Q2 2024 Conduent Inc Earnings Call

Operator: Welcome to the Conduit Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. The 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. I would now like to turn the call over to Giles Goodburn, Vice President, Investor Relations. Thank you. You may begin.

Welcome to the Conduit Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Giles Goodburn: Thank you, operator, and thanks, everyone, for joining us today to discuss Conduent's second quarter for 2024 only. I'm joined today by Cliff Skelton, our President and CEO, and Steve Wood, our CFO.

Giles Goodburn: We hope you had a chance to review the press release issued earlier this morning. This call is being webcast, and a copy of the slides used during this call, as well as the press release, was filed with the SEC this morning on Form 8K. This information, as well as the detailed financial metrics package, is available in the Investor Relations section of the Conduent website. During this call, we may make statements that are forward-looking.

Giles Goodburn: These forward-looking statements reflect management's current beliefs, assumptions, and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements. Information concerning these factors is included in Conduent's annual report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law. The information presented today includes non-GAAP financial measures.

Speaker Change: During this call we may make statements that are forward looking.

Speaker Change: 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.

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

Speaker Change: 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.

Speaker Change: The information presented today includes non-GAAP financial measures.

Giles Goodburn: Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP measures and how we use them, as well as the limitations to their usefulness for comparative purposes, please see our press release.

Speaker Change: 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.

Speaker Change: 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.

Giles Goodburn: And now, I'd like to turn the call over to Cliff.

Speaker Change: And now I'd like to turn the call over to Cliff.

Clifford Skelton: Thanks, Giles, and welcome, everyone, to our Q2 Earnings. This earnings today will be just a little bit different. We'll have Steve begin with the financials today, and I'll follow with a strategic discussion regarding progress on our strategy framed by the categories of people and organization, our processes and objectives, and our products and our technology. But in summary, Q2 adjusted revenue and adjusted EBITDA were $811 million and $29 million, respectively, at a 3.6% margin, all exceeding expectations.

Cliff: Thanks, Charles and welcome everyone to our Q2 earnings.

This earnings today will be just a little bit different.

Cliff: We will have Steve begin with our financials today and I'll follow with a strategic discussion regarding progress on our strategy framed by the categories of people and organization, our processes and objectives in our products and our technology.

Clifford Skelton: New business signings were 142 million, up sequentially and flat year over year net of the large state of Victoria deal last year in our transportation. This was all characterized by some recent strength in commercial sales, some weakness in government, and a transportation business holding its own. Finally, the net ARR number was negative for the first time, representing a low point due to the timing and sequence that Steve will discuss in a moment.

Clifford Skelton: All of this points to a consistent theme. When we're at the low point in our journey, in the trough, as we say, we continue to be exactly where we said we'd be. In fact, a little better in terms of revenue and EBITDA. And we've said all along that this is part of a continued path to a 2025 exit rate parameter, lowered net debt leverage ratios, sequential margin improvement, and less capital intensity.

Clifford Skelton: Meanwhile, our divestiture activity is progressing as planned, allowing us to de-leverage our balance sheet and buy back some of our own stock, including that formally owned by Carl Icahn, which has also allowed us to simplify and streamline our board and, in fact, create some new strategic dialogue.

Clifford Skelton: Steve will explain the effect of those divestitures and discuss where we are in that revenue EBITDA cycle. So, let me hand it over to Steve. Steve. Thanks, Cliff.

Stephen Wood: As we have done in the past, we're 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 five.

Stephen Wood: 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 for you in our investor events and earnings update. We've made significant progress with rationalizing our portfolio. During the quarter, we completed the second and final tranches of the benefit wallet transfer, receiving the remainder of the $425 million in proceeds. The curbside and public safety divestiture closed on April 30th, for which we received $174 million at close, with a further $61 million deferred over the next nine months.

Stephen Wood: Also in the quarter, we announced the sale of our Casualty Claims Solutions business for a price of $240 million, subject to certain purchase price adjustments, which we anticipate will close later in Q3. These combined proceeds, along with an updated and more favorable view on the tax drag associated with these divestitures, puts us in the upper quartile of the 600 to 800 million of targeted net proceeds. To date, of the billion dollars of targeted deployable capital, we've deployed around 66%, or $660 million, against debt prepayment and share repurchase. During the quarter, we prepaid $300 million of our Term Loan B and repurchased approximately 43.3 million shares. I'll cover more detail on this later in my presentation.

Stephen Wood: Suffice to say, we're where we said we'd be vis-a-vis this key component of our overall strategy. We've made significant strides in reducing our debt against a business that was traditionally too highly levered. And even post these initial divestitures, Conduent retains a rich portfolio of assets that we continue to believe have strategic value. Cliff will talk about a number of different aspects of that later in the call.

Stephen Wood: But first, let's get through the earnings part of the narrative. Our reported numbers have started to deviate from the guidance that we laid out at the beginning of the year because of the two closed divestitures. And consistent with the approach I outlined, we are reporting Q2 numbers on an adjusted basis, fully backing out the divestitures, as well as providing a guide for the remainder of 2024 for adjusted revenue and adjusted EBITDA.

Stephen Wood: I'll also give you our expectations as to how this will look for Q3, consistent with our past practice of guiding the upcoming quarter. We have published a full set of historical adjusted financials in our investor metrics file, which you will find in the investor section of the Conduent website.

Stephen Wood: In our Q3 earnings, we'll likely be updating our full-year guidance once more to adjust for the closure of the casualty claims solutions business. It's important to note here once again that we will continue to work on the removal of stranded costs through 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 adjusted guide, and the 2025 exit rate outlook we've laid out. Let's get into the slides, turning to slide six and reviewing our key sales maps.

Stephen Wood: As you look at all of the sales metrics on slides six and seven, it's important to note that we've adjusted all of these to exclude the two completed divestitures. As I prefaced in Q1 earnings, Q2 sales rebounded from a soft start to the year, with ACV coming in at $142 million, as compared to $97 million in Q1 and $205 million in Q2 2023. As a reminder, Q2023 was the quarter in which we signed the State of Victoria Transit Deal, which contributed about 65 million ACV and over a billion TCV.

Stephen Wood: While pleased with our rebound in Q2 sales, we're looking to continue improvement in the second half of the year. Adjusted for the effect of the two completed divestitures, we're expecting a full year outcome of between 525 and 575 million ACV. We have some bigger deals in our public sector markets during the second half, where precision in predicting timing can be an issue.

Stephen Wood: Within commercial, we're expecting to see the strong second quarter continue into the second half of the year. Double clicking on the Q2ACV number, as I stated last quarter, we see renewed urgency to address cost and drive technology upgrades and business transformation through outsourcing, both in the CX and BPAS spaces, where we play strongly with a broad set of offerings. This translated to strong Q2 ACV sales attainment in our commercial segment of 82 million ACVs.

Cliff: Strongly with a broad set of offerings.

Speaker Change: This translated to strong Q2, HCV sales attainment and all commercial segment of 82 million of HCV.

Stephen Wood: We've had an encouraging start to the third quarter, and we're making some targeted investments to expand delivery capacity in some of our strategic global locations. Our government and transportation segments achieved strong add-on business from our existing clients, which drove an increase in NRR in the quarter. The government healthcare business continues to have a strong pipeline relating to the requirements for states to modernize and modularize their Medicaid technology environment.

