Greetings, and welcome to the Conduent Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Giles Goodburn, Vice President of Investor Relations for Conduent. Thank you. You may begin.

Thank you, operator, and thanks, everyone, for joining us today to discuss Conduent's Third Quarter 2024 earnings. I'm joined today by Cliff Skelton, our President and CEO; and Steve Wood, our CFO. We hope you had a chance to review our press release issued earlier this morning. 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 materially differ 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 financial 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'd like to turn the call over to Cliff.

Thanks, Giles. Welcome, everyone, to our Q3 earnings. As we did last quarter, Steve will begin with the financials, and I'll follow with a status report on what's changed in the last quarter and a brief discussion on what continues to make Conduent's balance sheet, solution set and growth expectations unique. But first, the quarter Q3 adjusted revenue and adjusted EBITDA were $781 million and $32 million, respectively, at a 4.1% margin, meeting or slightly exceeding our expectations. This is fully adjusted now for all completed divestitures, and these results continue to validate our previously described game plan for our growth trajectory. New business signings were $111 million with a strong performance in commercial sales, offset with some continued softness in government in parts of our transportation business, where there was less deal activity in the quarter. As you know, there can be lumpiness in sales performance by quarter, but overall, we are on track for a 2024 sales year that meets our expectations. As expected, our net ARR number returned to positive territory. Steve will go deep on all these numbers here in a moment, but here are a couple of key points. We completed the initial phase of the divestiture program we communicated 18 months ago, and we've deployed 75% of the $1 billion targeted against debt prepayment and share repurchases. We've been consistent in our messaging for the last 18 months. We're on a continued path to those 2025 exit rate parameters of lower debt and debt ratios, sequential margin improvement, less capital intensity and top line growth. We will stay on course both strategically and tactically toward a narrower, more nimble, growing company with a clean balance sheet. Finally, with a more simplified board structure, we can now turn our attention on what's next. But first, let me hand it over to Steve to talk about the detailed results for Q3. Steve?

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. Our reported numbers and the guide for this quarter have been adjusted again for the divestiture of the Casualty Claims business. We've published a full set of historical adjusted financials in our metrics filed, which you will find in the Investors section of the Conduent website. Let's turn to Slide 5. We continued to make progress in the quarter with our divestiture plans, completing the third transaction of 2024 with the closure of the sale of our Casualty Claims business, receiving $224 million. Gross proceeds on these 3 transactions were approximately $865 million, with approximately $60 million still to be received between Q4 this year and April next year. Overall, net proceeds will be approximately $780 million. This is right at the top end of the range I outlined for this initial set of transactions. I said 18 months ago that we were targeting $1 billion of deployable capital. And to date, we've deployed approximately 75% of that, buying back a total of approximately 61 million shares and prepaying $539 million of term loans with a further authority to prepay another $125 million, which we'd expect to do in the fourth quarter. Let's now turn to Slide 6 and 7 and review our key sales metrics. Q3 was a strong sales quarter within the Commercial segment, but this was offset with a lighter quarter in the Government segment, where there was less deal activity. And so our overall ACV attainment of $111 million was slightly below our expectations. We see the full year outcome being in the range of $500 million to $550 million of ACV. Within that estimate, there…

Thanks, Steve. Now let's turn to Slide 14 to talk about what's changed over the last quarter, what we've been working on and some trends, a status report of sorts. We have consistently stated that building a solid foundation of operational stability was foundational and precedent to growth. We're now at a stage where new leadership with enhanced relationships is necessary. We've hired 3 key executives to help us make this pivot. Mike McDaniel joined us from DXC and previously Accenture. He now leads our commercial businesses as Group President. Anna Siever joins us from Magellan Federal and previously MAXIMUS. She is now leading our Government business as President. And Scott Copeland joined us from Cubic as our new leader for tolling, part of our Transportation sector. Meanwhile, we see continued improvement in both employee and client retention, and our sales pipeline remains strong with a renewed appetite for offshoring to drive efficiency for our commercial clients. A year ago, we experienced strong sales performance from our Government businesses, and our Commercial performance lagged. This year, we see the opposite. This is where a diverse portfolio can take advantage of economic and policy swings. We believe that while the pipeline is strong end to end, our commercial businesses will continue to outperform. Within Transportation, we're progressing well in our largest implementation in the state of Victoria and Australia and believe upon completion that will have a quite impressive state-of-the-art account-based ticketing system, among other solid attributes. Net-net, while Commercial is experiencing a year of solid relative performance, overall pipelines across all of our business lines are in good shape. Finally, divestitures. In this regard, our journey is not over. We see ongoing opportunities to further enhance our balance sheet, become more nimble and better focused investments and bandwidth. More to…

[Operator Instructions] Our first question comes from the line of Pat McCann with NOBLE Capital Markets.

