&A in a while, so thanks for being a little easy on us as we get going again. Listen, 2023 felt a little tight in terms of the macro trends and propensity to buy, and it's feeling like it's starting to loosen up. In 2024, the propensity to buy seems to be loosening up. Cost reduction efforts from our clients and the client base is becoming more profound and we're seeing that start to open up. Now we had a slow start as we mentioned -- Steve and I both mentioned, but we see Q2 being strong and the remainder of the year being strong. So I'm feeling pretty positive about it. Like I said, we had a slow start, but we're positive about the rest of the year and we do see the macro trends becoming more favorable.

Excellent. And then to turn over to the financials. Could you comment on what we should expect for progression over the rest of the year when it comes to divestiture activity and debt retirement?

Let me start with activities for the remainder of the year and just say, obviously, we can't get into specifics. But I can say we're not done and we're still in the heat of the battle on M&A activities. Steve can comment here on use of proceeds and timing.

Yes. So I think -- the way that we think about it is the way that we've laid it out in the midterm outlook slide. We've talked about essentially the quantum of revenue that we see being divested, the margin characteristics that we see being divested. The proceeds that we've already announced, which is around $495 million of after-tax proceeds. And you heard in my remarks that we're expressing a degree of confidence that we can get into around the midpoint of the range of $600 million to $800 million that we earmarked in essentially our waterfall to the progression of $1 billion of deployable capital. And I would say at this point, Cliff mentioned that the early priority is debt repayment. We have an amount approved of somewhere in the region of $450 million. And so we'll be working through that. And then clearly, we'll be talking further -- later in the year on how we think about capital allocation when that becomes pertinent against divestitures as we continue on the progress. That's how we're thinking about it.

Lots of activity, Pat, obviously, and it will continue through the rest of the year.

Got you. And if I could ask just one more quick follow-up to that and then I'll pass the floor along. Just -- when it comes to the M&A environment, when you're looking to make more divestitures, how do you view the current environment? Specifically when it comes to, I guess, getting fair value for the businesses you would be divesting, how is that looking right now?

Look, I don't think there has ever been a situation where we were worried about valuations and fair value. I think it has been pretty consistent, even when money was tighter, as it's starting to loosen up here a little bit or at least conceivably starting to loosen up, the whole PE environment is starting to open up and the appetite is increasing. So inbounds are voluminous, if you will, and opportunities are quite strong. So you know as well as I do what's happening in the economy and the whole private equity kind of landscape. It's feeling more sanguine and we're seeing that. But from a valuation perspective, we haven't seen any much inconsistency. But Steve, any thoughts on that?

What I would add to that is you'll have seen from what we're doing is we're divesting really quite discrete assets within the portfolio. And Conduent has got a lot of assets in the portfolio, it's a very broad portfolio of assets that were put together over a period of time. And so our approach is to target things that, I would say, have scarcity value on the outside and also potentially don't create the 1 plus 1 equals 3 internally in terms of being synergistic to the way that we think about cross-sell and how we sort of build the RemainCo portfolio for the business. And so because we've been very targeted and because the assets are more discrete, I think we're pleased with the valuations that we're getting for the assets. And then clearly, we're divesting these at multiples that are considerably above where we are. And I think as we go along that journey, clearly, you'll continue to see us targeting these discrete assets where we expect to get strong multiples for them. Because the alternative to that is we'll keep them in the portfolio.

Yes. Just one topper to that, Pat. We said a year ago that our criteria for what we would consider divesting was based on several different things. One was scarcity value, as Steve just said. One was sort of growth versus anchor inside of our own portfolio and how fast -- everything is growable. But how fast is it growable or recoverable? And then finally, from a technology perspective, where do we have technology that we could capitalize on internally versus synergistically capitalized externally? All those went into the math equation as we considered what we might or might not divest and what we might or might not keep in RemainCo.

[Operator Instructions] The next question is coming from Michael [indiscernible] of Singular Research.

Congratulations on executing the divestitures. You're marching right along and looks very good. My questions kind of relate to revenue opportunities for RemainCo. You mentioned you have a collaboration, actually 3 of them, underway with Microsoft. I just want to clarify, is that related to your payments business, these collaborations? And do you see that particular collaboration is driving cost reductions or revenue opportunities by offering more capabilities? I'm kind of curious what that's really driving toward.

Yes. So thanks, Michael. The collaboration that you're referring to is specific to Microsoft and GenAI and utilizing their platform in a co-marketing partnership and -- or go-to-market partnership as well as utilizing that technology. And we have 3 very strong pilots underway. One is in document management. We would think of that as our claims process, mostly in healthcare. We've got a big one around customer experience. Like many in the industry, people see real opportunities with GenAI in terms of voice-to-text and all kinds of different streamlining opportunities in the customer experience arena and utilizing GenAI that solve problems so you don't need a human. When you refer to payments, the one endeavor we're underway with in the payment industry is on fraud reduction. We think GenAI can help us very significantly in fraud reduction, in determining early signs of fraud through the volumes of data that the compute can digest and then feed information to our associates so that we can early turn those fraud opportunities before they actually manifest. And so that's the one payment area where our partnership with Microsoft is driving AI improvement.

