Q2 2020 Conduent Inc Earnings Call

Welcome to the conduit Q2, 2020 earnings conference call in that.

All participants will be in listen only mode should you need assistance. Please take away conference specialist by pressing star keep followed by.

After today's presentation there'll be opportunities asking question.

Please note that is being recorded.

I would now like turn the conference over to Mr., Alan Cat, Vice President Investor Relations. Please go ahead.

Good evening, ladies and gentlemen, and welcome to conduit second quarter 2020 earnings call.

Joining me on todays call, it's clear Skelton, Conduent, CEO and brainwashed conduit.

Following our prepared remarks, he will take your questions.

It's also being webcast a copy of the slides used during this call looks problem.

Afternoon.

Slide as well the detailed financial metrics are available for download on the Investor Relations section of the conduit website.

You also close the transcript later this week.

During this call content executives may make comments to contain certain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.

Our 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 six 2020 and are subject to a number of factors that may cause actual results to differ materially from those statements.

Information concerning these factors have included in content I know report on form 10-K filed with the FCC.

We do not intend to update these forward looking statement as a result of new information or future events or developments, except as required by law.

The information for them today includes non-GAAP financial measure because these measures are not calculated in accordance with U.S. GAAP. They should be viewed in addition to you and not as a substitute for the company reported financial results prepared in accordance with U.S. GAAP.

For more information regarding definitions of our non-GAAP measure, how we use them as well as limitations as to big semester comparative purposes. Please see our press release, which was issued this afternoon furnished to the FCC on form 8-K.

With that I will turn the call over to clip for his prepared remarks that's.

Thanks, Alan Good afternoon, everyone and welcome to the second quarter earnings call here a conduit.

Appreciate everybody joining me today.

This is Mike this earnings call.

Becoming CEO about a year ago, a lot sure has changed.

Certainly here a conduit, but of course on the world stage I hope everyone remain stable your families are doing well.

Things are tough I understand that I appreciate everybody shown up today. So thank you.

I'd like to start a first by acknowledge it all the conduit associates that have helped us make a lot of progress.

Coke, it's been tough as I said and what the significance of it or team has really done a great job and I appreciate all that.

As you can see on slide four we had some great feedback from a lot of our associates in our clients. Those you just some examples of some of those our performance.

The bottom line is the fundamentals of the company are improving its really due to the hard work through our team.

As you're gonna see today that really returns say that hard work starting to pay offs and that's by both some of our new NR tenured associates. So really proud to have those folks. Let me quickly go over the agenda I'll dive into the details later.

We're going to discuss the titles and that's just for the quarter as always.

Oh, we'll talk about or improve sales results will certainly touch on both the negative and offsetting impacts of Kogas and we'll go deep on transportation in our government businesses after that I'll turn it over to Brian to run through a lot of the more detailed financials and our outlook for the third quarter, we're not gonna give guidance for the year, but.

We are going to talk to you about what we expect in Q3 so.

We'll go through that and then we'll take questions at the end as always.

Now turning to slide five certainly with everything going on in the World Q2 was a good quarter I would say Q2 was actually a really good quarter.

She has you compare to what we thought of internally and what actually external expectations were revenue and adjusted EBITDA. Both came in higher revenue was just over a billion.

And adjusted EBITDA of 110 million now as I said, Brian is going to go through the details.

But I'll give a brief overview or what happened in the quarter, where we did well where we outperformed.

And then certainly talking about the headwinds in the Tailwinds associated with with coverage. So let me talk about revenue first.

And our transportation segment, where we were little worried, especially in the tolling business, where we're showing ourselves to be a little more resilient than we had previously anticipated.

Well, let's stay at home orders did lead to lower volumes.

We're actually seeing traffic increasing.

As you can imagine that those increases very state by state and in fact, some states are at 90% of pre coal volumes and some much lower than that.

Our government business performed really well in Q2, especially our government payments payment business.