Speaker Change: We've had an encouraging start to the third quarter, and we're making some targeted investments to expand delivery capacity in some of our strategic global locations.

Speaker Change: Our government and transportation segments achieved strong add on business from our existing clients, which drove an increase in <unk> in the quarter.

Speaker Change: The government healthcare business continues to have a strong pipeline relating to the requirements for states to modernize and module revise their Medicaid technology environments.

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

Stephen Wood: Turning to slide seven, we've covered many of the metrics on the previous slide, but just a couple of extra pointers here to comment on. The net ARR activity metric turned negative this quarter, consistent with how I messaged in last quarter's earnings at a negative $49 million. Adjusted for the two closed divestitures, we expect the metric to stand at around $80 to $90 million by the end of 2024, with a recovery to a positive number in the third quarter.

Speaker Change: The net IRR activity metric turned negative this quarter consistent with how I messaged in last quarter's earnings at negative $49 million.

Speaker Change: Adjusted for the two closed divestitures, we expect the metric to stand at around $80 million to $90 million by the end of 2024 with a recovery to a positive number in the third quarter.

Stephen Wood: The reason that it was negative in the quarter, as I said previously, is that there was pronounced asymmetry in our notified losses last year, with them being far more weighted to the back half of the year. These will roll out as the trailing 12-month view in the coming quarters. And additionally, we have confidence in the sales pipeline for the remainder of 2024. And really, that's what's driving this disproportionate effect that you're going to see in this metric while this asymmetry remains.

Speaker Change: The reason that it was negative in the quarter as I said previously.

Speaker Change: You said there was pronounced asymmetry in our notified losses last year with them being far more weighted to the back half of the year.

Stephen Wood: Adjusted revenue for Q2 2024 was $811 million as compared to $851 million in Q2 2023, down 4.7% year-over-year and down 4.6% on a constant currency basis. Slightly ahead of our internal expectations, I'll cover the segment level detail in a minute, but the overall view is that we continue to make progress in our commercial and transportation.

Stephen Wood: However, the trajectory of recovery in our government segment will continue into 2025, but just at a slower pace. EBITDA was $29 million for the quarter as compared to $64 million in Q2 2023. And the adjusted EBITDA margin was 3.6% for the quarter, as compared to 7.5% in Q2 2023. This conforms to the low single-digit margin I guided for Q2. We're anticipating a sequential climb now, each quarter, as we progress through the remainder of 2024 and into 2025. And the drivers of this are threefold.

Stephen Wood: Firstly, the cost efficiency work that we built into our original 2024 guide to compensate for the losses and contract roll-offs naturally has more impact as we get deeper into the year and continues to add incremental benefit in 2025 as it annualizes. We're in good shape with these cost efficiency programs, with over 90% of the target having been achieved as we head into the second half of the year.

Stephen Wood: These cost efficiency programs were baked into how we originally built our 2024 guide of an 8 to 9% adjusted EBITDA margin. And we'd still be in that range without taking out these divestitures, albeit probably at the low end of that range. Secondly, you've got our stranded cost and additional margin expansion work, which we're just getting into. We're anticipating around $15 million of that $100 million to manifest in 2024, with more in 2025, and clearly annualizing to that $100 million as we exit 2025, consistent with how we laid out the walk for you in our exit rate outlook that we've been sharing. Finally, there's a little bit more revenue in the third and especially the fourth quarters from RAMP and Open Enrollment in our healthcare cost. So now, let's turn to slide 9 and go over the segment results.

Stephen Wood: For Q2 2024, Commercial Segment Adjusted Revenues were $425 million, down 3.8% as compared to Q2 2023. The top line story for the commercial segment this quarter continues to be one of working off the effect of some prior year lost business. We still expect the growth gap to narrow due to improving sales performance and retention and the segment coming closer to flat as we exit 2024. Adjusted EBITDA for the commercial segment in Q2 2024 was $ 41 million, down 12.8% as compared to Q2 2023, and the adjusted EBITDA margin of 9.6% was down 100 basis points year over year, driven by the impact of losses and some volume fluctuations.

Stephen Wood: As a reminder, commercial segment EBITDA margins have reset due to the high margin nature of the benefit wallet business we divested, which is now not in these adjusted numbers. Obviously, you'll recall that this business was totally dependent on high interest rates.

Stephen Wood: We expect some modest sequential improvements to even a margin as we move through the next few quarters. For the government segment, Q2 2024 revenues were $245 million, down 9.3% as compared to Q2 2023. The decreases you see this quarter and as we progress and lap them going into 2025 are driven by three very discreet items. Firstly, there's the effect of the government healthcare contract we referenced in February, where the contract was terminated for reasons other than performance.

Stephen Wood: We'd hoped to retain some scope of work there, but that didn't materialize. And so the revenue ran off at the end of the first quarter. The effect then in Q2 was approximately 4.5 points of the 9.3% year-over-year decline. In Q3, this is going to be approximately 6 points of decline and in Q4, 5 points of decline. Both as compared to prior years. This effect is then lapped as we move into 2025.

Stephen Wood: Secondly, there are lower SNAP volumes in our government payments business, as fewer states continue with the supplemental programs due to the change in funding structure, as well as a lost client. This is about two to three points of revenue decline in the quarter, and when compared against the prior year for the remaining quarters of 2024, it's about the same. This effect is then similarly lagged as we move into 2025.

Stephen Wood: Finally, there's a price down on a large state eligibility program that started to take effect here in Q2, contributing around one and a half points of revenue decline in the quarter. It will be two to three points of decline per quarter as compared to the prior year until we lap this effect midway through Q2 2025. Just so that you can complete the map on this one, there's about a point of all other growth in Q3 revenue and three points of growth assumed in Q4, both as compared to the prior year.

Stephen Wood: And that will get you to an overall 9% down in Q2 and an expected 11 to 12% down in Q3 and 6 to 7% down in Q4 against prior year comparisons, with only the price down on the large state program having any annualization of impact into 2025.

Speaker Change: Yeah.

Stephen Wood: Overall, this adjusts our full-year expected outcome for government revenue to be down about 7.5% in 2024 versus 2023. However, we previously expected to be able to make up some of this with new business. However, as previously discussed, sales performance has lagged expectations so far this year, and so the revenue from new business in the government segment will likely now manifest in 2025. It's important to reiterate that it's driven by a few items, and absenting these, we feel good about the base revenue, with a lot of pipeline opportunity to convert in front of us. The government segment makes up a disproportionate amount of our forward pipeline of 4.2 billion ACV.

Speaker Change: Overall this adjust our full year expected outcome for government revenue to be down about 7.5% 2024 versus 2023.

Speaker Change: We previously expected to be able to make up some of this with new business. However, as previously discussed sales performance has lagged expectations. So far this year and so the revenue from new business in the government segment will likely now manifest in 2025.

Speaker Change: It's important to reiterate is driven by a few items and are presenting these we feel good about the base revenue with a lot of pipeline opportunity to convert in front of US. The government segment makes up a disproportionate amount of our forward pipeline of $4 2 billion of HCV.

Speaker Change: Adjusted EBITDA for the government segment in Q2, 2024 was $49 million down 36% year over year.

