Q1 2024 Conduent Inc Earnings Call

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Operator: Greetings and welcome to the Conduent First Quarter 2024 Earnings Announcement. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

Greetings and welcome to the conduit in first quarter 2024 earnings announcement.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Charles Coburn: It is now my pleasure to introduce your host Charles could burn Vice President of Investor Relations. Thank you. Please go ahead.

Giles Goodburn: Thank you, Operator, and thanks, everyone, for joining us today to discuss Conduent's first quarter, 2020-04-08. We hope you had a chance to review our press release issued earlier this morning. Joining me today are Cliff Skelton, our President and CEO, and Steve Wood, our CFO. Today's agenda is as follows.

Charles Coburn: Thank you operator, and thanks, everyone for joining us today to discuss <unk> first quarter 2024 earnings. We hope you had a chance to review our press release issued earlier this morning.

Charles Coburn: Joining me today is cliff Skelton, our president and CEO and Steve Wood, our CFO.

Giles Goodburn: 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 provide a financial outlook. We will then take questions, and Cliff will then provide his closing comments.

Clifford Skelton: <unk> 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 our financial outlook. We will then take Q&A and Cliff will then provide his closing comments.

Giles Goodburn: This call is being webcast, and a copy of the slides used during this call, as well as the press release, was filed with the SEC this morning on Form 8K. This information, as well as the detailed financial metrics package, is 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.

Clifford Skelton: This call is being webcast and a copy of the slides during this call as well as the press release was filed with the FCC. This morning on form 8-K.

Clifford Skelton: This information as well as the detailed financial metrics package are available on the Investor Relations section of the conduit websites.

Giles Goodburn: 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.

Clifford Skelton: During this call we may make statements that are forward looking.

Clifford Skelton: 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.

Clifford Skelton: Information concerning these factors is included in <unk> annual report on Form 10-K filed with the SEC.

Clifford Skelton: 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.

Clifford Skelton: 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.

Giles Goodburn: 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. Now, I would like to turn the call over to Cliff.

Clifford Skelton: 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.

Clifford Skelton: And now I would like to turn the call over to Cliff.

Clifford Skelton: 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 mentioned, as well as a normal report from myself and our CFO, Steve Wood. Q1 marks yet another quarter on our journey that, like others, has fought through things like COVID, the shift to a largely work-from-home model, and the many changing winds in the economic stage.

Clifford Skelton: Thank you Jos and good morning, everyone and welcome to <unk> Q1, 2024 earnings call.

Clifford Skelton: Today, we're happy to report that we have analyst Q&A at the universe session as Jos mentioned.

Clifford Skelton: As long as the normal report from myself and our CFO Steve what.

Clifford Skelton: Q1 marks yet another quarter on our journey.

Clifford Skelton: But 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 Stephen I've previously discussed.

Clifford Skelton: As Stephen and I have previously discussed... We're very clear 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.

Clifford Skelton: We're very clear eyed on what we have to do to take this company from what was an operational turnaround.

Clifford Skelton: Two a more narrow nimble and growing company.

Clifford Skelton: We set a couple of things.

Clifford Skelton: One, rationalizing 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.

Clifford Skelton: And rationalization of our portfolio will help us reduce drag.

Clifford Skelton: Bandwidth.

Clifford Skelton: It will also free up capital for the purpose of reducing debt buying back our stock and other opportunities.

Clifford Skelton: We said there would be pain before game.

Clifford Skelton: 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 lowest in both revenue and EBITDA, exacerbated by an average average sales year, if you will, in 2023, a phenomenon experienced by many of our competitors as well. Our growth trajectory expectations in 2025 and 2026 will require different talent. We're making progress in mitigating that.

Clifford Skelton: The timing of divestitures is not perfect.

Clifford Skelton: And some margin deterioration will take place in the near term and then expand to normality.

Clifford Skelton: 2024, and our plan.

Clifford Skelton: This is the trough year in both revenue and EBITDA.

Clifford Skelton: Exacerbated by an average to average sales here. If you will in 2023, a phenomenon experienced by many of our competitors as well.

Clifford Skelton: Our growth trajectory expectations in 2025, and 2026 will require different talent.

Clifford Skelton: We're making progress in mitigating that.

Clifford Skelton: More to come in our next earnings report on that subject. Suffice it to say that we're adding and changing talent at the senior levels of the country. We have to revitalize our sales engine, which we are doing. While timing is always a factor and Q1 performance lags, the first half of the year will be reasonably strong. Again, while we must execute well, it doesn't take a lot of examination to understand the growth enabled by a different talent base. Stable Operating Platform, cash generated by divestitures and the interlock cost takeouts, of course, with reduced debt, makes for a more valuable company. That's the journey we're one third into.

Clifford Skelton: More to come in our next earnings on that subject.

Clifford Skelton: Suffice it to say that we're adding and changing talent at the senior levels of the company.

Clifford Skelton: We have to revitalize our sales engine, which we are doing well.

Clifford Skelton: While timing is always a factor in Q1 performance lagged the first half of the year will be reasonably strong.

Clifford Skelton: Again, while we must execute well it.

Clifford Skelton: It doesn't take a lot of examination to understand the growth enabled by a different talent base a stable operating platform.

Clifford Skelton: Cash generated by divestitures and the interlock cost take outs.

Clifford Skelton: Of course with reduced debt makes.

Clifford Skelton: It makes for a more valuable company. That's the journey, we're one third into.

Clifford Skelton: So, what about the Q1 numbers? Q1 was a strong revenue quarter for us at $921 million, exceeding expectations. As you may recall, Steve guided Q1 revenue to be down 2% to 3% year over year, and we were essentially flat. He guided adjusted EBITDA margin to be below our full year guided range.

Clifford Skelton: So.

Clifford Skelton: What about the Q1 numbers.

Clifford Skelton: Q1 was a strong revenue quarter for us at $921 million exceeding expectations.

Clifford Skelton: As you May recall, Steve guided Q1 revenue to be down 2% to 3% year over year, and we were essentially flat.

Clifford Skelton: He guided adjusted EBIT margin to be below our full year guided range and that's where we landed at seven 5% inline with expectations.

Clifford Skelton: And that's where we landed at 7.5% in line with expectations. Now, for what it's worth, the year-over-year EBITDA compare is a little misleading because of a one-time item in Q1 of 2023, without which we'd have been in striking distance of flat year-over-year. While we're quite pleased with our revenue and EBITDA performance, we're less pleased with the timing of the sale.

Clifford Skelton: Now for what it's worth so year over year EBITDA compares a little misleading because of a onetime item in Q1 of 2023.

Clifford Skelton: Without which we would have been in striking distance to flat year over year.

Clifford Skelton: While we are quite pleased with our revenue and EBITDA performance, we're less pleased with the timing of sales.

Clifford Skelton: Q1 missed expectations, primarily driven by the timing of new business a R. R.

Clifford Skelton: As you know, we talk about sales in three categories, new logos, new capability, and add-ons. We definitely saw some new logo and new capability business slip to Q2, but the engine is now moving us in the right direction.

Clifford Skelton: As you know we've talked about sales in three categories.

Clifford Skelton: New logos, new capability and add on with.

Clifford Skelton: We definitely saw some new logo and new capability business slipped to Q2.

Clifford Skelton: The engine is now moving us in the right direction.

Clifford Skelton: We have, and are developing partnerships with other outsourcing firms in the CX space, especially to drive sales. Our client partnership teams are beginning to penetrate that white space in our portfolio, and we're teamed up with partners such as Microsoft for Gen AI across the BPO and CX arenas to enhance quality, throughput, and efficiency. With respect to net AR, that number was still positive at 17 million, but lower than desired.

Clifford Skelton: We have and are developing partnerships with other outsourcing firms in the CX space, especially to drive sales or client partnership teams are beginning to penetrate that white space in our portfolio.