Clearly that's due to unemployment and other subsidy volumes. So we've seen some some real good volume there and we were looking forward to that continuing.

As it relates to EBITDA are costing our efficiency efforts are working.

And it helped to show off shore up our margins in Q2.

Back in Q1, we talk to you about a program, where we were incrementally reducing $100 million of 2020 expenses.

And the good news as we expect to significantly surpass that for the year, but the other good news is 60% of those savings are permanent <unk>.

We see that that effort, which is exceeding $100 million and branch and I've talked about that.

Contribute to the jump off point for 2021, which is a really good thing.

Regarding sales it was a really strong quarter Oh go through the details on the next slide.

I'll note that it was not only stronger the strongest quarter, a new business signing since we spun to become a separate public company [laughter] now we're always going to be focused intently on operations. We continue to be focused on both operations and quality and we'll talk about out here in a minute.

Our technology performance continued to improve compared to last year fewer incidents in aggregate and improved operational stability or really helping with clients that and retention, which is helping with our reputation.

Lastly, well, we have a lot of associates working from home, 75% of them. A we've started very slow and measured approach to bring some of those folks back to offices, where it makes sense.

Yeah, we got to be prudent will continue to be prudent.

Based on specific koby conditions in certain geographies will pay said <unk>.

The good news is we can deliver as we are on a work from home environment in most most cases and generally speaking we're maintaining those expected service levels.

With that large portion of our workforce to working from home.

So given the current global situation all in all I'm quite pleased once a quarter.

But to be clear we need consistency.

We need to do this every quarter.

And we need overtime to show you.

We can grow both top and bottom in growth and this company has not grown since it's been our mission is to change that and we are changing and.

And it's way too early to make declarations, but well I think we think you choose a good indication that with the right team in the right approach that mission of growth is achievable.

Now, let's turn to slide six you want to talk about sales and.

A higher level of detail, which obviously is critical to that long term growth expectation.

As you know with respect to sales in this business revenue ramp.

On new business signings can last a while we can last a year or two and.

And so we've got to see these strong sales continue because its pivotal to both 2021 in 2022 gross or an add on business. The good news is add on business and retention contribute directly to near term revenue achievement. So.

As I mentioned, we had the strongest new business TCV signing since the spin was 623 million assigns that's 90% improvement year over year in 92% improvement over last quarter.

No longer term deals drove some of that.

Some of that uptick and we experienced.

Some of that some longer term deals another year in terms of the dealing but.

The good news is we also experienced significant annual revenue increases due to these new signings.

So we believe that if we keep that momentum going and continue to focus on retention do that improve quality program. We've talked about previously and some improved account management. It really does bode well for us in the future.

In first half the 2020, we signed $947 million or new business.

That's pretty strong and that compares with 995 million all of last 2019th.

So you might ask but.

Why is that and you know my view is it's better process.

It's a better sales and stronger sales team and stronger sales leadership, we've isolated the sales team in and created a dedicated team.

And we've also created a more selective approach to win the bid and we're not a bit.

That helps us with better when rates, so we're feeling pretty.

Pretty sanguine on what we think we can do for the year.

Just to give you a little bit of color. We've included a couple of examples a wins on the slide including a new commercial client, where we signed a deal with a leading health care company, providing managed care services. The good news out of that is the deal Leverages. The Hsp acquisition you might remember from 29 team that's validating that.

Product in the marketplace. We also signed a big government deal with Michigan's Department of health and human services.

Well, we're going to provide $1.3 billion and stay child support benefits annually. So two big deals.

Then finally in the transportation business, we signed a new tolling contract, where we're gonna be running Ohio's automated tolling system.

And we're really looking forward to getting started on that project, it's a big and we're proud of getting over a goal line on that one.

But as you know, it's not just about new business items, we need to continue to see client retention and add on metrics improve and we're seeing that.