Congrats on the quarter. I was just going to ask about the election results. Of course, that's on everyone's mind today, I think. And I was just wondering if you could comment a little bit on how you view Republican versus Democratic administration when it comes to how it affects the various business units, when you look at the potential effects of maybe change in regulation on your Government's segment versus what might occur for your Commercial segment. Just wondering if you had any thoughts on how the election would affect your business units for good or for bad?

Pat, it's Cliff. It's a great question. Here's the way I think about it. Our business is mostly -- Public Sector is mostly entitlement and Transportation businesses. Very rarely are those businesses affected by political swings. Now from time to time, there are policy swings around subsidies and things like that, that can affect revenue streams in the Public Sector business. But generally speaking, it's pretty even killed. We were -- I got here at the last part of the first Trump administration and then, of course, the 4 years of Biden/Harris. And we saw very little differentiation between how it affected our businesses. So generally speaking, I'd say, from a revenue and a sales perspective, pretty much unaffected. From a corporate perspective, I mean, we're like any other corporation that has impacts from corporate tax rates, et cetera, et cetera. So I would say we're thinking no effect on what we're trying to do.

Great. And just my other question was regarding the MMIS business. I was just curious if you could dig a little deeper into that specific business as far as states doing RFPs. And it just seems like a nice opportunity for you in that Medicaid management information systems. And I was just wondering if there's anything you could say about the timing of new contracts and how soon maybe more states will be looking to pick new vendors for that?

Look, there's all these opportunities in that space. I can't comment on the exact timing of any individual state, the RFP scheduling, et cetera. But what I can say is when CMS mandated modularity, it changed the landscape, the MMIS landscape. It's no longer this behemoth go for everything kind of RFP. There's various opportunities across the 5 or 6 different modules in the MMIS suite where we could go after a financial module. You can go after an enterprise data warehouse module, the claims module, the pharmacy module. And so the good news there is those RFPs come out separately, generally speaking. So there's always an RFP kind of stream of opportunities. The key to that particular business, in my opinion, because it's primarily a technology business, there is -- there are some supportive attributes with people, but it's primarily a technology business. The key is to be getting less of those RFPs, getting into the state houses and the decision-makers and forming relationships that will generate those sales that we're after when the RFP actually drops because once the RFP drops, it's very strictly regulated. And you can't -- you don't really have an opportunity to use anything else. So we see real growth opportunities there. We just got to get after it.

Our next question comes from the line of Marc Riddick with Sidoti & Company.

So I was wondering if you could start with the thoughts around the portfolio rationalization and kind of where we are there and whether sort of maybe what inning we're in or thoughts as to the divestiture program and what might be further ahead at this point?

Yes. Well, the inning to the baseball analogy is an interesting one because I can't tell whether we're going to go to extra innings or not. But what I can tell you is that we see opportunities continuing. In other words, there's good bones in this portfolio. There's still a lot of scarcity value in this portfolio. We still believe that our portfolio is too wide. We still believe that narrowing it can help us get more nimble. And so I would say that we're going to be opportunistic and continue to be opportunistic into the future with respect to portfolio rationalization and certainly what we do with the proceeds. But the game to use your analogy is not over. We're not in the ninth inning.

And it seems as though -- I mean, I know from the prior commentary and prior remarks, but I guess, maybe I want to just sort of clarify. It seems as though you're -- the pieces that you have, you feel as though can grow and yet there's still some opportunities there if you choose to go down that path. Is that a reasonable way to say it?

Generally speaking, we think all of it can grow. This is -- there's no -- but do we have bandwidth and depth and scale to get there at the rate we want to. And the answer is not always. And so that's kind of -- that's one of the factors we look at when we decide how we want to rationalize or continue to rationalize the portfolio. So yes, there's no question, there's no excuse for not getting the entire portfolio to grow. It just needs to be narrow and not everything has the same growth rate. Not everything has the same investment need, not everything has the right leadership and bandwidth need. And so that's how we're going to put the portfolio into the math equation to come up with the right answer at the end. Steve, anything to add to that?

No. Well, I would just add on to that. I mean clearly, if you think about the last 18 months, we've divested 3 assets, 3 discrete assets at pretty attractive multiples. We've been able to carve them out. We've been able to find strategic buyers for them that have been able to fit them very nicely into how they're thinking about their businesses. And as Cliff said, there's -- there continues to be a rich portfolio of assets remaining, and some of those fit together very nicely into this notion of horizontal solutions that we have in the Commercial businesses and then some of the assets in the public sector markets as well. And so we'll continue to be opportunistic about it. We'll continue to find that sweet spot between what we think works together in the portfolio versus things that we can get attractive multiples for on the outside. And that's -- as Cliff said, that remains and going to be one of the levers that we'll continue to pull here as we continue to get the business to where we want to get it.