Great. If I could just turn to one of the other partnerships you announced with Oracle, moving your tolling database to the cloud, I heard a reference to unit cost savings. Just to put some flesh on that, what percent savings did you achieve?

It's probably not a question I can answer with specificity or should answer with specificity. But let me -- what the partnership with Oracle inside of Azure is doing for us is speeding up the process and reducing latency in the cloud by taking Oracle's database in the cloud into Azure's cloud and then allowing our processing speed to increase by a significant margin. It's probably not prudent for me to say exactly what that marginal improvement is or what the unit cost savings is. But obviously, if you can go faster, you can go cheaper. And so that's the model we're pursuing. But it's incremental. There's no breakthrough here. It's all incremental. It's a continuum.

[Operator Instructions] The next question is coming from Marc Riddick of SIDOTI & Company.

I wanted to sort of dig into a little bit around -- the commentary around the cost reduction efforts and the urgency that you're seeing maybe from customers. I was wondering if you could spend a little time talking about that and maybe sort of how that sort of plays into your expectation of driving sales?

Every CEO and CFO that I'm familiar with is looking for efficiency. We wouldn't be doing our job if we weren't. But especially as the economy is, forward thinking people are starting to say, "Well, when this thing starts slowing down a little bit, I'm going to have to start reducing cost." And a lot of folks are thinking about outsourcing. We're seeing a lot of that in the healthcare industry, for example, where pressure is increasing. And they're starting to free up on ways to outsource. Countries they might not have imagined going to before, they're starting to consider going to, from an offshoring perspective. So we're just -- that feeds right into our sweet spot in terms of outsourcing. But like everybody else, we're in the same boat internally in terms of driving efficiencies and unit cost reduction. So the bottom line is we're seeing our clients and potential clients think about how we can help them either consolidate outsourced vendors, go to countries we're not in today and reduce their costs and improve their own unit cost so that they can drive EBITDA, at least the improvement if nothing else.

Yes. That's very helpful. And then switching gears, I was wondering on one of the comments was around behavior of certain industries as far as within Commercial that you're seeing. Were there any particular call-outs that were maybe performing better than others as far as industry verticals? Or how should we think about the differentiation of activity?

Well, I mean, look, obviously, technology continues to be growing as fast as you can imagine. We're seeing some tightening in healthcare, travel and sort of the logistics areas where they are a lot more focused on cost reductions. And as I said earlier, the appetite for offshoring, the appetite for outsourcing is increasing. So those are the 3 areas where we see opportunities for Conduent because of the challenges we're seeing in those 3 industries.

Okay. Great. And then I guess -- the last one for me is sort of a big picture question around interest rates and expectations now relative to maybe 6 months ago. Are you getting a sense as far as how that is affecting client behavior as of yet? Or are you seeing any changes that are specifically tied to those changes of expectations?

Well, look, I'll let Steve fill in any gaps. But I don't -- like I said, I think anticipation of interest rates and any kind of Fed moves seems to be on the margins affecting outsourcing appetite. But we're not -- other than that how interest rates affect our own P&L, which Steve touched on in his remarks, and the selling of our BenefitWallet asset, we don't see -- there's nothing monumental from a landscape perspective going on with interest rates that are affecting us. Steve, I don't know if you've got any thoughts on that.

The only other thing I can think to add by way of comment there is I think this -- I talked about this renewed urgency that we're seeing to try and drive cost efficiency. And so at some level, I think that, that could be an indicator, as you suggested, that maybe thought processes have changed around the sort of forward look of the interest rate environment and maybe it being a bit higher for a bit longer, and therefore, the need to drive cost efficiency. And that urgency is good for us because we play into a lot of those opportunities in our BPaaS and our CX businesses, but without wanting to be the person that's trying to predict where that's going to go. I think maybe those -- you can tie those two things together.

Thank you. At this time, I would like to turn the floor back over to Mr. Skelton for closing comments.

Thank you, Donna. Listen, I'll leave you all with a couple of thoughts, just to reiterate what Steve and I both said during our remarks. We outlined our plan a year ago and we're on it as it was described a year ago. That said, we have to execute. And we have been executing. We need to continue to execute over the course of the next 2 years, especially the remainder of 2024 and 2025. We have to continue to divest these non RemainCo assets. It's very important that we continue to execute on our plan and not drag our feet there, and we won't. But we're going to do it the right way for the right valuation. We've got to sell. We've got to sell more, we got to partner more and we've got to grow. And that's the course we're on. We're bringing in talent to help us do that. And so you're going to -- more to come there when we get to Q2. As Steve mentioned, we've got stranded cost to take up. The one thing we know how to do here at Conduent is manage expenses and take costs out, and we're on that. And then finally and probably most importantly, we've got to meet client demand, and we've got to retain clients, and that's getting better. But it's ultimately the most important thing we do is take care of our clients. So all of that's very simple to say, it's motherhood and apple pie in many ways, but it's not always that easy to do. We're getting there. And I appreciate everybody paying attention to our company, and thank you all for joining today.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.