Our pipeline now is it 22 billion. So there's some improvement there that provide some real runway as always that client confidence is gonna be critical dorks star success and quality goes hand in glove with that and so we're continuing to focus on that to make sure we have better client confidence better client referenceability.

And we think with that we've got a again as I said they are good runway ahead of us.

No Q3.

We don't know whether Q3 is going to replicate Q2. However, I can tell you that we will grow year over year in terms of sales growth in Q3, and importantly, we're committed to achieving that 160% 2019 sales performance. This year that I talked to you about in or earlier earnings calls.

And we're halfway there for Q3 already against quota. So that's good news and as mentioned were 60% of our way to our full year goal for the year. So again, we're very sanguine on sales, but we got to keep a pedal down and that's what we're doing.

Without much Ah, let's turn to slide seven for an update on coal.

As you might recall in the Q1 call we discussed.

Impacts of government 19 on Q2.

First we said that there would be significant contraction in our transportation volumes as a real result to stay at home orders.

We also said that there'll be some impact to our commercial business, including the interest interest rate impacted benefit wallet and we also said finally that.

It'd be an expansion of volumes in our government services work, particularly the payments work and we're experiencing all of what we said, we would experience, but but to varying degrees.

In that transportation segment, despite the stay at home orders.

Revenues vary by product it varied by volume change it varied by the nature of how we generate revenue.

And so the reduction rates that we anticipated were somewhat muted and less significant than we anticipated.

The commercial business on the other hand was under slightly more pressure than we thought in our initial expectations in the Q1 earnings call. That's due to lower transaction processing in health care volumes.

And then a in that transaction processing space, it's in the dental space automotive travel and even banking, where the transaction volume is down a generally generally speaking.

In health care and workers comp were seeing lower Bill review mailroom, a nurse triage activity.

Due to employees working from home all that's offset though the good news for us and that reflects the diversity of our portfolio.

In that government services segment that we talked about earlier, where volume was much stronger than anticipated.

Well, there's far more government government assistance volume than we modeled initially and talk to you about before unemployment insurance. For example was significantly impacted by the $600 per month, the federal payments by the Cures Act and as you might know we generate revenue by usage rates and transit.

Action volume, which leads to increases in Q2 revenue as as we saw in love results.

Regardless of the additional payments from the carriers that government services business is also expected to perform well in Q3. So that's a good thing.

So a lot going on.

You know in Washington, as we know, but irrespective of that we're we're quite optimistic on that government services beds business. So that's a good thing [laughter]. Additionally in that area, we might see higher usage of the snap cards in the fall as some of these schools are putting school lunch programs on cards through program you may.

I have heard a call a pandemic snap or piece snap, where kids you normally get subsidized or free lunch at school.

And get foods subsidies well schools were closed.

Well, obviously, that's a good thing and we'll we'll see our best their business benefit from that but as I mentioned that shows how the diversity of our offerings.

In turbulent markets.

And really helping some of these offerings are actually counter cyclical a in terms of of a lower economic activity. So that that's again all about diversity.

For <unk>, So you might ask <unk>, what about the rest of the or I don't have a crystal ball here.

Let me give you some expectations based on what we're seeing we think the commercial volume pressure likely stays.

Although we see it start to him to modulate back up in the second half of the year.

We're working to take on additional client volumes from competitors, where where they might not have been able to step it up.

And as some of these clients look to outsource more work, which were starting to see.

Were there to catch that's that ball as they do it as they're trying to work on their own cost pressures.

In the transportation segment, it's it's really too early to tell where we're watching state by state based on current conditions. Your guess is good as minus the when things are open up and the way things are going it's going to be more of a state by state equation as I mentioned earlier.

Back to that government services volume, we expected to stay elevated just of note and the unemployment benefit space.

We send out 1.4 million additional cards compared with quarter prior for unemployment benefits that shows the dramatic increase in claims that we've all been seen.

Watching those were certainly seeing that and we're experiencing that aren't business.