Stephen Wood: Adjusted EBITDA for the government segment in Q2 2024 was 49 million, down 36% year-over-year. The above-mentioned three discrete items are, again, most of what drives this, as well as some short-term elevated expenses related to a couple of implementations in flight that should normalize later in the year. Transportation segment adjusted revenues in Q2 2024 were $141 million, up 1.4% year-over-year.

Speaker Change: The above mentioned three discrete items again, most of what drives this.

Speaker Change: As well as some short term elevated expenses related to a couple of implementations in flight that should normalize later in the year.

Speaker Change: Transportation segment adjusted revenues in Q2, 2024 were 141 million up one 4% year over year.

Stephen Wood: The implementation ramp from our large transit project in Australia was 22 million, however, almost completely offset by a long anticipated reduction in scope and pricing adjustments for a large long-term client in our tolling business. The transportation segment adjusted EBITDA for the quarter was $3 million as compared to $9 million in Q2 2023. And the adjusted EBITDA margin was 2.1%. The primary driver here was revenue mix, specifically between the two contracts noted previously and partially offset by improved operational performance. There's been a margin reset within transportation because of the divestiture of the curbside and public safety business, and this is one area where we have several initiatives underway to remove stranded costs.

Speaker Change: The implementation ramp from a large transit project in Australia was $22 million.

Speaker Change: However, almost completely offset by a long anticipated reduction in scope and pricing adjustment for our large long term clients in our tolling business.

Speaker Change: For the transportation segment adjusted EBITDA for the quarter was $3 million as compared to $9 million in Q2 2023 and.

Speaker Change: And the adjusted EBITDA margin was two 1%.

Speaker Change: The primary driver here was revenue mix specifically between the two contracts noted previously and partially offset by improved operational performance.

Speaker Change: And our margins reset within transportation because of the divestiture of the curbside and public safety businesses.

Speaker Change: And this is one area, where we have several initiatives underway to remove stranded costs.

Stephen Wood: Drive incremental operating efficiency and continue to build scale back into our tolling and transit business. In the next couple of quarters, you are going to see EBITDA margin in this sort of range, absenting any effect from discrete IT. But our path forward is the letters that I highlighted above, and these should drive incremental improvement as we progress through 2025.

Speaker Change: Five incremental operating efficiency and continued to build scale back into our tolling and transit businesses.

Speaker Change: In the next couple of quarters, you were going to see EBITDA margin in this sort of range accenting any effect from discrete items, but our path forward is the levers that I highlighted above.

Speaker Change: And this should drive incremental improvement as we progress through 2025.

Stephen Wood: Let's turn to slide 10 and discuss the balance sheet and cash flow. We ended the quarter with approximately $307 million of total cash on the balance sheet, and our $550 million revolving credit facility was largely undrawn at the end of the quarter. In the quarter, we made payments on debt of $328 million, including voluntarily pre-paying $300 million on our term loan bid.

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

Speaker Change: We ended the quarter with approximately $307 million of total cash on balance sheet, and our $550 million revolving credit facility was largely undrawn at the end of the quarter.

Speaker Change: In the quarter, we made payments on debt of $328 million.

Speaker Change: Including voluntarily prepaying $300 million on our term loan b.

Stephen Wood: We have additional authority to repay debt up to $200 million from future divestiture proceeds, which would deal with our near and mid-term maturity. In the quarter, we deployed approximately $150 million in repurchasing 43.3 million shares at an average price of $3.46. This included the opportunity to repurchase all the shares owned by Carl Icahn through certain of his affiliates, for an approximate aggregate purchase price of $132 million.

Speaker Change: We have additional authority to repay debt up to 200 million from future divestiture proceeds, which would deal with our near and midterm maturities.

Speaker Change: In the quarter, we deployed approximately $150 million in repurchasing $43 3 million shares at an average price of $3 46.

Speaker Change: This included the opportunity to repurchase all the shares owned by Carl Icahn through certain affiliates.

Speaker Change: For an approximate aggregate purchase price of $132 million.

Speaker Change: You have seen from our walk on how we deploy the $1 billion of capital.

Stephen Wood: You've seen from our walk through how we've deployed the billion dollars of capital that we think our steady state cash need in the business is somewhere around the 350 million mark. We ended the quarter a little bit below that because of the opportunity to enter into the repurchase of the ICON shares. If we look forward over the coming quarters, we're expecting to receive net proceeds of approximately $200 million in relation to the expected closure of the sale of the Casualty Claims Solutions business.

Speaker Change: We think a steady state cash need in the business is somewhere around the 350 million Mark.

Speaker Change: We ended the quarter, a little bit below that because of the opportunity to enter into the repurchase of the icahn shares.

Speaker Change: If we look forward over the coming quarters, we're expecting to receive net proceeds of approximately $200 million in relation to the expected closure of the sale of the casualty claims solutions business.

Stephen Wood: And an additional $61 million of deferred purchase consideration on the sale of our curbside and public safety business. The combination then of the stronger outlook for the second half of the year on operating cash flow as we reach several important billing milestones on some large contracts, as well as the inflows from our divestiture program, has us in good shape to continue to prepay debt as desired, manage our leverage, and maintain our desired level of liquidity.

Speaker Change: And an additional $61 million of deferred purchase consideration on the sale of our curbside and public safety businesses.

Speaker Change: The combination of a stronger outlook in the second half of the year on operating cash flow as we reached several important billing milestones on some large contracts as well as the inflows from our divestiture program.

Speaker Change: Cause us in good shape to continue to prepay debt as desired manage our leverage and maintain our desired level of liquidity.

Speaker Change: Our net leverage decreased to one seven turns below our previous target range of two to two and a half tons.

Stephen Wood: Our net leverage decreased to 1.7 turns, below our previous target range of 2 to 2.5 turns. You'll see in our exit rate outlook for 2025, our medium-term target, considering some additional debt prepayment, is around one turn of net leverage. Capital expenditure in the second quarter was 3.6% of revenue.

Speaker Change: Youll see in our exit rate outlook for 2025, our medium term target considering some additional debt prepayment is around one turn of net leverage.

Speaker Change: Capital expenditure in the second quarter was three 6% of revenue and we expect to be at about 3% of revenue or slightly below that for full year 2024.

Stephen Wood: And we expect to be at about 3% of revenue, or slightly below that, full year 2024. Let's turn now to slide 11 and cover our outlook for 2024. You heard me say earlier that within the government segment, we expect revenue declines to be in the 7 to 8% range for 2024. But overall, I'd say that we're still above the midpoint of our original guide on revenue for 2024, had we not divested the two businesses.

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

Speaker Change: You heard me say earlier, but within the government segment, we expect the revenue decline to be in the 7% to 8% range for 2024.

Speaker Change: But overall I'd say that we're still above the midpoint of our original guide on revenue for 2024 had we not divested the two businesses with.

Stephen Wood: With commercial and transportation doing slightly better, and for EBITDA, again, as I said earlier, my sense is that we'd be somewhere around the lower end of the guided range we laid out then, about 8% without taking out these divested businesses. As you now look at our adjusted outlook on the page here, you'll see that the basis for our guidance has been restated to adjust for the two closed divestitures. We expect full-year adjusted revenue to be in the range of $3.325 billion to $3.375 billion. At the midpoint, that's about 3% down year over year.