Clifford Skelton: And we're teamed up with partners such as Microsoft Virgin AI across our PPO and CX arenas to enhance quality throughput and efficiency.

Clifford Skelton: With respect to net a R that number was still positive at $17 million, but lower than desired.

Clifford Skelton: And that's not worrisome given the Q1 to Q2 timing and the fact that this trailing 12-month number can be unduly influenced in either direction by a large deal rolling off. Steve's going to talk about that further, as well as its implications for Q2. As I mentioned, we believe the first half sales should be reasonably strong, with some tailwinds in our commercial business, especially, some weakness in our government business, and kind of down the fairway in transportation.

Clifford Skelton: That's not worrisome given the Q1 to Q2 timing and the fact that this trailing 12 month number can be unduly influenced in either direction by a large deal rolling off Steve.

Clifford Skelton: <unk> is going to talk about that further as well as implications for Q2.

Speaker Change: As I mentioned, we believe the first half sales should be reasonably strong.

Clifford Skelton: <unk> in our commercial business, especially.

Clifford Skelton: Some weakness in our government business.

Clifford Skelton: Kind of down the fairway and transportation.

Clifford Skelton: NetNet, with the kind of diverse platform we have here at Conduent, the cycles often offset one another, and thus far, 2024 reflects those offsets. Last year we had some weakness in commercial and strength in government; this year, the opposite. Regardless, a lumpiness is sometimes accompanied by luck, unluck, and one-timers that can often skew the narrative.

Clifford Skelton: Net net with the kind of diverse platform, we have here a condo in.

Clifford Skelton: The cycles, often offset one another and thus far 2024 reflects those offsets.

Clifford Skelton: Last year, we had some weakness in commercial and strengthened government this year the opposite rig.

Clifford Skelton: Regardless the Lumpiness is sometimes accompanied by luck unlock and one timers that can often skew the narrative.

Clifford Skelton: Now, speaking of narratives, Steve will get deeper on the subject in his remarks, but the divestiture activities associated with our rationalization efforts and the resulting financial reporting will take on a new reporting challenge of its own, as these divestitures monetize in the P&L. We will be transparent on revenue, EBITDA, and cash. But, as I mentioned, margins in a given divested business can vary considerably, especially in this high interest rate era. Thus, we must pay attention to the timing expectations. Weathering the cyclical variation will be important as 2020, excuse me, as 2024 finishes.

Clifford Skelton: Now speaking of narratives, Steve will get deeper on this subject in his remarks, but the divestiture activities associated with our rationalization efforts.

Clifford Skelton: And the resulting financial reporting will take on a new reporting challenges of its own.

Clifford Skelton: As these divestitures monetize in the P&L.

Clifford Skelton: We will be transparent on the revenue EBITDA and cash.

Clifford Skelton: But as I mentioned margins in a given divested business can vary considerably.

Clifford Skelton: Especially in this high interest rate era.

Clifford Skelton: Thus, we must pay attention to the timing expectations were.

Clifford Skelton: Whether in this cyclical variation will be important as 2020 excuse me is 2024 finishes setting the new baseline for the future remain co.

Clifford Skelton: Setting the New Baseline for the Future Remaining, Therefore, as you can imagine, there will be some challenges in comparing the remainder of 2024 to previous years, but this is the foundation for our future and part of the plan. Regarding divestiture activities, there's a lot going on. We closed our curbside management and public safety business in a sale to Mendaxo, a global collection of technology companies passionate about changing the face of public transportation, for $230 million plus debt.

Clifford Skelton: Therefore, as you can imagine there.

Clifford Skelton: There will be some challenges in comparing the remainder of 2024 to previous years.

Clifford Skelton: This is the foundation for our future and part of the plan.

Clifford Skelton: Regarding divestiture activities Theres, a lot going on we closed our curbside management and public safety business in our sale of <unk> for $230 million plus debt.

Clifford Skelton: As part of constellation software and <unk> as a global collection of technology companies passionate about changing the face of public transportation.

Clifford Skelton: We will begin the transition ASAP, and we will partner up in the process. We're also well on our way to closing the Benefit Wallet Asset Transfer and expect the final tranche to transfer this week. We've definitely been busy in the M&A arena. There's more to examine and more to do on that portion of our journey. Thus far, we've used proceeds for debt repayment and will continue to do so in the near term with increasing optionality over time.

Clifford Skelton: We will begin the transition to Asia, and we will partner up in the process.

Clifford Skelton: We're also well on our way to closing the benefit wallet asset transfer and expect the final tranche to transfer this month.

Clifford Skelton: We've definitely been busy in the M&A arena.

Clifford Skelton: There is more to examine and more to do on that portion of our journey.

Clifford Skelton: Thus far we've used proceeds for debt repayment and we'll continue to do so in the near term with increasing optionality over time.

Clifford Skelton: We're also around $44 million into our prescribed $75 million stock buyback plan previously discussed. We remain committed to reaching the outlook performance previously discussed, particularly on the top line. Again, we must continue to improve on the new logo and new capability sales going forward, and we'll continue our disciplined approach to cost containment while bringing in some new senior talent. We will stay focused on EBITDA margins as we drive out stranded costs and modify how we work so that we optimize our cost structure.

Clifford Skelton: We're also around $44 million into our prescribed $75 million stock buyback plan previously discussed.

Clifford Skelton: We remain committed to reaching the outlet performance previously discussed.

Clifford Skelton: Particularly on topline.

Clifford Skelton: Again, we must continue to improve on the new logo new capability sales going forward.

Clifford Skelton: And we will continue our disciplined approach to cost containment, while bringing in some new senior talent.

Clifford Skelton: We will stay focused on EBITDA margins as we drive that stranded cost and modify how we work so that we optimize our cost structure.

Clifford Skelton: Profitable Growth is the Mission, and we've learned that there is always a cost-refinement opportunity in a transaction-driven company. But we also see partnerships in Gen AI as becoming even more important in the future. Despite some of the hype you see in the marketplace, real progress is being made. As you may be aware, we collaborated with Microsoft on an initiative to drive innovation using Microsoft Azure Open AI services. We now have three projects underway, all showing progress, and Promise, and we hope to go live on all three in the near term. As always, efficiency improvement becomes even more important in a more focused, narrower company.

Clifford Skelton: Profitable growth is emission.

Clifford Skelton: And we've learned that there is always cost refinement opportunity in a transaction driven company.

Clifford Skelton: We also see partnerships and Jane AI is becoming even more important in the future.

Clifford Skelton: Despite some of the hype you see in the marketplace real progress is being made.

Clifford Skelton: As you may be aware, we collaborated with Microsoft on an initiative to drive innovation.

Clifford Skelton: Using Microsoft Azure open AI services, we now have three projects underway, all showing progress and promise and hope to go live on all three in the near term.

Clifford Skelton: As always efficiency improvement becomes even more important in a more focused narrower company.

Clifford Skelton: In addition to teaming with Microsoft, we've partnered with Oracle regarding our electronic benefits and tolling platform database with Oracle, now in the Azure cloud. Think of this as a multi-cloud, or cloud within a cloud, now that technology providers are becoming less proprietary and more dedicated to joint outcomes for their clients. This Oracle Database Cloud, now running in Azure, allows for reduced latency and reduced complexity in a more efficient model on a unit cost basis.

Clifford Skelton: In addition to teaming with Microsoft we partner with Oracle regarding our electronic electronic benefits and tolling platform database with Oracle now in the Azure cloud.

Clifford Skelton: Think of this as a multi cloud or cloud within our cloud now that technology providers are becoming less proprietary and more dedicated to joint outcomes for their clients.

Clifford Skelton: This Oracle database cloud now running in Azure allows for reduced latency.

Clifford Skelton: <unk> complexity in a more efficient model on a unit cost basis.