And back to that snapping piece that program, we saw 25% him a increasing volume there.

So we expect that to consider and even even much laid up in the p. snap a space.

On the last call. We said, we said we thought increased volumes and that government business would lead to an incremental $20 million to $40 million in revenue, we definitely under called it or we know when new the gravity your timeline for covered.

And so we now obviously expect that number to be higher.

And and of course, it needs to be hard to offset some of the impacts of transportation and commercial.

And because of those are some of that reduction in transportation commercial that I previously talked about we continue to work really hard on efficiency and cost endeavors, and so I want to talk a little bit.

About those cost savings updates on slide eight.

And give a coated or transformation efforts or didn't focus on cost on cost efforts in certainly that efficiency pillar that you heard me talk about.

Obviously is a big focal point for us a and then increase focal point that allows us to maximize cash preservation, which were which we're doing.

As I mentioned, we expect to overachieve that hundred million dollar target.

And those that target focuses on both temporary covert related expense reductions as well as more long term expense reduction efforts.

Which will continue into next year and Brian is going to talk about that some in his remarks.

So with respect to temporary actions related to Cobi, we're focused on things like travel we've got furloughs, we got reduced spend first facilities all those things tend to parallel.

The timing of the impact from Cowen and so we're seeing offsets to that coping impacts because of those expensed maneuvers. If you will.

With respect to the permanent or longer term ones.

We're looking at things, we haven't looked at before like organizational spans and layers vendor spend.

Well look at in increasing our usage of shared services and we hired a new head of operations and transportation <unk>.

Whose job will be to drive these efficiency efforts and migrate to a new phase the shared service he's going to focus on process improvement you will focus on lean type efforts.

And ER and finally.

We intend to implement a different allocation methodology for cooked corporate overhead beginning in Q3, Brent I'll touch on that as well and we're certainly be ready to talk about that and Tonight.

So we're finding efficiencies all over the place we're looking at the real estate footprint and were modulating to run migrating to a more balanced work from home versus work from conduit offices equation certainly in the short term.

And we'll have an equation for the long term as well a very soon.

So as you can see from the graph their savings across each one of these categories.

And we're going after all these line items to ensure we're running as efficiently as we can we have <unk>. We've got a lot more work to do what we are well underway.

In terms of the efforts across growth efficiency and quality, we have a lot more work to do.

But the good news is we're seeing the fundamental signs of a turnaround.

And in some cases across those three pillars, we're already seeing improvement in all three.

Yeah. So now let's turn to slide nine if you will further discuss.

More of our transformation answers.

I'll start by noting that well as always and as we've talked about in past.

Well other opportunistic considerations will find their way to our radar this growth the efficiency and quality strategy. We've been discussing is finally, starting to take hold it is sticky taking hold and the plan is critical regardless of the complexity and or nature of our portfolio of products on a go.

Forward basis.

In addition, we continue to talk great talent.

Build out the size and strength of our sales team and we'll certainly be ready to talk about that in Q and a and drive to a more seamless in coordinated operating model.

In that regard our command centers fully operational.

And it continues to support those reduced incidents that I discussed discussed and also improved resolution times.

And interestingly based on on our history, we completed yet another large data center migration without impact to our clients. So we're very proud of our technology teams for that.

So we think this transformation program that we put in place should lead to.

In addition client performance improvement and client retention.

We think it leads to continued sales success and we can we think it leads to a stronger operating environment.

Now before I turn it over to Brian I want to first acknowledge that it's great to see progress and I Hope you see the same progress that we're saying.

But we are committed to show anymore, we aren't satisfied anyway in any way until we can demonstrate consistency and continued improvement.

That will obviously with the obviously lead to top and bottom line growth it will lead to margin improvement.

And critically it leads to reputation enhancement.

The good news is those Q2 sales numbers are the green shoots that we've been talking about and hoping for a two quarters doesn't make a trend.