Speaker Change: With commercial and transportation doing slightly better.

Speaker Change: And for EBITDA again, as I said earlier in my sense is that we'd be somewhere around the lower end of the guided range. We laid out then about 8% without taking out these divested businesses.

Speaker Change: As you now look at our adjusted outlook on the page here you will see that the basis for our guidance has been restated to adjust for the two closed divestitures.

Speaker Change: We expect full year adjusted revenue to be in the range of 33253 375 billion.

Speaker Change: At the midpoint, that's about 3% down year over year.

Stephen Wood: And we expect adjusted EBITDA margin to be in the range of 4% to 5%, with sequential improvement from Q2 here on. We expect these ranges to be further adjusted in our Q3 earnings for the anticipated close of the Casualty Claims Solutions business. This will equate to approximately $150 million in revenue and about one point of reduction in EBITDA margin. In terms of some of our other modeling considerations, we expect adjusted free cash flow as a percentage of adjusted EBITDA to be around zero.

Speaker Change: And we expect adjusted EBITDA margin to be in the range of 4% to 5% with sequential improvement from Q2 here Ron.

Ron: We expect these ranges to be further adjusted in our Q3 earnings for the anticipated close of the casualty claims solutions business, which will equate to approximately $150 million of revenue and about one point of reduction in EBITDA margin.

Ron: In terms of some of our other modeling considerations, we expect adjusted free cash flow as a percentage of adjusted EBITDA to be around zero.

Stephen Wood: This is due to the loss of adjusted EBITDA from the divested businesses from the point of closure, partially offset by cost efficiency work and a substantial reduction in our interest expense. To reiterate, this is not a fully adjusted metric. We don't break out discrete cash flows at the level of these divested assets.

Ron: This is due to the loss of the adjusted EBITDA from the divested businesses from the point of closure, partially offset with cost efficiency work and.

Ron: And a substantial reduction in our interest expense.

Ron: To reiterate this is not a fully adjusted metric we don't break out discrete cash flows at the level of these divested assets. So we've moved it down in the table here.

Stephen Wood: So we've moved it down in the table here and are removing it from our fully adjusted guide for the time being to present it as an additional modeling consideration. Finally, you'll see CAPEX reducing here with the effect of the divestitures, with more to come when we complete the expected casualty claims solutions divestiture in the third quarter. Moving on to slide 12, this continues to be an important view, giving you a walk to that exit rate in 2025 and remains how we think about the journey we're on over the next 18 months or so. You will notice that we've added incremental detail here to complete the 2025 exit rate view. We've also made some minor adjustments to this walk.

Ron: And are removing it from a fully adjusted guide for the time being to present it as an additional modeling considerations.

Ron: Finally, you'll see capex, reducing here with the effect of the divestitures with more to come when we complete the expected casualty claims solutions divestiture in the third quarter.

Ron: Moving on to Slide 12. This continues to be an important view, giving you a walk to that exit rate in 2025 mm remains how we think about the journey. We're on over the next 18 months or so.

Ron: You will notice that we've added incremental detail here to complete the 2025 exit rate view.

Ron: We've also made some minor adjustments to this work.

Stephen Wood: Firstly, we've reduced the divested revenue from $500 million to 450 million to account for some revenue streams that we've retained from the three announced divestitures versus those originally contemplated. The three announced transactions account for approximately $400 million of divested revenue, and the loss of EBITDA from these three divested businesses is approximately $135 million.

Ron: Lastly, we've reduced the divested revenue from 500 million to $450 million to account for some revenue streams that we've retained from the three announced divestitures.

Ron: As those originally contemplated.

Ron: The three announced transactions account for approximately $400 million of divested revenue on.

Ron: And the loss of EBITDA from these three divested businesses is approximately $135 million.

Ron: With more clarity related to the proceeds from the three announced divestitures and more specifically a reduction in the anticipated tax drag we're increasing the net proceeds from the three announced transactions to $750 million, an increase of $50 million and in the upper quartile of our targeted range of $600.

Stephen Wood: With more clarity related to the proceeds from the three announced divestitures and, more specifically, a reduction in the anticipated tax drag, we're increasing the net proceeds from the three announced transactions to $750 million, an increase of $50 million, and in the upper quartile of our targeted range of $600 to $800 million of after-tax proceeds. We've refined our margin expansion assumption to be in the range of two to two and a half percent, reflecting certain expected pricing and contractual outcomes on a large federal contract renewal within our government payments business. Many of you will know we run the card processing for the federal government's direct express program on behalf of a large regional bank.

Ron: $800 million of after tax proceeds.

Ron: We've refined our margin expansion assumption to be in the range of 2% to 2.5%, reflecting certain expected pricing and contractual outcomes on a large federal contract renewal within our government payments business.

Ron: Many of you will know we run the card processing for the Federal government direct express program on behalf of a large regional bank.

Stephen Wood: It's been informally reported that this contract is being negotiated with another bank and processing vendor and that negotiations will continue through this year. At this stage, we have not included this as a notified loss in our net ARR metric for the full year 2024, because we understand that the notification was both informal and preliminary.

Ron: It's been an formerly reported that this contract is being negotiated with another bank and processing vendor.

Ron: And that negotiations will continue through this year.

Ron: But at this stage we have not included this as a notified loss and a net IRR metric for the full year 2024.

Ron: As we understand that the notification was both informal and preliminary.

Stephen Wood: Nor does it adjust our 2025 revenue outlook, as we minimally expect to have this revenue into 2026, given the likely long transition timeline needed to move this complex program that we've run for over 15 years. At this point, the margin refinement in our walk removes the incremental pricing we intended to achieve on this renewal in order to make this contract attractive for us to retain. For size, it's approximately 100 million in revenue and is very marginally profitable and dilutive to the government segment as currently priced.

Ron: Noticed that adjust our 2025 revenue outlook as we minimally expect to have this revenue into 2026, given the likely long transition timeline needed to move this complex program that we've run for over 15 years.

Ron: At this point the margin refinement in our walk removes the incremental pricing we intended to achieve on this renewal in order to make this contract attractive for us to retain.

Ron: Precise it's approximately $100 million of revenue and is very marginally profitable and dilutive to the government segment is currently priced.

Stephen Wood: Our capital allocation plans include an additional $200 million of board authority to prepay debt. Over time, as EBITDA recovers sequentially, this will drive our net leverage ratio towards our new target range of approximately one. Interest expense will be approximately $38 million on $600 to $700 million of debt. This results in an adjusted free cash flow range of between 25 and 30 percent. The strength of our sales pipeline and proven programmatic approach to cost reduction are already underway.

Ron: Our capital allocation plans include an additional $200 million of board authority to prepay debt.

Ron: Over time as EBITDA recover sequentially. This will drive on net leverage ratio towards our new target range of approximately one times.

Ron: Interest expense will be approximately $38 million on $600 million to $700 million of debt.

Ron: And this results in an adjusted free cash flow range of between 25 and 30%.

Ron: The strength of our sales pipeline and proven programmatic approach to cost reductions already underway gives.