Clifford Skelton: We also continue to achieve recognition for our culture, and our products, and our services. Nelson Hall placed us as a leader in customer experience services transformation. And for the third year in a row, we're in the GovTech Top 100. Finally, Newsweek recognized Conduent as one of America's greatest workplaces for women and diversity in 2024.

Clifford Skelton: We also continue to achieve recognition for our culture and our products and our services.

Clifford Skelton: Nelson Hall placed us as us as a leader in customer experience services transfer formation.

Clifford Skelton: For the third year in a row, where in the Gov Tech top 100.

Clifford Skelton: Finally, Newsweek recognized <unk> as one of America's greatest workplace for women and diversity in 2024.

Clifford Skelton: Now this journey is just that, a journey with puts and takes. We have more work to do, as I mentioned, but we're on the flight path to the growth zone we previously laid out. Our associates, 57,000 of them, work hard every day for our clients. Our client base is loyal, and that client base includes roughly half of the Fortune 100.

Clifford Skelton: Now, let's journey is just that a journey with puts and takes.

Clifford Skelton: We have more work to do as I mentioned, but we're on a flight path to the gross zone, we previously laid out.

Clifford Skelton: Our associates 57000 of them work hard every day for our clients.

Clifford Skelton: Our client base as Lora is loyal.

Clifford Skelton: That client base includes roughly half of the fortune 100.

Clifford Skelton: Now we have the products. We have the people. We will soon have more of the talent we need. We just have to stay the course, and we will. Thank you for being here. I'll now turn it over to Steve Wood for the financial details.

Clifford Skelton: Now we have the products.

Clifford Skelton: We have the people.

Clifford Skelton: We will soon have more of the talent we need.

Clifford Skelton: We just have to stay the course and we will.

Speaker Change: Thank you for being here I will not now.

Clifford Skelton: I'll now turn it over to Steve Wood for the financial details.

Stephen Wood: Thanks Cliff.

Stephen Wood: 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. Now, let's turn to slide 5.

Stephen Wood: As we have done in the past we are reporting both GAAP and non-GAAP numbers, the reconciliation or in our filings and in the appendix of the presentation, let's turn to slide five.

Stephen Wood: Before we launch into a discussion on the quarter itself, I want to highlight again the progress that we're making towards our billion dollars 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 business. 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'd earmarked for you for after-tax divestiture proceeds.

Stephen Wood: 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 in again in our Q4 earnings update earlier this year.

Stephen Wood: As Cliff mentioned, we announced earlier today that we have closed the sale of our public safety and curbside management businesses.

Stephen Wood: We're closing in on a third transaction that we would expect to close within the quarter and that will take us somewhere near the midpoint of the range, we dambach for you.

Stephen Wood: After tax divestiture proceeds to.

Stephen Wood: To date, we've deployed around 30 percent, or $300 million, of our $1 billion target against debt prepayment and share repurchase, 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 whole code 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.

Stephen Wood: 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. So.

Stephen Wood: Suffice to say, we're where we said we'd be vis vis this key component of our overall strategy.

Stephen Wood: As we narrow our business around a core set of solutions that we believe can deliver long term growth.

Stephen Wood: 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.

Stephen Wood: And so I want to outline the approach that we're going to take for the balance of the year.

Stephen Wood: 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 Q4 earnings call last quarter. Firstly, the approach that we're intending to take for this quarter is to compare Q1 performance on a whole basis. There is only a small fragment of benefit wallet assets that weren't retained during Q1, with the first transfer happening on March 7th.

Stephen Wood: In terms of how we reported guide the remainder of 2024.

Stephen Wood: How we lay out the quarterly progression.

Stephen Wood: As well as how we continue to reassert our medium term outlook that we talked about in our investor briefing last year and again in our Q4 earnings call last quarter.

Stephen Wood: Firstly.

Stephen Wood: The approach that we're intending to take for this quarter is to compare Q1 performance on a holdco basis.

Stephen Wood: It's only a small fragment of benefit wallet assets.

Stephen Wood: Retained during Q1.

Stephen Wood: With the first transfer happening on March 7th and.

Stephen Wood: And so there's about a net $3 million negative impact on the quarter, top and bottom line, as we think about Q1 performance against last year. When we come to Q2, and for the remainder of the year, we'll be backing out the completed divestitures and reporting on an adjusted basis, with our normal reconciliations back to GAP in our filings and in the appendix of our presentation. Later in this presentation, I'll give you our expectations as to how this will look for Q2 on an adjusted basis, consistent with our past practice of guiding the upcoming quarter.

Stephen Wood: And so there's about a net $3 million negative impact in the quarter top and bottom line as we think about Q1 performance against last year.

Stephen Wood: When we come to Q2.

Stephen Wood: For the remainder of the year, we'll be backing out the completed divestitures and reporting on an adjusted basis with a normal reconciliations back to GAAP in our filings and in the appendix of our presentations.

Stephen Wood: Later in this presentation I will give you our expectations as to how this will look for Q2 on an adjusted basis consistent with our past practice of guiding the upcoming quarter.

Stephen Wood: In our Q2 earnings, we'll be updating our full-year guidance to be on an adjusted basis, considering completed divestitures and expected progress on removing stranded costs, which is underway. It's important to note here that we will continue to work on removing stranded costs throughout 2024 and into 2025, and so the annualization of these won't be fully reflected in our numbers until the back end of 2025. Finally, we'll continue to provide you with an updated walk to our 2025 exit rate so you can bridge between our actuals, our 2024 guide, and the 2025 exit rate outlook we've laid out. Let's get into the slides.

Stephen Wood: And our Q2 earnings we will be updating our full year guidance to be on an adjusted basis.

Stephen Wood: <unk> completed divestitures and expected progress on removing stranded costs, which is underway.

Stephen Wood: It's important to note here that we will continue to work on removal of stranded costs throughout 2024 and into 2025 and.

Stephen Wood: And so the annualized nation of fees won't be fully reflected in our numbers until the back end of 2025.

Stephen Wood: Finally, we will continue to provide you with an updated walk through our 2025 exit rates. So you can bridge between actuals and our 2020 for Guy.

Stephen Wood: On the 2025 exit rate outlook, we've laid out.

Stephen Wood: Turning to slide six and reviewing our key sales metrics, as Cliff mentioned earlier, Q1 did turn out lighter than we expected in terms of new business sales, with ACV coming in at $99 million, as compared to 125 million in the 2023 forecast. We did have some deals earmarked to close in Q1 that have pushed into Q2 or later.

Stephen Wood: Let's get into the slides turning to slide six and reviewing our key sales metrics.

Stephen Wood: As Cliff mentioned earlier Q1 did turn out lighter than we expected in terms of new business sales with ACD coming in at $99 million.

Stephen Wood: As compared to $125 million in the 2023 compare.

Stephen Wood: We did have some deals earmarked to closing Q1 sort of pushed into Q2 or later.

Stephen Wood: As a result of this, we're expecting sequentially to be stronger in the second quarter, at approximately 150 million ACV, and putting us at approximately $250 million of ACV for the first half of... This will still be behind our pacing for 2023 because, in Q2 2023, as a reminder, we booked our large transit contract with the state of Victoria in Australia, which yielded 65 million ACV. Our full year expectation for ACV attainment is around $650 million, and that's about 2% higher than 2023.

Stephen Wood: As a result of this we're expecting sequentially to be stronger in the second quarter at approximately $150 million of ACD.

Stephen Wood: And putting us at approximately $250 million of HCV for the first half of the year.

Stephen Wood: This will still be behind our pacing for 2023.

Stephen Wood: In Q2 2023 as a reminder, we booked a large transit contract with the state of Victoria in Australia, which yielded $65 million of HCV.

Stephen Wood: Our full year expectation on ACD attainment is around $650 million and thats about 2% higher than 2023.

Stephen Wood: Despite the softer performance in Q1, there are some encouraging signs. We're seeing renewed urgency to address cost through outsourcing, both in the CX and BPAS spaces, where we play strongly with a broad set of offerings, and we expect this to translate into more opportunities as we go through 2024.