It's a good indication of how the changes we're making are working.

But it's it's an early indication.

That said this is a journey and in my view rebuilds are no faster than downturns in fact, maybe quite the opposite.

But the foundation for this turnaround as Bill it's now time to show you some continuity and some consistency. So that's what we intend to do.

Finally, I'm very proud to have the opportunity to continue to draw talent.

On doing.

I'm proud to lead the great talent within conduit.

And I'm very proud to care for the clients, who entrust us with their business and we want to keep this machine going so I want to thank our clients as well.

Thank you very much for your time and I'd like to turn over to Brian to talk about the detailed financials.

Thanks, Cliff I'll start off on a same now I'm extremely proud of the hard work from our team, it's great to see progress and delivery operations and styles.

Before I begin on the financials I'll quickly note that we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation.

I'll start on slide 11 to review the piano and the consolidated and tactically 19 on revenue and adjusted EBITDA.

Revenue for the quarter was approximately 1 billion down 8.6% compared with our second quarter results last year were 8.3% in constant currency.

The results are better than expected, primarily driven by the strong volumes that are government segment related to covert 19 and less of a covert 19 impacting our transportation segment for me year over year perspective. Prior year lost business included 19 related pressure from the transportation and commercial segments offset the growth in government driven back.

Good.

As Chris discussed, we're making progress in training better than expectations. This is a result less of an impact recover 19 strong execution on our cost takeout program and better top line performance excluding coated.

I want to highlight this positive topline trend that were seen in the business. It's most visible when you separate the impact to cover 19 from how we believe that business would have performed in a business as usual environment.

Total not impact to revenue from covert 19 was approximately 35 million for keeps you as cliff mentioned without the impact to covert 19, we estimate that the year over year revenue declined for the quarter would have been 5.5% better than the midpoint of the 68% decline that we had anticipated at the start of the year.

Adjusted EBITDA in the quarter decreased 3.5% year over year 210 million well adjusted EBITDA margin improved by 50 basis points to 10.8% and margin improvement was a result, the progress and the cost savings program.

Well get 19 heading that negative impact on her adjusted EBITDA of approximately 8 million, including the benefit of temporary cost actions, excluding the impact to covert 19, and these cost actions, our adjusted EBITDA margin would've been approximately 11.3% for the quarter.

In addition to the temporary actions, we're also taking permanent actions, which should position as well as we enter into 2021.

Restructuring spend for the quarter was elevated at 29 million driven by our cost and expense reduction program, we anticipate restructuring for the year to be approximately 60 million consistent with our outlook as ever last call. We're pleased that the business performed better than expectations for Q2.

Turning to slide 12 to go over the segment results.

And the second quarter, our commercial business revenue declined 12.2% driven primarily by prior year lost business.

19 related volume declines and the interest rate impact in the benefit long business adjusted EBITDA was down 27.3% well adjusted EBITDA margin of 18.5% was down 380 basis points year over year.

Clients were primarily driven by revenue pressure cost related to a contract exit and were partially offset by reduced IP labor and real estate expense.

Our government business grew 1.5% for the quarter. This was primarily driven by increasing could related volumes, partially offset by the loss of the California Medicaid contract.

Originally we anticipated the California Medicaid contract would have a three percentage point contribution to total company year over year declines.

That is now expected to be closer to a two percentage point impact in 2020, as we continued to benefit from the transition work this year.

Government adjusted EBITDA increased by 17.6% well adjusted EBITDA margins of 36.3% increased by 500 basis points. The margin improvement was due to higher volume from covert 19 related work and focused cost reductions our transportation segment revenue declined by 14.9% compared to the SEC.

In quarter last year. This was primarily driven by covert 19 related volume pressure, partially offset by new international trends at work adjusted EBITDA was down 4.9% compared with Q2 2020, driven by lower revenue, partially offset by reduced idea and labor spend as a result than intense cost focus.