Stephen Wood: This gives us confidence to remain committed to achieving these 2025 exit rate targets, as well as our ability to generate and deploy the billion dollars, of which 66% is already deployed. In terms of Q3, adjusted for the two divestitures completed, we are expecting adjusted revenue to be in the range of $815 to $825 million. And we would expect to see a sequential improvement in adjusted EBITDA margin for the third quarter to be in the range of 3.75 to 4.25% as we continue our work on our cost efficiency programs and remove stranded costs. That concludes my financial remarks for the quarter, and I'll hand it back over to Cliff for the broader business update, because there's a lot going on there as well. Cliff?

Ron: It gives us confidence to remain convicted in achieving these 2025 exit rate targets as well as our ability to generate and deploy the $1 billion of which 66% is already deployed.

Ron: In terms of Q3 adjusted for the two divestitures completed we are expecting adjusted revenue to be in the range of $815 million to $825 million.

Ron: And we would expect to see a sequential improvement in adjusted EBITDA margin for the third quarter to be in the range of $3 75 to $4 two 5% as we continue our work on our cost efficiency programs and remove stranded costs.

Ron: That concludes my financial remarks for the quarter and I'll hand, it back over to cliff for the broader business update.

Cliff: Because there's a lot going on there as well thanks.

Clifford Skelton: Thanks, Steve. Let's turn to slide 14 and spend some time talking about the business and where we are with respect to this journey. As you may recall, five years ago, we embarked on an operational and technological stabilization and optimization program. While never perfect, that outcome is largely intact.

Cliff: Thanks, Steve, Let's turn to slide 14, and spend some time talking about the business and where we are with respect to this journey.

Cliff: As you May recall five years ago, we embarked on an operational and technological stabilization and optimization plan.

Cliff: We'll never perfect that outcome is largely intact.

Cliff: And then just over a year ago in March of 2023, we outlined a three year plan that would build on our strengthened foundation to create a more nimble technology led business process solutions company with.

Clifford Skelton: And then, just over a year ago, in March of 2023, we outlined a three-year plan that would build on our strengthened foundation to create a more nimble technology-led business process solutions company, with better synergies, more cohesiveness, different leaders, and lower debt, on a clear and charted path to market-driven growth. That growth would be enabled by focusing on our client success to further penetrate existing and prospective We are doubling down on strategic initiatives for each of our businesses and continuing to strengthen our leadership and our culture.

Cliff: With better synergies more cohesiveness.

Speaker Change: Different leaders lower debt.

Cliff: Less capital intensity, and a clear and chart a path to market driven growth.

Cliff: That growth will be enabled by focusing on our clients' success to further penetrate existing and prospective clients.

Cliff: Doubling down on strategic initiatives for each of our businesses and continuing to strengthen our leadership and our culture.

Cliff: The narrative also discussed how we would leverage our cloud based and AI infused technology platforms across our core competencies in order to grow in both the commercial and public sector markets.

Clifford Skelton: The narrative also discussed how we would leverage our cloud-based and AI-infused technology platforms across our core competencies in order to grow in both the commercial and public sector markets. We talked about our portfolio diversity as a strength and an offset to the economic cycle. We discussed how we would continue to optimize our business by rationalizing our portfolio, allocating approximately $1 billion of deployable capital in the most optimal manner. Fifteen months into this three-year plan, I can tell you that we have made and continue to make strong and steady progress with more to do.

Cliff: We talked about our portfolio diversity as a strength and an offset to economic cycles.

Cliff: We discussed how we would continue to optimize our business by rationalizing our portfolio.

Cliff: Allocating approximately 1 billion of deployable capital in the most optimal manner.

Cliff: 15 months into this three year plan I can tell you that we have made and continue to make strong and steady progress with more to do.

Clifford Skelton: We're on track to deliver against those commitments, and our Q2 results demonstrate, for those that have been following our journey, that we continue to be where we said we would be. Let's turn to slide 15 to give you a representation of the changes we've made to advance that three-year plan.

Cliff: We are on track to deliver against those commitments.

Cliff: And our Q2 results demonstrate for those that have been following our journey that.

Cliff: We continue to be where we said we would be.

Cliff: Let's turn to slide 15 to give you a representation of the change we've made tactically to advance that three year plan.

Clifford Skelton: First, we continue to strengthen our people in our organization. We've simplified our operating model and now operate the commercial and public sectors with new group presidents leading them. That will help reduce the corporate overhead and the overlap, but we'll still measure ourselves and lead those more granular businesses individually. But from a corporate point of view, we have streamlined our search service. Adam Appleby, formerly President of Transportation, will now lead our public sector organization.

Cliff: First we continued to strengthen our people and our organization.

Cliff: We've simplified our operating model and now operate the commercial and public sectors with new group presidents leading them.

Cliff: That will reduce the corporate overhead and overlaps.

Cliff: We will still measure ourselves and lead those more granular businesses individually.

Cliff: But from a corporate point of view, we have streamlined our shared services.

Adam Applebee: Adam Applebee, formerly President of Transportation will now lead our public sector organizations.

Clifford Skelton: And we will very soon welcome a new head of government solutions who is a seasoned industry veteran to lead that very important growth business for us within the public sector. That announcement will come in the next week.

Cliff: And we will very soon welcome a new head of government solutions.

Speaker Change: Seasoned industry veteran to lead that very important growth business for us within the public sector.

Cliff: That announcement is coming in the next week or two.

Clifford Skelton: For the commercial sector, Mike McDaniel is the new group president. Mike joined us in July from DXC, where he was president of DXC's Modern Workplace Business. Prior to DXC, Mike spent 14 years at Accenture in senior positions, including leading their North America sales organization.

Speaker Change: For the commercial sector, Mike Mcdaniel as the New group President.

Speaker Change: <unk> joined US in July from <unk>, where he was president of Dxp's modern workplace business.

Mike McDaniel: Prior to <unk>, Mike spent 14 years at Accenture and senior positions, including leading their north American sales organization.

Speaker Change: As you can see we're reaching from outside the organization to onboard known in proven growth leaders, who know the client base and we experienced with great growth companies do well.

Clifford Skelton: As you can see, we're reaching outside the organization to onboard known and proven growth leaders who know the client base and have experienced what great growth companies do well. We've also created a dedicated Chief Client Officer role to focus entirely on client retention and drive expanded wallet share. Randall King will move from his role leading the commercial businesses to this role uniquely targeted at our top revenue-producing clients and their customers.

Speaker Change: We've also created a dedicated chief client officer role to focus entirely on client retention and drive expanded wallet share.

Randall King: Randall King will move from his role leading the commercial businesses to this rule uniquely targeted at our top revenue producing clients and their customers.

Clifford Skelton: Again, to leverage portfolio diversity as a strength, we must penetrate and retain that group of clients that represent high outsourcing needs. And we have some very impressive clients with some very important opportunities to pay attention to. It may be cliche, but in our business, our people are our strength.

Speaker Change: Again to leverage portfolio of diversity as a strength.

Speaker Change: Just penetrate and retain that group of clients that represent high outsourcing needs.

Speaker Change: We have some very impressive clients with some very important opportunities to pay attention to.

Speaker Change: With regard to our culture, we've been recognized by both Newsweek and the disability equality index were particularly proud to have been named for the second year running to Newsweek's Global top 100, most loved workplaces.