Stephen Wood: Despite the softer performance in Q1, there are some encouraging signs.

Stephen Wood: We're seeing renewed urgency to address costs through outsourcing both in the CX and be passed spaces, where we play strongly with a broad set of offerings and we expect this to translate into more opportunities as we go through 2024.

Stephen Wood: The Net ARR Activity Metric, our combined measure of wins, losses, pricing effects, and other contractual changes, was positive this quarter, but substantially lower at $17 million. There's going to be a roller coaster effect emerging in this metric as we go through this year that is worth spending a few minutes explaining. Based on the above full-year sales outcome, we expect the metric to stand at around 100 million by the end of 2020.

Stephen Wood: The net IRR activity metric or couldnt buy measure of wins losses pricing effects and the other contractual changes was positive this quarter, but substantially lower at $17 million.

Stephen Wood: That's going to be a roller coaster effect emerging in this metric as we go through this year that is worth spending a few minutes explaining.

Stephen Wood: Based on the above full year sales outcome, we expect the metric to stand at around $100 million by the end of 2024.

Stephen Wood: However, there was pronounced asymmetry in our notified losses last year, with them being far more weighted towards the back half of the year, and additionally, the effect of the Australia Transit Deal, which yielded around $48 million of ARR in the second quarter of last year.

Stephen Wood: However that was pronounced a symmetry and on notified losses last year with them being far more weighted towards the back half of the year.

Stephen Wood: And additionally, at the effects of the Australia transit deal, which yielded around $48 million of <unk> in the second quarter of last year.

Stephen Wood: What you're going to see is this net ARR activity metric going negative in the second quarter and then recovering strongly in the third and fourth quarters, firstly as the Australia transit deal rolls out of the trailing 12 months, and then as the more elevated losses in the back half of 2023 also roll out of the metric. As I said, the full year expectation is that we will exit the year with this metric standing at around 100 million, and that's an important number to anchor on.

Stephen Wood: What youre going to see is this net productivity metric going negative in the second quarter, and then recovering strongly in the third and fourth quarters.

Stephen Wood: Firstly, the Australia transit deal Rolls out the trailing 12 months.

Stephen Wood: And that is the more elevated losses in the back half of 2023 also rollouts of the metric.

Stephen Wood: As I said fully our expectation is that we exit the year with this metric standing at around $100 million and Thats the important number to anchor rock.

Stephen Wood: This is based on our current view of conduit before we take out divestiture. However, I don't believe that divestitures will have a material impact on the shape of this roller coaster effect as we progress through 2024. As a reminder, this trailing 12-month measure does not predict the timing of revenue but is based on the timing of notification, and as such will fluctuate, as you have just seen from quarter to quarter. Turning to slide 7, we've covered many of the metrics on the previous slide, but just a couple of extra points are here to comment on.

Stephen Wood: This is based on our current view of Concho and before we take out divestitures. However, I don't believe that divestitures, we will have a material impact on the shape of this roller coaster effect as we progressed through 2024.

Stephen Wood: As a reminder, this trailing 12 month measure does not predict the timing of revenue, but it is based on the timing of notification.

Stephen Wood: Such will fluctuate as you've just seen from quarter to quarter.

Stephen Wood: Turning to slide seven we've covered many of the metrics on the previous slide, but just a couple of extra points us here to comment on.

Stephen Wood: It was a lighter quarter on renewals, but our win rate remained solid. NRR sales performance was more in line with expectations, and as I said earlier, it was the new business ARR deals that slipped and drove the lower output. Our average contract length in the quarter was 2.5 years, reflecting the lack of large recurring deals in the quarter.

Stephen Wood: It was a lighter quarter of renewals, but our win rate remains solid.

Stephen Wood: And our our sales performance was more in line with expectations and license said earlier. It was the new business <unk> deals that slipped and drove lower outcomes are.

Stephen Wood: Our average contract length in the quarter was $2 five years, reflecting the lack of large recurring deals in the quarter.

Stephen Wood: Now let's turn to slide 8 and discuss our Q1 2024 financial results. Revenue for Q1 2024 was £921 million as compared to £922 million in Q1 2023, essentially flat and down very slightly on a constant currency basis. I'll cover the segment level hydraulics in a minute, but the overall view is that we continue to make progress with flattening the historic revenue decline and moving the business through a transition phase and then towards a trajectory of growth. We're not quite there yet, but we're getting closer.

Stephen Wood: Now, let's turn to slide eight and discuss our Q1 2020 full financial results.

Stephen Wood: Revenue for Q1, 2024 was $921 million as compared to $922 million in Q1, 2023, essentially flat and down very slightly on a constant currency basis.

Stephen Wood: I'll cover the segment level hydraulics in a minute.

Stephen Wood: But the overall view is that we continue to make progress with flattening the historic revenue declines and moving the business through a transition phase and then towards the trajectory of growth, we're not quite there yet, but we're getting closer.

Stephen Wood: You'll see when we dive into the segments that transportation had a better quarter. We're full bore on our large transit implementation in Australia, and so there's a strong contribution from implementation revenues associated with that. New business revenue ramped up, including the impact of the transit deal, exceeded lost business rolling off, but there was a slight drag from volumes, mainly in commercial. Adjusted EBITDA was $69 million for the quarter as compared to $90 million in Q1 2023, and the adjusted EBITDA margin of 7.5% was down 230 basis points year over year as compared to Q1 2023.

Stephen Wood: You'll see when we dive into the segments that transportation had a better quarter.

Stephen Wood: With full bolt on a large transit implementation in Australia, and so there is a strong contribution from implementation revenues associated with that.

Stephen Wood: New business revenue ramped, including the impact of the transit deal exceeded lost business rolling off but there was a slight drag from volumes mainly in commercial.

Stephen Wood: Adjusted EBITDA was $69 million for the quarter as compared to $19 million in Q1 2023.

Stephen Wood: And the adjusted EBITDA margin of seven 5% was down 230 basis points year over year as compared to Q1 2023.

Stephen Wood: Most of that related to the booking last year in the first quarter of a favorable legal settlement for $17 million, which we called out at the time. In the quarter itself, there weren't any large, unusual items.

Stephen Wood: Most of that related to the booking last year in the first quarter of a favorable legal settlement for $17 million, which we called out at the time.

Stephen Wood: In the quarter itself that was tiny large unusual items, but youll see when we cover the segments at the minute. There was some variation that driven by mix and other factors.

Stephen Wood: But you'll see when we cover the segments in a minute, there was some variation there driven by mix and other factors. So let's now turn to slide nine and go over the segment results. For Q1 2024, commercial segment revenues were $483 million, down 4.9% as compared to Q1 2023. There was about a $3 million headwind in that number because of the beginning of the transfer of the benefit wallet assets at the end of the first quarter this year, which reduced our float revenue with an offset due to higher interest rates this year as compared to last.

Stephen Wood: So, let's now turn to slide nine and go over the segment results.

Stephen Wood: For Q1, 2024 commercial segment revenues were $483 million down four 9% as compared to Q1 2023.

Stephen Wood: That's about a $3 million headwind in that number because of the beginning of the transfer of the benefit while at assets at the end of the first quarter of this year, which reduced our float revenue with an offset due to higher interest rates this year as compared to loss.

Stephen Wood: Other than that, the top line story for the commercial segment this quarter is one of working off the effect of some prior year lost business. We expect the growth gap to narrow due to improving sales performance and the segment to come closer to flat as we exit 2024. Adjusted EBITDA for the commercial segment in Q1 2024 was 70 million, up 7.7% as compared to Q1 2023, and the adjusted EBITDA margin of 14.5% was up 170 basis points year over year, driven by operational efficiency with an offset, as noted above, due to the start of the roll-off of the benefit wallet asset.

Stephen Wood: Other than that the top line story for the commercial segment. This quarter is one of working off the effect of some prior year loss of business.