Adjusted EBITDA margin for the quarter was 23.6% up 250 basis points year over year driven by cost reductions.

In the second quarter, our unallocated shared I T corporate costs were 145 million, 9.9% lower than in Q2 2019. This was driven by the cost and expense program.

In Q3, 2020, we expect to update our segment disclosure to allocate portion of our unallocated cost to the settlements. This should provide greater visibility into the profitability of each of the three segments in line with how we expect to review and manage the business moving forward, we plan to provide more detail on or Q3 earnings call.

Let's now turn to slide 13 to discuss the strengthening our balance sheet in cash flow.

Our balance he continues to be healthy with 437 million of cash at the end of the second quarter are not leverage ratio was 2.6 turns at the ended the quarter and our long term target for not leverage remains to the two and a half turns we continue to have a solid liquidity position.

In addition to our cash on hand, our revolver had approximately 592 million to capacity available as of the ended the quarter. Our first major debt maturity isn't until the under 2022 and we'll be looking at refinancing options over the course of the next year long events that maturity operating cash flow for the quarter was an inflow of 74.

A million adjusted free cash flow was 40 million, representing a 36.4% conversion for the quarter and 156 million increase over the same quarter last year. This is driven primarily by working capital timing and we also had an 18 million benefit in the current quarter from the payroll tax deferral related to the cares acts.

Capex was 36 million for the quarter or 3% to 5% or revenue, we're still expecting to spend approximately 140 million in capex in 2020.

Let's move on to slide 14 to touch on our expectations for Q3.

Given the recent trends were seen in covert 19 cases throughout the country, we're going to refrain from reinstating formal full year 2020 guidance. However, we thought it would be helpful to discuss our current expectations for quarter three.

We anticipate revenue will be between 960 million to 1.01 billion for the quarter with an adjusted EBITDA margin of between 10 and 11%.

These expectations are based on the current situation that we see today, but if covert Nike impacts change significantly it could pushes towards the outer bonds at this range.

Despite all the challenges that cover 19 is brought our business is showing resiliency, we're continuing to deliver for clients and our transformation is showing progress I want to take our associates shareholders in clients for their continued support we'll now open up the lines for some questions operator.

Thank you we will now begin the question and answer session.

To ask your question you May Press Star then one under touched on this though.

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First question is me today will come from Puneet Jain with JP Morgan. Please go ahead.

Hey, Thanks for taking my question because.

I'm good to see solid traction in bookings.

Lastly, in new business signings.

That's about up so much.

Oh so.

Of course and that is so some of the recent between Q1, how long, but the sales cycle there it's fun to make that.

Excellent or good conversion of some of those units in the pipeline what in other words, what's driving new Dr. weekend timing sports content.

Great question funny. So there's a couple ingredients to what you just said very little of what we see.

And the new business signings has anything to do with Covance. So if you think about the 623 million a new business signings, but theres a little bit of P. snap in there, but a 600 million or so that is really irrespective of code. It's business as usual. So that's point number one.

Number two is that the sales process for us is completely different.

It's it's a lot more about process improvement.

Dedicated teams upgrading talent.

The governance bid management and certainly leadership.

And and so it's a it's it changed sales environment opinion on things. We think we've got a good shot it and we're not messing around with others with respect to.

Tenure of deals in that 623 it is up.

Driving the TCV up so we're looking at roughly 5.2 year.

Average deal length.

This is ER and in previous quarters in the neighborhood of high threes into the force, but the good news out of that well. There's there's that's all good because it creates longer revenue streams and on top of that if you look at it from a year over year basis for quarter over quarter basis. We're up you you know on a year over year basis were up excuse me for.

Order up 25, or so percent on A.R.R. and in some cases upwards, 83% above.

What we were last year so.

Not only is the TCV up but the annual recurring revenue is up and the deal length is up so we're seeing progress and all three buckets.

Got it got it and again at both upside in cost cutting.