Speaker Change: It may be cliche, but in our business our people are our strength.

Clifford Skelton: Because clients will buy from people they trust, and we're certainly proud of our, Regarding our processes and our objectives, we're making strong progress. We're beginning to see strong sales momentum broadly across our commercial solutions, especially our offshore and nearshore delivery models, and we're investing in additional capacity in several locations to meet demand as we see an increased propensity to outsource from existing clients and new logos. When economic conditions require improved efficiency, opportunity comes our way, especially when our geographic model can differentiate.

Speaker Change: Because clients will buy from people They trust and we're certainly proud of our team.

Speaker Change: Regarding our processes and our objectives, we're making strong progress.

Speaker Change: We're beginning to see strong sales momentum broadly across our commercial solutions, especially our offshore and near shore delivery models and we're investing in additional capacity in several locations to meet demand as we see increased propensity to outsource from existing clients and new logos.

Speaker Change: When economic conditions required improved efficiency.

Speaker Change: <unk> comes our way.

Speaker Change: Especially when our geographic model can differentiate.

Clifford Skelton: Interestingly, we're also seeing cross-segment opportunities as we drive sales and partnership opportunities in key public sector markets for human capital solutions, such as finance, accounting, and procurement solutions, as well as our customer experience solution. For example, we have multiple opportunities in various states for a human capital solutions pension plan administration. And we're seeing consolidation across the reinsurance industry, thus creating the need for scale in the administrative space.

Speaker Change: Interestingly, we're also seeing cross segment opportunities as we drive sales and partnership opportunities and keep public sector markets for human capital solutions, Finance accounting and procurement solutions as well as our customer experience solutions.

Speaker Change: For example.

Speaker Change: We have multiple opportunities in various states for human capital solutions pension plan administration.

Speaker Change: And we're seeing consolidation across the reinsurance industry, thus, creating the need for scale in the administrative space.

Clifford Skelton: In Finance, Accounting, and Procurement, we have several states interested in our FASTCAP solution, which provides a comprehensive analysis of an organization's procurement data to deliver insights into accounts payable to uncover cost savings opportunities, such as automatically detecting duplicate or erroneous payments and analyzing tails. And recently, RDW Toll Collector in the Netherlands engaged Conduent to provide customer support for a new toll road in the Netherlands, which is opening at the end of the year.

Speaker Change: In finance accounting and procurement, we have several states interested in our fast cap solution, which provides a comprehensive analysis of an organization's procurement data.

Speaker Change: To deliver insights into accounts payable to uncover cost savings opportunities such as automatically detecting duplicate or erroneous payments in annualized retail spend and recently RTW toll collector in the Netherlands engage conduit to provide customer support for new toll road in the Netherlands, which is opening at the end of the year.

Speaker Change: The bottom line is that while governments buy differently than commercial businesses.

Clifford Skelton: The bottom line is that while governments buy differently than commercial businesses, many of our products are ubiquitous. As Steve mentioned, a hallmark of our strategy is our portfolio rationalization effort, and the proceeds from those divestitures are used in large part to pay down debt, demonstrating our commitment to a lower net leverage ratio and a strong balance sheet.

Speaker Change: Many of our products are ubiquitous.

Speaker Change: As Steve mentioned, a hallmark of our strategy is our portfolio rationalization efforts.

Speaker Change: And the use of proceeds from those divestitures in large part to pay down debt.

Speaker Change: Demonstrating our commitment to a lower net leverage ratio and a strong balance sheet.

Speaker Change: We got an another important use of capital in the quarter as I mentioned, we repurchased all shares previously owned by Carl Icahn and affiliates.

Clifford Skelton: We believe that this decision was a very important one that will help streamline decision making and capital allocation planning. Finally, in the third column, we made considerable progress on our products and our technology. We're continuing to progress our generative AI initiative. We worked on real use cases in a methodical manner, and we're excited to share that several of our pilots are showing promising results that will create unique value for our clients and open new adjacencies. I'd like to mention a few examples.

Speaker Change: We believe that decision was a very important one that will help streamline decision, making and capital allocation planning.

Speaker Change: Finally in the third column, we made considerable progress in our products and our technology.

Speaker Change: We're continuing to progress our generative AI initiatives.

Speaker Change: We worked on real use cases in a methodical manner and we're excited to share that several of our pilots are showing promising results that will create unique value for our clients and opened new adjacencies.

Speaker Change: I'd like to mention a few examples.

Speaker Change: We completed a successful pilot on improving fraud detection related to account takeover, where we applied traditional rules based AI combined with Gen AI.

Clifford Skelton: We completed a successful pilot on improving fraud detection related to account takeover where we applied traditional rules-based AI combined with Gen AI. This approach will allow us to materially improve upon the traditional fraud approach while improving the cardholder experience. As you know, we provide fraud detection capabilities as part of the many government disbursement programs we support, and we believe we can increase the volume of fraud detection by up to 150%. Secondly, our pilot work in the document management space related to unstructured documents is also looking promising. Using Gen-AI paired with traditional OCR technologies, we can provide classification of the document at a more granular level.

Speaker Change: This approach will allow us to materially improve upon the traditional fraud approach, while improving on the cardholder experience.

Speaker Change: As you know, we provide fraud detection capabilities as part of the many government disbursement programs we support.

Speaker Change: And we believe we can increase the volume of fraud detection by up to 150%.

Speaker Change: Secondly, our pilot work in the documents management space related to unstructured documents is also looking promising.

Speaker Change: Using gen AI paired with traditional OCR technologies, we can provide classification of the document at a more granular level.

Speaker Change: This will improve the queuing and the routing of documents and allow for faster processing saving clients manual effort and should allow us to do more work traditionally performed by our clients.

Clifford Skelton: This will improve the queuing and the routing of documents and allow for faster processing, saving clients manual effort and should allow us to do more work traditionally performed by our clients. Finally, we believe we can now open new adjacencies, such as processing correspondence documents or appeals for health care claims, because of this new capability. Cybersecurity is on the front burner for every CEO and every board of directors. We're seeing a gap in the industry.

Speaker Change: Finally, we believe we can now open new adjacencies, such as processing correspondence documents or appeals for health care claims because of this new capability.

Speaker Change: No cyber securities on the front burner for every CEO and every board of directors.

Speaker Change: We're seeing a gap in the industry, whereby when companies experienced a cyber event they need help in dealing with the scale and the speed necessary for a quick response to that event.

Clifford Skelton: When companies experience a cyber event, they need help dealing with the scale and the speed necessary for a quick response to that event, especially when notifications are required for personally identifiable information and protected health information notification. Conduent is teaming up with a leading cybersecurity company to introduce an innovative method to quickly and accurately identify PII and PHI within effective data. To do this, we can provide a combination of e-discovery experts using our technology platform to develop a tailored, client-specific privacy review plan that will identify PII and PHI quickly.

Speaker Change: Especially when notifications and required for personally identifiable information and protected health information notifications.

Condo: Condo and is teaming up with a leading cyber security company to introduce an innovative method to quickly and accurately identify PAA and PAGP within effective data.

Speaker Change: To do this.

Speaker Change: We can provide a combination of E discovery experts and our technology platform to develop a tailored client specific privacy re review plan that will identify and PHA quickly.