Stephen Wood: We expect the growth gap to narrow due to improving sales performance and the segment coming closer to flat as we exit 2024.

Stephen Wood: Adjusted EBITDA for the commercial segment in Q1, 2024 was $70 million up seven 7% as compared to Q1 2023.

Stephen Wood: And the adjusted EBITDA margin of 14, 5% was up 170 basis points year over year.

Stephen Wood: Driven by operational efficiency with an offset as noted above due to the start of the roll off of the benefit wallet assets.

Stephen Wood: Clearly, as we complete this divestiture, you'll see a reset in the commercial margins due to the high margin nature of the benefit wallet business. This will be partially offset over time through our work to remove stranded costs and drive other operational efficiencies and improved operating leverage and margin mix as the segment begins to move to growth. Unrelated to the commercial segment EBITDA, but still highly relevant to the overall picture, in Q2, you'll begin to see lower interest expense as we're deploying the proceeds from this divestiture to reduce debt.

Stephen Wood: Clearly as we complete this divestiture youll see a reset in the commercial margins due to the high margin nature of the benefit wallet business.

Stephen Wood: And this will be partially offset over time through our work to remove stranded costs and drive other operational efficiencies and improved operating leverage and margin mix as the segment begins to move to growth.

Stephen Wood: Unrelated to the commercial segment EBITDA, but still highly relevant to the overall picture in Q2 Youll begin to see lower interest expense as we are deploying the proceeds from this divestiture to reduce debt.

Stephen Wood: For the government segment, Q1 2024 revenues were $258 million, down 2.3% as compared to Q1 2024. The decreases were primarily due to some lost business from the prior year, slightly lower volumes in our government payments business, partially offset by new business ramp-up, and the effect of a prior year item that was non-repayable. Adjusted EBITDA for the government segment in Q1 2024 was €55 million, down 33

Stephen Wood: For the government segment, Q1, 2024 revenues with $258 million down two 3% as compared to Q1 2023.

Stephen Wood: The decreases were primarily due to some lost business from prior year slightly lower volumes in our government payments business, partially offset by new business ramp and the effect of a prior year item that was non repeating.

Stephen Wood: Adjusted EBITDA for the government segment in Q1, 2024 was $55 million down 33, 7% year over year.

Stephen Wood: As noted on the prior slide, this compare included the benefit last year from the portion of a legal settlement recognized in cost of services for $17 million. That item aside, the remainder of the variation in margin is driven by the slightly lower payment volume. Transportation segment revenues in Q1 2024 were 180 million, up 20% year-over-year. The implementation ramp from our large transit project in Australia accounted for around 19 million of this year-over-year impact.

Stephen Wood: As noted on the prior slide this compare included the benefit last year from the portion of a legal settlement recognized in cost of services for $17 million.

Stephen Wood: That's item aside the remainder of the variation in margin is driven by the slightly lower payment volumes.

Stephen Wood: Transportation segment revenues in Q1, 2020 for over $180 million up 20% year over year.

Stephen Wood: The implementation ramp from a large transit project in Australia accounted for around $19 million of this year over year impact.

Stephen Wood: The balance of the improvement in the quarter was both better add-on revenue performance, as well as the non-recurrence of the project re-timing that occurred on some of our implementations this time last year. For the transportation segment, adjusted EBITDA for the quarter was $8 million, as compared to $3 million in Q1 2023, and the adjusted EBITDA margin was 4.4%. The predominant driver was the lack of the same impact last year on this project retiming, with an offset from slightly less favourable revenue.

Stephen Wood: The balance of the improvement in the quarter was both better add on revenue performance as well as the non recurrence of the project timing that occurred on some of our implementations. This time last year.

Stephen Wood: For the transportation segment adjusted EBITDA for the quarter was $8 million as compared to $3 million in Q1 2023.

Stephen Wood: On the adjusted EBITDA margin was four 4%.

Stephen Wood: The predominant driver was the lack of the same impact last year on this project timing with an offset from a slightly less favorable revenue mix.

Stephen Wood: Let's turn to slide 10 and discuss the balance sheet and cash flow. Our total liquidity position remains strong, with close to a billion dollars in cash and available revolving credit facilities. We ended the quarter with approximately $424 million of total cash on the balance sheet, and our $550 million revolving credit facility is almost completely unused at this point. Our net leverage ratio decreased slightly to two turns and is comfortably inside our current target range of two to two-and-a-half turns.

Stephen Wood: Let's turn to slide 10, and discuss the balance sheet and cash flow.

Stephen Wood: Our total liquidity position remains strong with close to $1 billion in cash and available revolving credit facility.

Stephen Wood: We ended the quarter with approximately $424 million of total cash on balance sheet.

Stephen Wood: And a $550 million revolving credit facility is almost completely unused at this point.

Stephen Wood: Our net leverage ratio decreased slightly to two turns and is comfortably inside our current target range of two to two and a half terms.

Stephen Wood: Notwithstanding our recent prepayments against our Term Loan B, which I'll talk about in a minute, we have no significant debt repayments until 2026. Capital expenditure in the quarter was 2.6% of revenue, and we expect it to be about 3% of revenue or slightly below that as we progress through 2024, although individual quarters may fluctuate slightly. As a reminder, we updated this metric last year to include capital spent on product software, which hits operating cash flow. We received the final $22 million of our federal tax refund related to 2018 during the quarter. In the quarter, we repurchased 4.8 million shares at an average price of $3.48.

Stephen Wood: Notwithstanding our recent pre payments against our term loan B, which I'll talk about in a minute we have no significant debt repayments until 2026.

Stephen Wood: Capital expenditure in the quarter was two 6% of revenue and we expect it to be about 3% of revenue or slightly below that as we progress through 2024, although individual quarters may fluctuate slightly.

Stephen Wood: As a reminder, we updated this metric last year to include capital spent on products software, which hit operating cash flow.

Stephen Wood: We received the final $22 million of a federal tax refund related to 2018 during the quarter.

Stephen Wood: In the quarter, we repurchased four 8 million shares at an average price of $3 48.

Stephen Wood: As you will see from our filings, we also prepaid $164 million against our term loan B at the end of the quarter. And subsequent to that, in April, we prepaid a further $95 million. In aggregate, we have current approval to repay debt up to $464 million from the initial proceeds of the divestiture program announced, and we will continue to provide further updates as necessary as we continue with the divestiture program. Let's now turn to slide 11 and cover our outlook for 2024.

Stephen Wood: As you will see from our filings, we also prepaid $164 million against our term loan b at the end of the quarter.

Stephen Wood: And subsequent to that in April we prepaid a further $95 million.

Stephen Wood: In aggregate, we have current approval to repay debt up to $464 million from the initial proceeds of the divestiture program announced and we will continue to provide further updates as necessary as we continue with the divestiture program.

Stephen Wood: Let's now turn to slide 11 and cover our outlook for 2024.

Stephen Wood: Firstly, it's important to reiterate that we continue to execute on the financial framework I laid out last March in our investor briefing, and the key message that Cliff and I are both conveying is confidence in our path to deliver the billion dollars of deployable capital by the end of 2025.

Stephen Wood: Firstly it is important to reiterate that we continue to execute on the financial framework I laid out last March in our investor briefing.

Stephen Wood: The key message that cliff and I are both conveying is confidence in our path to deliver the $1 billion of deployable capital by the end of 2025.

Stephen Wood: Associated with the Revenue Growth and Margin Targets we outlined. Turning to the outlook itself, you'll see that the whole code guidance that we gave in our Q4 earnings presentation remains how we think about the business. Will we stay the course as is for the remainder of 2024?

Stephen Wood: Associated with the revenue growth and margin targets, we outlined.

Stephen Wood: Turning to the outlook itself, you'll see that our holdco guidance that we gave in our Q4 earnings presentation remains how we think about the business will be going to stay the course as is for the remainder of 2024.