Okay. That's very helpful. And then I wanted to shift gears certainly, we -- I appreciate the commentary in the prior question around the political ramifications on a national level. I was wondering if there were any state or local level situations, races, results, anything that you think might be beneficial or we should be keeping an eye on for going forward?

Look, I mean, most of our public sector contracts, as you know, are contracts with states. And the states are always trying to do the right thing for their constituents regardless of party. There are episodic events, for example, around SNAP where states -- if the federal funds dry up, the states may not want to fund 100% of the SNAP payments. And so sometimes, we're looking at trends between red and blue and which states are going to be more supportive or less supportive. But that's pretty much normalized out now. So I just -- Steve, unless you have comments, I just don't think there are -- I don't see anything from the election regardless of party that's going to impact our business.

Yes, Marc, I would add to that. As we think about that state government business and technology needs, the CMS mandate, everything that they've got to do out there to upgrade technology, figure out how to get stuff off mainframes, figure out how to get stuff into the cloud. There's a lot of work that's got to go on over multiple years, and we play very nicely in our state government business into many of those themes. Most of the programs, almost all of the programs that we run, you would regard them as being critical programs. They're not at the edges of policy. They're about maintaining critical core services to constituents. And so our Government business is right over the target of being positioned to play very nicely into a lot of technology functionality upgrades that have got to go on in those state infrastructure programs around health and supporting citizens for many years to come. And that's a far more important base tailwind to this business than an election result.

I mean there would have to be more monumental changes in government spending around Medicaid, social security, unemployment insurance, VA benefits, et cetera, et cetera, that even if there are changes, it's a long tail to the work. So it's just -- those entitlements are just not going to drive in the near term. And those are primarily where we get our revenue. So we think we're on a consistent ride here.

Our next question comes from the line of Chris Sakai with Singular Research.

As we look out towards 2025 and your targeted exit rate, can you provide more color on the key drivers of margin expansion? Specifically, how much of the anticipated improvement is expected to come from the removal of stranded costs versus operational efficiencies or revenue growth?

Yes, absolutely. That's on Slide 12 in the deck, Chris, but I'll highlight the kind of key components of it. There's $50 million of stranded cost work that we've got to do specifically around the divestitures. We've got all of that identified and some of that -- most of that has got plans around it in terms of how we're going to remove that as we go through the rest of 2024 and into 2025. We've got another $50 million of cost efficiency work that we're going to work out across the business. That's a fairly normal target for a business of this size. We've got $3 billion cost base to go after. And so that's not a quantum of expense efficiency that should be challenging for us to achieve against this notion that we're going to continue to think about ways to put the portfolio together to make it more efficient. The margin expansion component is going to come from a targeted and well understood range of pricing levers and mix levers that we have Cliff talked about our onshore to offshore mix. We've got some specific pricing levers that we're going to go after to get that. And then the balance of that bridge to the exit rate is going to come from the natural fall-through that we're going to get as we get the business starting to grow from a top line revenue perspective. So those are really the 4 components that are laid out on that slide, and that's how you think about the walk.

Okay. And the loss of the government health care contract had a pretty good impact on Q2 results, and it's expected to continue affecting performance through Q4. Are there any similar high-impact contracts up for renewal in the near term that investors should be aware of? And how are you working to mitigate potential losses?

Yes. Well, we -- I'll answer the second part of that first. I mean, we're continuing to see our churn rate improve. Cliff talked about the fact that it's gone down from a historic 11% through 7% on the path to 5%, and that's a very good sign for us. That's fundamentally a proof point around the repair work that's being done to stabilize all aspects of the base of this business over the last 4 or 5 years. There's been some really critical work to get us to that point where our client retention or churn is where we need it to be, and at a level that we've got confidence that our sales teams can continue to grow over the top of. So that's the first part of the question. The second -- the other part of the question is in relation to the MMIS. I think those discrete drivers that I laid out for you last quarter in terms of the 3 components of what's going on in the Government segment, one of which related to that MMIS contract are the way we continue to think about the margins. And so that's -- there's nothing out there that isn't sort of baked into that. And once we get through the annualization of those effects, then we see that margin beginning to stabilize on the backside of that. And then with growth, we would look to see that expanding.

Chris, I don't think you can, in my opinion, pick out any one thing like renewals as a predictor of where this puck is going. I mean it's -- where the puck is going is a combination of volume expectations. It's a combination of renewals that you just talked about. It's a combination of add-on volume that we can get from our current portfolio, and we're were somewhat underpenetrated in the commercial space compared to what we can achieve. And it's a combination of new business sales. Those are all offset by project revenue roll-off and losses. And we think that when we put that all in the mix or in the equation, we see line of sight to an exit rate that's above the waterline when that's all put into the math equation.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session, and that’s concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.