Speaker Change: While we're just getting started with this plan. It will also include an on demand print and mail capability that can help with notifications.

Clifford Skelton: While we're just getting started with this plan, it will also include an on-demand print and mail capability that can help with notification. We were named a leader in CX transformation, HR transformation services, and healthcare payer operations by Nelson Hall, demonstrating continued solution leadership. With respect to CX transformation, while Gen AI is adding a lot of new capability, we continue to see the need for human interaction with an expectation of higher quality and a better price.

Speaker Change: We were named a leader in CX transformation.

Speaker Change: Our transformation services and health care payer operations by Nelson Hall, demonstrating continued solution leadership.

Speaker Change: With respect to CX transformation.

Speaker Change: <unk> is adding a lot of new capability.

Speaker Change: We continue to see the need for human interaction with an expectation of higher quality and a better price.

Clifford Skelton: Finally, we've made some modest adjustments to some of our exit rate assumptions that Steve talked about as we move through 2024 and into 2025. And we're confident that Conduent is on the right trajectory in moving its business to sustain top line growth, sequential margin improvement, less capital intensity, and improved cash flow conversion. As always, I'd like to thank our shareholders, our clients, and our nearly 60,000 associates for their support and recognize our associates for the great work they do every day. Thank you, everyone, for listening, and I'll now turn it back to the operator to open up the lines for questions. Operator. Thank you. We'll now be

Speaker Change: Finally, we've made some modest adjustments to some of our exit rate assumptions as Steve talked about as we move through 2024 and into 2025.

Steve: And we're confident that <unk> is on the right trajectory in moving our business to sustain topline growth sequential margin improvement less capital intensity and improved cash flow conversion.

Speaker Change: As always I'd like to thank our shareholders, our clients and our nearly 60000 associates for their support and recognize our associates for the great work. They do every day.

Speaker Change: Thank you everyone for listening and I'll now turn it back to the operator to open up the lines for questions.

Speaker Change: Later.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for your question. Our first questions come from the line of Pat McCann with Noble Capital. Please proceed with your questions.

Speaker Change: Confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please while we poll for your questions.

Speaker Change: Our first questions come from the line of Pat Mccann with Noble capital. Please proceed with your questions.

Patrick McCann: Hey, good morning, and thanks for taking my questions. I just have a couple of questions, and then I'll pass the floor on.

Pat McCann: Hey, good morning, and thanks for taking my questions I just have a couple of questions and then I'll pass the floor on number one I wanted to circle back to the.

Patrick McCann: Number one, I wanted to circle back to the Carl Icahn share divestiture. You know, after repurchasing his shares and him no longer being in the stock, how does that affect the decision-making process for you guys going forward? You know, does that really simplify your strategic decisions?

Speaker Change: Carl Icahn share divestiture.

Speaker Change: After repurchasing his shares and having no longer being in the stock.

Speaker Change: How does that affect the decision making process for you guys going forward.

Speaker Change: Does that really simplify your strategic decisions could you any color you can provide there would be great.

Patrick McCann: Any color you could provide would be great.

Clifford Skelton: Yeah, Pat, it's Cliff. Thanks for the question. As many know, Carl, as an activist, had three board members out of our eight. And as you can imagine, when you go from eight to five, decision making certainly gets easier. You got eight, you get an extra three, you've got a lot of cooks in the kitchen, for sure.

Speaker Change: Yes, Pat as cliff Thanks for the thanks for the question.

Speaker Change: As many know.

Karl: Karl is an Actavis had three board members.

Clifford Skelton: And from time to time, activists will have a little bit of a different agenda. These will be things like how much capital do you want to keep inside a company? How much capital do you want to distribute on what timeline, etc. As everybody knows, a board's primary job is governance, and of course, keeping or not keeping a CEO is front and center. But in addition to that, capital and asset allocation, and M&A strategy, are always going to be a primary concern of boards.

Speaker Change: Great and then as you can imagine.

Speaker Change: When you go from eight to five decision, making certainly gets easier you've got eight.

Speaker Change: You get an extra three you've got a lot of cooks in the kitchen for sure.

Speaker Change: From time to time, actavis level, a little bit of a different agenda.

Speaker Change: Vis vis things like how much how much capital do you want to keep inside the company how much capital do you want to distribute on what timeline et cetera.

Speaker Change: As everybody knows.

Speaker Change: <unk> primary job is governance and of course, keeping or not keeping a CEO is front and center, but in addition to that capital and asset allocation M&A strategy is always going to be a primary concern of boards and frankly that just got easier for us.

Clifford Skelton: And frankly, that just got easier for us. And, you know, I can't tell you what it means in terms of actual decisions that are going to happen, but I can tell you the process is easier now. We feel a little bit, I might call it, a little bit liberated in some ways.

Speaker Change: I can't tell you what it means in terms of actual decisions that are going to happen, but I can tell you. The process is easier now and we feel a little bit.

Speaker Change: Might call a little bit liberated in some ways.

Speaker Change: Great. Thanks for that and then my second question was just if you could.

Patrick McCann: Great. Thanks for that. And then my second question was just if you could give a little bit of commentary, additional commentary to what you've already said about how you, you know, where your confidence comes from for your full-year target, given the results you reported for Q2.

Speaker Change: Give a little bit of commentary additional commentary to what you've already said.

Speaker Change: How are you.

Speaker Change: Where your confidence comes from for your full year target given the results you reported for Q2.

Speaker Change: Yeah.

Stephen Wood: Well, I think I think our confidence in terms of the full year is really resident in the walk through 2025. Right.

Speaker Change: Well I think I think part of our confidence in terms of the.

Speaker Change: The full year was re resident.

Speaker Change: In the walk through 2025, right, we've talked about the <unk>.

Clifford Skelton: We've talked about the fact that we've got these cost efficiency programs underway, that we're heavily through that work. It's going to become more resident in the second half of the year as we get into that. And we're going to see this sort of modest sequential improvement in EBITDA as we progress through the year. And there's a little bit of an incremental kind of sales ramp again, resident in the guide in the second half of the year.

Speaker Change: But we've got these cost efficiency programs on the way that with we are heavily through that work, it's going to become more resident in the in the second half of the year as we get into that.

Speaker Change: Going to see this sort of modest sequential improvement in EBITDA.

Speaker Change: Through the year and there is a little bit of incremental kind of sales ramp again resident in the guide in the second half of the year, but I think probably as important to that just to reiterate right. We now see this as a sequential journey that we're going to see quarter over quarter as we process through the remainder of 2024.

Clifford Skelton: But I think probably as important to that, just to reiterate, right, we now see this as a sequential journey that we're going to see quarter over quarter as we process through the remainder of twenty-two and then quarterly through twenty-five to get back to that exit rate outlook that we've outlined. And, you know, we've got a high degree of confidence that we've got the plans and the execution in place to deal with both the revenue side and the cost efficiency side as we work through that.

Speaker Change: Then quarterly through 2025 to get back to that exit rate outlook that we've outlined and we've got a high degree of confidence that we've got the plans and the execution in place to deal with both the revenue side and the cost efficiency side as we work through that and I think that's absolutely right Stephen on the lag effect of the cost.