Stephen Wood: but as you heard me say earlier, this is the last quarter that it makes sense for us to give you this whole co-view. Next quarter, we'll be withdrawing and modifying our guide to show you the adjusted view of our business without the divestitures we've announced that will close in 2024, and this will become the basis of our 2024 guidance. In a minute, I'll give you a range for Q2 as a marker, but as I said, more detail will come on the Q2 earnings call.

Stephen Wood: But as you heard me say earlier. This is the last quarter that it makes sense for us to give you. This holdco view.

Stephen Wood: Next quarter, we will be withdrawing this.

Stephen Wood: And modifying our guy to show you the adjusted view of our business without divestitures, we've announced that will close in 2024.

Stephen Wood: And this will become the basis of our 2020 for guidance.

Stephen Wood: In a minute I'll give you a range for Q2 was a marker, but as I said more detail to come in the Q2 earnings call.

Stephen Wood: Slide 12 is important because it gives you the walk from where we are now to that exit rate in 2025 and remains how we think about the journey we're on over the next 20 months or so. And on that slide, you can see the various pieces of the work we have to do.

Stephen Wood: Slide 12 is important.

Stephen Wood: Because it gives you the walk from where we are now to that exit rate in 2025 and remains how we think about the journey. We're on over the next 20 months or so.

Stephen Wood: On that slide you can see the various piece parts of the work we have to do.

Stephen Wood: The loss of EBITDA from the divested businesses will drive what Cliff described as a trough in 2024, and you'll see that recover as we progress through 2024 and 2025 and work our way into the $100 million of cost efficiency related to stranded costs and other simplifications that we'll be able to make to our operating structure as we continue to narrow the focus of the business. Add to that our expectations of revenue growth as we move through 2025 and opportunities to drive margin expansion as we continue to work on our mix of business, and you'll get back to that midterm out.

Stephen Wood: The loss of EBITDA from the divested businesses will drive what Cliff described as a trough in 2024.

Stephen Wood: And Youll see that recovering as we progress through 2024, and 2025 and work our way into the $100 million of cost efficiency related to stranded costs and.

Stephen Wood: Another simplifications that we'll be able to make to our operating structure as we continue to narrow the focus of the business.

Stephen Wood: Add to that our expectations of revenue growth as we move through 2025 and.

Stephen Wood: And opportunities to drive margin expansion as we continue to work on our mix of business and Youll get back to that mid term outlook.

Stephen Wood: And again, to reiterate, we're well on our way to generating the billion dollars of deployable capital, with around 30% of that already deployed against debt prepayment and share repo. In terms of Q2, adjusted for the two divestitures completed. We expect adjusted revenue to be in the range of $795 million to $810 million. Seasonally, it's also usually the low point of our installed base of revenue, and we would expect adjusted EBITDA margin for the second quarter to be in the low single-digit percent, as we are early in our work to remove stranded coffee.

Stephen Wood: And again to reiterate we are well on our way to generating the $1 billion of deployable capital with around 30% of that already deployed against debt prepayment and share repurchase.

Stephen Wood: In terms of Q2 adjusted for the two divestitures completed we.

Stephen Wood: We expect adjusted revenue to be in the range of $795 million to $810 million.

Stephen Wood: And seasonally it's also usually the low point of our installed base of revenue.

Stephen Wood: And we would expect adjusted EBITDA margin for the second quarter to be in the low single digit percentages.

Stephen Wood: As we are early in our work to remove stranded costs.

Stephen Wood: Clearly, you will see this move up as we go through the quarters, as I mentioned earlier. Finally, as we've started to pay down debt, you'll also see our interest expense line reduce in the second quarter, and annually, based on the approximate $450 million of approval that we have to pay down debt, we will see a saving on the interest expense line of approximately $45 million annualized at current interest rates. There is a lot going on here.

Stephen Wood: Clearly you will see this move up as we go through the quarters as I mentioned earlier.

Stephen Wood: Finally, as we've started to pay down debt, you'll also see our interest expense line reduce in the second quarter and.

Stephen Wood: And annually based on the approximate $450 million of approval, but we have to pay down debt.

Stephen Wood: We will see a saving on interest expense line of approximately $45 million annualized at current interest rates.

Speaker Change: A lot going on here.

Stephen Wood: But we hope we've laid out the pieces for you in enough detail, clearly with more to come in Q2 earnings. Additionally, we've got a busy conference schedule in the New York area in the second quarter, so continue as you do to reach out to Giles and the team for more information on that. That concludes my financial remarks for the quarter. Operator, I'll hand it back.

Stephen Wood: But we hope we have laid out the pieces for you in enough detail clearly with more to come in Q2 earnings.

Stephen Wood: Additionally, we've got a busy conference schedule in the New York carrier in the second quarter. So continue issue due to reach out to Giles and the team for more information on that.

Speaker Change: That concludes my financial remarks for the quarter, operator, I'll hand, it back to you.

Operator: Thank you. The floor is now open to questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.

Speaker Change: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if he would thanks, Tim for your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the starkey Midwest of you. Please limit yourself to two or three questions in the queue. Once again Thats Star One to register a question at this time.

Operator: We do ask that you please limit yourself to 2 or 3 questions in the queue. Once again, that's star 1 to register a question at this time. The first question is coming from Pat McCann of Noble Capital Markets. Please go ahead.

Speaker Change: The first question is coming from Pat Mccann of Noble capital markets. Please go ahead.

Speaker Change: Okay.

Pat McCann: Thanks for taking my questions, guys. 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 sector?

Pat McCann: Thanks for taking my questions guys. My first question is really.

Pat McCann: Really for Cliff how are you feeling about the performance of all of the new business signings as well as the overall macro trends.

Pat McCann: Particularly through the lens of how the economy affects the commercial segment.

Clifford Skelton: Pat, thanks for the question. We haven't done a Q&A in a while. So thanks for being a little easy on us as we get going again. The listen, I 2023 felt a little tight in terms of the macro trends and propensity to buy. And it feels 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 are becoming more profound, and we're seeing that start to open up.

Clifford Skelton: Got it thanks for the question, we haven't done Q&A NOL. So thanks for being a little easy on us as we get going again.

Speaker Change: Listen I 2023 felt a little tight in terms of the macro trends and propensity to buy.

Pat McCann: It's feeling like it's starting to loosen up.

Pat McCann: 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 we see Q2 being strong in the remainder of the year being strong so I'm feeling pretty positive.

Clifford Skelton: 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. As 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.

Pat McCann: <unk> about it.

Pat McCann: 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.

Stephen Wood: 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?

Speaker Change: Excellent and then turn it over to the financials all could you comment on.

Speaker Change: What we should expect for a progression over the rest of the year when it comes to divestiture activity.

Speaker Change: And debt retirement.

Clifford Skelton: Let me start with activities for the remainder of the year and just say, you know, 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 on the use of proceeds and timing.

Speaker Change: 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.

Pat McCann: On M&A activities, Steve can comment here on use.

Stephen Wood: Use of proceeds and timing.

Stephen Wood: Yeah, so I think that the way that we should 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, and 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 to $800 that we earmarked and is, essentially, our waterfall to the progression of $1 billion of deployable capital.

Stephen Wood: So I think the way that we think about it is the way 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.

Stephen Wood: The proceeds that we've already announced which is around $495 million.

Stephen Wood: 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 to 800 that we that we aim often is essentially a waterfall to the progression of $1 billion of deployable capital.

Pat McCann: And I would say at this point Cliff mentioned the early priority is debt repayment we have.

Stephen Wood: 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 to make progress. That's how we're thinking about it.

Pat McCann: On the Mt improved.

Pat McCann: Somewhere in the region of $450 million.

Pat McCann: So we'll be we'll be working through that and then clearly we will be talking further.

Pat McCann: Later in the year on how we think about capital allocation when that becomes putting them against divestitures as we as we continue on the progress.