Well, that's obviously positive for the near term, but do deep.

Deep cuts, but little buddies and it's whatever you had been since the bad so how do you balancing benefits, Oh, hi cost cuts, but managing execution.

The way to think about this hundred million, which will over exceed in the neighborhood of 20% to 40%.

This year and that's those are 2020 numbers the way to think about it is it's a little bit different roughly 40%. Those are temporary cuts that are directly associated with cobot volume. So it's a volume goes down we want to make sure our expenses go down as close to appropriately or correlated as possible.

60% or so of it is is permanent and you're exactly right, we need to pay intent focus on our attention to.

Making sure we don't cut into bone and so what we've done this time as instead of just what I might call somewhat arbitrary or just say whites swaths of riffs, we looked at it from a completely different angle, we looked at it from operating model changes spans and controls areas, where we just don't think we have.

An opportunity to grow.

And areas, where we can combine talent and create more shared services to drive what I would call efficiency place that will then along with automation that will drive some of those those reductions and it's and it's obviously not just people, but it will involve people as well, but we're going to do it this way more smartly and that's what.

We're seeing in 2020.

Got it thank you.

You bet.

And the next question will come from Shannon Cross with Cross Research. Please go ahead.

Thank you very much I was wondering can you talk a bit about how we should think of the contribution from unemployment and some of the pandemic related.

Federal money that may or may not continue and and how you're thinking about balancing that against the benefit from the new signings.

Is there something that in theory could be fairly seamless where you know as the fed money in Florida and theory falls off a new signings come through our or how should we start to think about that trajectory.

Well I don't have something like the new go ahead, Brian you ticket.

Hi, Ken and its Brian So first I would just wanted to say for they Q3 guidance range.

At the midpoint in low end of the range, we're not assuming any extension of the federal government unemployment supplement.

The high end does contemplate it being extended for that for for August and September, but the midpoint design.

And then go had cliff.

No always gonna say is Shannon if you look at.

Brian excluded a lot of what we saw what that extra $600. A month is excluded and what we're we're thinking about for Q3 and what were seen in the in the current upswing.

Which is well in excess of what we thought it would be that 20 to 40 million, we thought it would be it's mostly unemployment.

Which we see probably continuing despite a we though not knowing about that $600 on what it might go too and the P. SAP, which we also see.

On a continuing basis, but both of those are unrelated to what we see on a business as usual basis, which when you net out cobot, we see a we see improvement to two last year definitely.

Or what we expect paying or budget anyway.

Okay, Great and then.

When you're sounding always new contracts, how should we think about the margin profile and the contracts you're signing you know how how are you sort of determining what sharpies you Bell for persons. Once you don't just trying to think about you know what do we get through the pandemic and then get into the next that you know it is this a situation where.

You know margin improvement should continue where at least holding there. Thank you.

Yes, so when we're all looking in new business deals, we target margins that are better than the current margins of the company. Sometimes you know for specific deals you. We may take a lower margin, but the most of the time the did Marty margins were signing or higher than current company margins.

And how long does it take to sort of get to sustainable margins in a contract because there's obviously an upfront investment that's required.

Yeah, usually it ramps over time in you know it ramps as you go through the first couple of years or the lower margin sometimes negative in the first here and then it ramps from there, but it does depend on the offering and we have certain offerings that ramped faster that make money faster. So it just depends but there is around typically.

On the margin side, yeah tenant.

Right.

Heavily dependent as Brad said Shannon on on the product obviously in the public sector, where there's more upfront investment, perhaps a little bit slower words strictly services it ramps very fast.

Okay. Thank you.

The next question will come from Bryan Bergin with Cowen. Please go ahead.

Hi, guys. Good evening. Thank you I'm wondering what's kind of cost plans. He you mentioned expected our performance did you quantify how much that means and just to date, where are you relative to the target.

So Brian Thank you, but we've got all of it identified a about half of it executed when I say executed its all planned. So we know which ones are executing wind right across every month, we expect outperform between 20 and 40%.