Pat McCann: How we're thinking about it lots of activity pad, obviously and it will continue through the rest of the year.

Clifford Skelton: Lots of activity, Pat, obviously, and it'll continue through the rest of the year.

Clifford Skelton: Gotcha. 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, you know, how is that looking right now?

Speaker Change: Got you and if I could ask just one more quick follow up to that and then I'll pass the floor along just.

Speaker Change: When it comes to the M&A environment when it when your when Youre looking to make more divestitures, how do you view the current environment, specifically when it comes to.

Speaker Change: Getting fair value for the businesses you'd be divesting, how how is that looking right now.

Clifford Skelton: Look, I don't think there's ever been a situation where we were worried about valuations and fair value. I think it's 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 much inconsistency. But Steve, any thoughts on that?

Speaker Change: Look I think I don't think theres ever been a situation, where we're worried about valuations and fair value I think it was its been pretty consistent even when money was tighter is it starting to loosen up here, a little bit or at least.

Speaker Change: Conceivably start starting to loosen up the whole <unk> environment is starting to starting to open up and.

Speaker Change: The appetite is increasing.

Speaker Change: Inbounds.

Speaker Change: Our 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 home private equity kind of landscape. It's feeling it's feeling more sanguine and were seeing that but from a valuation perspective, we haven't seen any much inconsistency with Steve.

Speaker Change: Any thoughts on that.

Stephen Wood: What I would add to that is, as you'll have seen from what we're doing, we're divesting really quite discrete assets within the portfolio, and Conduent's 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.

Speaker Change: What I would add to that as youll have seen from what we're doing as well.

Speaker Change: We're divesting really quite discrete assets within the portfolio of contracts got a lot of assets in the portfolio, it's a very broad portfolio.

Speaker Change: Of assets that we'll put together over a period of time and so.

Speaker Change: Our approach is to target things that.

Speaker Change: I would say half.

Speaker Change: How scarcity value on the outside.

Speaker Change: And also potentially don't create the one plus one equals three internally in terms of being synergistic to the way that we think about cross sell and how we sort of build the remain co portfolio for the business.

Stephen Wood: 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, you know, these discrete assets where we expect to get strong multiples for them because the alternative to that is that we keep them in the portfolio.

Speaker Change: And so because we've been very targeted and because the assets are more discrete.

Speaker Change: We're pleased with the with the valuations that we're getting from the for the assets and then clearly.

Speaker Change: We're divesting these at multiples that are.

Speaker Change: Considerably above where we.

Speaker Change: Where we are and I think as we go along that journey clearly.

Speaker Change: Youll continue to see us targeting.

Speaker Change: These discrete assets, where we expect to get strong multiples of them because the alternative to that is we'll keep within the portfolio.

Clifford Skelton: Just one topping 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, you know, everything's growable, but how fast is it growable or recoverable? From a technology perspective, where do we have technology that we could capitalize on internally versus synergistically capitalizing externally? It always went into the math equation as we considered what we might or might not divest and what we might or might not keep and remain co.

Speaker Change: Just one topic to that patent we set 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.

Speaker Change: And how fast you know everything's growable, but how fast does it grow bore recoverable and then finally.

Speaker Change: From a technology perspective, where do we have technology that we could capitalize on internally versus synergistically capitalized externally at all those went into the.

Speaker Change: And then the math equation as we considered what we might or might not divest and what we might or might not keeping a raincoat.

Pat McCann: Thanks a lot. It's most helpful. I appreciate it. And I'll pass the floor along. Thank you, Pat.

Speaker Change: Excellent.

Speaker Change: I appreciate it and I will pass the floor along thanks guys.

Speaker Change: Thanks Pat.

Operator: Again, that's star one if you'd like to register a question at this time. The next question is coming from Michael Matheson of Singular Research. Please go ahead.

Speaker Change: Again, Thats star one if you'd like to register a question at this time. The next question is coming from Michael Mattson of singular research. Please go ahead.

Michael Mattson: Good morning, you guys.

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

Michael Mattson: Hey, Michael Michael.

Michael Mattson: Hi, congratulations on executing the divestitures, you're marching right, along and that looks pretty good my questions kind of relate to revenue opportunities for remain co.

Michael Mattson: You mentioned you have a collaboration actually three of them underway with Microsoft I. Just wanted to clarify is that related to your payments business. These collaborations and do you see that particular collaboration is.

Michael Mattson: Driving cost reductions or revenue opportunities by offering more capabilities I'm kind of curious what that's really driving towards.

Clifford Skelton: Yeah, so thanks Michael. The collaboration that you're referring to is specific to Microsoft and Gen AI and utilizing their platform in a co-marketing partnership and a go-to-market partnership as well as using that technology. And we have three very strong pilots underway. One is in document management. We would think of that as our claims process, mostly in health care. But we've got a big one around customer experience. Like many in the industry, they see real opportunities with Gen AI in terms of, you know, voice to text and all kinds of different streamlining opportunities in the customer experience arena and using, you know, utilizing Gen AI to solve problems so you don't need a human.

Speaker Change: Yes, so thanks, Michael that the collaboration.

Michael Mattson: You're referring to is specific to Microsoft and Jen AI and utilizing their platform.

Michael Mattson: Co marketing partnership and our go to market partnership as well as utilizing that technology and we have three very strong pilots underway.

Michael Mattson: One is in document management, we would think of that as our.

Michael Mattson: Our claims process, mostly in health care.

Michael Mattson: Got a big one around cut.

Michael Mattson: Customer experience like many in the industry people see real opportunities with Gen AI in terms of.

Michael Mattson: <unk> voice to text and and all kinds of different streamlining opportunities in the customer experience arena and utilizing.

Michael Mattson: Utilizing <unk> to solve problems. So you don't need a human.

Clifford Skelton: When you refer to payments, the one endeavor we're underway with in the payment industry is fraud reduction. We think Gen AI can help us very significantly in fraud reduction and 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 get a lot, and 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.

Michael Mattson: When you when you refer to payments the one the one in Denver, we're underway with in the payment industry is on fraud reduction.

Michael Mattson: We think G&A G&A I can help us very significantly in fraud reduction and deter.

Michael Mattson: Determining early signs of fraud through the the volumes of data on that.

Michael Mattson: The compute can digest and then feed information to our associates and we can we can get a lot. We can early turn those fraud opportunities before they actually manifest and so that's the one payment area, where we have our partnership with Microsoft is driving AI improvement.

Clifford Skelton: Great, thanks for all that detail. 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?

Speaker Change: Great. Thanks for all that detail if I could just turn to one of the other partnerships. So you amount 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.

Speaker Change: What percent savings did you achieve.

Clifford Skelton: You know, it's probably not a question I can answer with specificity or should answer with specificity, but 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 been no breakthrough here. It's all incremental. It's a continuum.

Speaker Change: It's probably not.

Speaker Change: A question I can answer with specificity or shouldn't answer with specificity, but let me what what's the partnership with Microsoft with Oracle inside of Azure.

Speaker Change: Is doing for us is.

Michael Mattson: <unk> is speeding up the process and reducing latency.

Michael Mattson: In the cloud by taking Oracle's database in the cloud into Azure cloud and then, allowing our processing speed to increase by a significant margin.

Speaker Change: I I don't 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 we can go if you can go faster you can go cheaper and so that's the model we're pursuing.

Speaker Change: But it's but it is incremental.

Speaker Change: There is no breakthrough here, it's all incremental it's a continuum.

Speaker Change: Okay, great well, thanks, again and congratulations again.

Michael Matheson: Great. Well, thanks again and congratulations. You bet. Thanks, Michael.

Speaker Change: You bet. Thanks, Michael Thank you.

Operator: Thank you. The next question is coming from Mark Riddick of Sidotian Company. Please go ahead.

Speaker Change: Thank you. The next question is coming from Marc Riddick of Sidoti <unk> Company. Please go ahead.

Speaker Change: Okay.

Marc Riddick: Hey, good morning.

Mark Riddick: I wanted to sort of dig into a little bit 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.

Marc Riddick: Hey, Mark I wanted to I wanted to sort of.

Marc Riddick: Dig into a little bit up on the commentary around the.

Marc Riddick: The cost reduction.

Mark: Efforts and the urgency that you're seeing maybe from customers I was wondering if you spend a little time talking about that and maybe sort of how.

Mark: You know that.

Mark: How that sort of plays into your expectations on driving sales.

Speaker Change: It looks like.

Clifford Skelton: Every CEO and CFO that I'm familiar with is looking for efficiency. I mean, we wouldn't be doing our job if we weren't.

Speaker Change: Every every CEO and CFO that I'm familiar with.

Speaker Change: Is looking for.

Speaker Change: <unk>.

Speaker Change: Don't be doing our job if we weren't.

Clifford Skelton: But especially as the economy is forward-thinking, people are starting to think, well, when this thing starts slowing down a little bit, I'm going to have to start reducing costs. 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.

Speaker Change: But especially as the economy is.

Speaker Change: The forward thinking.

Speaker Change: People are starting to see 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 health care industry. For example, where is where pressure is increasing.

Speaker Change: And they are starting to they're starting to free up on ways to outsource countries. They might not have imagined going to before they are starting to consider going to from a from an offshoring perspective. So we're just that feeds right into our sweet.

Clifford Skelton: So, 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 costs, an improvement if nothing else.

Speaker Change: Sweet spot in terms of outsourcing.

Speaker Change: 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.

Speaker Change: And reduce their cost and improve their own unit cost.

Speaker Change: So that they can drive EBITDA.

Speaker Change: At least.

Speaker Change: Improvement if nothing else.

Speaker Change: That's very helpful. Thank you.

Clifford Skelton: That's very helpful, thank you. And then, switching gears, I was wondering about one of the comments about the behavior of certain industries as far as within the 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?

Speaker Change: Switching gears I was wondering.

Speaker Change: One of the comments was around.

Speaker Change: There are certain industries as far as within commercial.

Speaker Change: We're seeing where there any particular callouts that were maybe performing better than others as far as industry verticals or how should we think about the different differentiation of activity.

Clifford Skelton: Well, I mean, obviously, technology continues to be growing as fast as you can imagine. We're seeing some tightening in health care travel and in sort of the logistics areas, where they're 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 three areas where we see opportunities for Conduent because of the challenges we're seeing in those three industries.

Speaker Change: Well I mean look.

Speaker Change: Obviously technology continues to be.

Speaker Change: Growing.

Speaker Change: Fast as you can imagine we're seeing some tightening in health care.

Speaker Change: Travel.

Speaker Change: And.

Speaker Change: And sort of the logistics areas, where there are a lot more focused on cost reductions and the as I said earlier, the appetite for off shoring the iPhone.

Speaker Change: Tight for outsourcing is increasing so those are the three areas, where we see.

Speaker Change: Opportunities for conduit.

Speaker Change: Because of the challenges we're seeing in those three industries.

Speaker Change: Okay.

Clifford Skelton: Okay, great. And then I guess the last one for me is sort of a big picture question around interest rates and expectations, you know, now relative to maybe six 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 in expectations?

Speaker Change: Okay, Great and then I guess the last one for me, it's sort of a big picture question.

Speaker Change: Around interest rates and expectations now relative to maybe six months ago.

Speaker Change: Are you getting.

Speaker Change: Our sense as far as how that is.

Speaker Change: In client behavior as of yet or are you seeing any any changes that are specifically tied to.

Speaker Change: Those those changes are expectations.

Clifford Skelton: Well, I look, I'll let Steve fill in any gaps. But I don't, you know, like I said, I think anticipation of interest rates and any kind of Fed move seems to be on the margins affecting outsourcing appetite. But we're not we're not other than that, how interest rates affect our own P&L, which Steve touched on in his remarks, and in the selling of our benefit wallet asset, we don't see anything monumental from a, you know, 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.

Speaker Change: Well look I'll, let Steve filling any gaps but.

Speaker Change: Like I said, I think anticipation of of interest rates.

Speaker Change: Any kind of fed moves.

Speaker Change: It seems to be on the margins affecting outsourcing appetite, but we're not we're not other than that with no interest rates affect our own P&L.

Speaker Change: Which Steve touched on in his remarks.

Speaker Change: And in the selling of our benefit won't asset, we don't see theres nothing monumental.

Speaker Change: From a from a.

Speaker Change: Manscape perspective going on with interest rates.

Speaker Change: Steve I don't know if youre getting your thoughts on that.

Stephen Wood: The only other thing I can think to add by way of comment is, I think this, you know, I talked about this renewed urgency that we're seeing to try and drive cost efficiency. And so, you know, at some level, I think that could be an indicator, as you suggested, that maybe, Giles Goodburn, Stephen Wood, Conduent

Speaker Change: The only other the only other thing I can think.

Stephen Wood: But by way of comment there is I think this.

Speaker Change: <unk> talked about this renewed urgency that we're seeing for to try and drive cost efficiency.

Speaker Change: And so at some level I think that that could be.

Speaker Change: An indicator as you suggested that maybe.

Speaker Change: So processes have changed around around.

Speaker Change: On a forward look of the.

Speaker Change: The interest rate environment, and maybe being a bit higher for a bit longer and therefore, the need to drive cost efficiency.

Speaker Change: That urgency is good for us because we play into a lot of those opportunities at all and I will be passing the CX businesses, but without wanting to be the person that's trying to predict where that's going to go I think that maybe those you can tie those two things together.

Speaker Change: Great. Thank you so much.

Mark Riddick: Thank you so much.

Speaker Change: Thanks Mark.

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

Speaker Change: Thank you at this time I would like to turn the floor back over to Mr. Skelton for closing comments.

Clifford Skelton: 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 two years, especially the remainder of 2024 and 2025. We have to continue to divest these non-RemainCo assets.

Skelton: Thank you Donna.

Skelton: When we deal with a couple of thoughts just to reiterate what Steve and I. Both said during our remarks, we outlined our plan a year ago.

Skelton: And we're on it as it was described a year ago.

Skelton: That said we have to execute.

Skelton: And we have been executing we need to continue to execute over the course of the next two years, especially the remainder of 2024 and into 2025.

Skelton: We have to continue to divest these non remain co assets, it's very important that we continue to execute on our plan.

Clifford Skelton: It's very important that we continue to execute on our plan and not drag our feet, and we won't. But we're going to do it the right way for the right valuation. We've got to sell it. We've got to sell more. We've got to partner more, and we've got to grow. And that's the path we're on. We're bringing in talent to help us do that, and so you're going to get more people to come there when we get to Q2.

Skelton: And not dragging our feet, there and we want but we're going to do it the right way for the right valuation.

Speaker Change: Got to sell we're going to sell more we're going to partner more and we've got to grow and that's the course, Ron we're bringing in talent to help us do that.

Speaker Change: And so youre going to more to come there when we get to Q2.

Clifford Skelton: As Steve mentioned, we've got stranded costs to take up. The one thing we know how to do here at Conduent is manage expenses and take costs down, and we're doing 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 to take care of our clients. So all 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 us today.

Speaker Change: As Steve mentioned, we've got stranded cost to take out the one thing we know how to do here at conduit.

Speaker Change: <unk> 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.

Speaker Change: All of that's very simple to say is motherhood and Apple pie in many ways, but it's not always that easy to do we're getting there.

Speaker Change: And I appreciate everybody paying attention to our company and thank you all for joining today.

Operator: 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.

Speaker Change: Ladies and gentlemen. This concludes today's event you may disconnect your lines of log off the webcast at this time and enjoy the rest of your day.

Speaker Change: [music].