So if you think on on the outside $140 million.

Okay, and your 50% or the way.

We're that run rate were more than there were 100% of away to the identification or.

You know this were roughly 70% to 80% of the way to the execution I mean, there are people to come out later in the year.

So we were 100% identified call it 70% executed.

Okay.

I heard the comments on the sales process refinement that you're attributing the success here is the current salesforce appropriately sized snapped up the pipeline opportunity that you conveyed or should we expect investment there.

We're we're roughly Brian about 25% or over the low point from last year in terms of our head count on sales obviously, what's most important none of that mix is the quality and the performance and execution out of that team.

Oh, we expect another or what I'd call, a 10 or 20% uptick.

Over the course of the next nine months, so we're not done.

But we were.

80% of the way there on that on the body count.

Okay, and just one last one for you how are you thinking about potential strategic alternative paths is that off the table in this environment or is that performance than any of these businesses now supportive of actions to be taken.

Yeah, It's a great question it look at.

Opportunistically never off the table right. We we think we have the right strategy irrespective of the portfolio, we're starting to see with green shoots and all arrest that strategy take hold and it's working irrespective of the portfolio.

But it would be foolish for me to say that it's off the table would certainly never off the table and we're we're completely up opportunistic, but we want the price to be right.

We don't want Ur cobot to be taken advantage of in the mix.

And so I would I would say no it's not it's not off the table.

Okay. Thank you.

As a reminder, if you'd like to ask your question. Please press Star then one our next question will come from my own tendon with Needham. Please go ahead.

Hey, good evening sectors like how Peterson from my own [laughter], great to see the improving TCV trends. The last few quarters. Its suite C. C. If you guys have any thoughts on how quick over time implementation revenue will you guys are seamless.

Some of these project extension. It's just so we can you get a sense of how how how quickly this might translate to revenue. So we can start continuous turning the ship them right direction.

Yeah. So it's Brian it's similar to the margin answer it depends on the offering some offerings such as customer experience in transaction processing ramp faster others. There's an implementation period that can take you know in some cases, a year or more so it does it really depends on the offering.

The good news is.

Through the first half we've seen a good mix no different offerings contributing to the sales numbers. So we will have some you know revenue in the current year from me signings and others will contribute as we get into next year.

Great. That's that's helpful and then and interest that's just a follow up with I'm I'm Mark anything in longer term thoughts on the on the <unk> margin profile the business with a somebody's new contracts coming and kinda at or above current margins plus kind of the over delivering on.

These cost take out targets.

You guys like given any thoughts or could you give any color on where you think the margin in this business could had and a little more normalized operating environment.

So overtime Weve side, you know before that this business. If you look at the peers operates based on our mix at about a 15% even a margin in overtime, we don't see any barriers to getting there in the near term, though we want to prioritize the you know improving margin somewhat but but also investing.

It turned around moving around in that balance will keep it you you know lower than than that you know in the near term and we've talked about tend to be in range bound between 10, and a half an 11.5%.

You know over the next year or two and obviously you know we had good performance in Q2 will keep driving margin improvement as we can do we want to make sure we get the balance ready between turning the topline around and improving the margin.

Great. That's helpful color, Thanks, guys nice quarter.

Q.

Thanks.

That's there no more questions in the question Q. This will conclude the question that essentially.

I'd now like to turn the conference back over to clip Skelton CEO for any closing remarks.

Well, let me say first thank you to everybody for joining today, we feel like we're on track and making progress we hope to have another good Q3 to talk to you about here.

Months or so.

It's encouraging to see that greenshoe shoot, but a week momentum is and consistency is what we're looking for I'd like to say, thank you obviously to our employees for their hard work for our clients for their business and.

For our show and to our shareholders for for your confidence and I hope everybody stay safe and keeps your family safe. During this crisis. So thank you very much for joining.

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

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