Stephen Wood: I think that's absolutely right, Steve. You know, the lag effect of the cost reduction efforts is going to manifest a little more in the back half. Some of the sales efforts are beginning to ramp up a little bit of a slow start in government that we think is going to finish. We hope it will finish strong compared to the first half. All these will affect our impact revenue and our EBITDA for the second half of the year.

Speaker Change: <unk> effort is going to manifest a little more in the back half some of the sales efforts are beginning to ramp up a little bit of a slow start in government that we think is going to finish we hope we hope will finish strong compared to the first half all of those will affect or impact revenue and EBITDA for the second half of the year.

Patrick McCann: Great And if you don't mind, if I could squeeze in one more? It just seems as though, you know, given the divestitures you've already announced, you've made significant progress there, and it seems as though the march forward is towards, towards the other side of the divestiture efforts, if you will, seems to be becoming the focus now. I was just wondering, though, how you view the possibility for any other, maybe minor divestitures, you know, if there are more opportunities there, you know, should we expect... more announcements in the future before you're done?

Speaker Change: Great and if you don't mind, if I could squeeze in one more.

Speaker Change: It seems as though.

Speaker Change: Given the divestitures, you've already announced your.

Speaker Change: You've made significant progress there and it seems as though the March forward is towards towards the other side of the divestiture efforts. If you will seems to be becoming to focus now I was just wondering though if there are how you view the possibility for any other maybe minor divestitures. If there are more opportune.

Speaker Change: <unk> there.

Speaker Change: Should we expect.

Speaker Change: More announcements in the future before you're done.

I think thats the way, we would look at it and Steve can filling in gaps he sees fit.

Clifford Skelton: I think, Pat, the way we would look at it, and Steve can fill in any gaps he sees fit, you know, we don't see any major, you know, compartmented divestiture activity on the horizon. There are a couple of small things we might consider. But, as you may recall, the whole process was centering on how do we get as many synergies with RemainCo as we can get.

Steve: We don't see any major.

Steve: Compartment of divestiture activity on the horizon. There are a couple of small things we might consider.

Speaker Change: As you may recall the whole.

Steve: Process was center posted on how do we get as many synergies with remain co as we can get how do we take scarce assets from the outside point of view and monetize those to pay down debt, primarily and then how do we grow what remaining this fast.

Clifford Skelton: How do we take scarce assets from the outside point of view and monetize those to pay down debt primarily? And then how do we grow what's remaining as fast and as well as we can? And we think we're, you know, we're kind of over that target. There's some. There's some puts and takes there, but we think we're over that target in terms of carve-outs, if you will.

Steve: As well as we can and we think we're kind of over that target there's some.

Steve: There are some puts and takes everywhere. We think we're over that target in terms of of carbon carve outs. If you will.

Stephen Wood: Yeah, just one thing further to add, Pat. If you think about the divestitures we've made, we targeted businesses that met a couple of different criteria. We thought they had scarcity value on the outside.

Speaker Change: Yes, just one thing further to add Pat if you think about the divestitures. We've made we've we've targeted businesses.

Speaker Change: We met a couple of different criteria, we felt they had scarcity value on the outside we thought they weren't necessarily sort of one plus one equals three businesses inside of the portfolio, but we have a still have a very rich portfolio of assets that have strategic value either by themselves or in combination and so.

Stephen Wood: We thought they weren't necessarily sort of one plus one equals three businesses inside of the portfolio, but we still have a very rich portfolio of assets that have strategic value either by themselves or in combination. And so we like the way that the portfolio is shaping up. We like our commercial and, I'd say, our public sector markets to kind of give balance to the business. And I think the mission will continue to be to work strategically, as Cliff has outlined, to drive all of those businesses towards growth and to drive towards those exit rates that we've outlined.

Speaker Change: We like the way that the portfolio shaping up we like our our commercial and off I'd say, our public sector markets to kind of get balance to the business.

And I think the mission the mission will continue to be to work strategically as cliff has outlined to drive those all of those businesses towards growth to drive towards those exit rates that we've outlined but that doesn't necessarily take off the table that might be.

Stephen Wood: But that doesn't necessarily take off the table the possibility that there might be some attractive offer that comes along on the outside for a particular discrete asset that we would accommodate and entertain as needed. But, as you can see, we are towards the top end of the range of what we've outlined for divestiture proceeds, but we're not at the top end of the range. And so it gives us room to do more if we deem it to be in the best interest of what we're trying to get done. Yeah, I mean,

Speaker Change: Some attractive.

Speaker Change: Offer that comes along on the outside for a particular discrete asset that we would.

Speaker Change: We would accommodate and entertainers as needed, but as obviously you can see we are towards the top end of the range of what we've outlined for divestiture proceeds, but we're not at the top end of the range and so it gives us room to do more if we if we deem it to be in the best interest of what we're trying to get done yes, I mean, the way I would.

Clifford Skelton: Yeah, I mean, the way I would characterize it in metaphorical terms is that the radar is still open and operating in terms of opportunistic ideas, but we believe we've got a portfolio we can grow. Some of them, we're going to double down from a capital perspective. Some of them, we're going to optimize and get more efficient. Some of them, we're going to continue to just drive as is. And so we see that what we have is what we need.

Speaker Change: Characterize it and metaphorical terms as the radar is still open and operating in terms of opportunistic.

Speaker Change: Ideas, but we believe we've got a portfolio, we can grow and if you look at these assets.

Speaker Change: Some of them, we're going to double down from a capital perspective, some of them, we're going to optimize and get more efficient in some of them. We're going to continue to just drive as it is.

Speaker Change: And so we've seen we see.

Speaker Change: What we have is what we need.

Patrick McCann: Great, thanks guys for the thoughtful commentary. I'll pass the floor on.

Speaker Change: Great. Thanks, guys for the thoughtful commentary I'll pass the floor.

Operator: Okay, thanks, pal. Thank you. Our next question has come from-

Pat: Thanks Pat.

Operator: Thank you. Our next questions come from the line of Mark Riddick with Sidoti and Company. Please proceed with your question.

Speaker Change: Thank you. Our next question is coming from the line of Marc Riddick with Sidoti <unk> Company. Please proceed with your questions.

Speaker Change: Yes.

Marc Riddick: Hey, good morning.

Mark: Hey, Mark.

Marc Riddick: So really appreciate all the detail that was put into this and it provided I was wondering if you could talk a little bit about.

Marc Riddick: So I really appreciate all the detail that was put into this and provided for us. I wonder if you could talk a little bit about earlier in the year when there was the announcement of the deal with Microsoft on AI. And I was wondering if you could talk a little bit about the partnership, I should say, and if you could talk a little bit about maybe what you're seeing from client receptivity and what your early read is.

Marc Riddick: Earlier in the year there was the announcement of the the deal with Microsoft on AI and I was wondering if you could talk a little bit about the.

Marc Riddick: The partnership I should say and if you could talk a little bit about maybe.

Speaker Change: What you're seeing from client receptivity and what your.

Speaker Change: Our early read is on that.

Speaker Change: Yes, it's a good question look I mean.

Clifford Skelton: Yeah, it's a good question. Look, I mean, you can't turn the TV on without those two letters coming up everywhere.

Speaker Change: You can't you can't turn the TV on without those two letters coming up.

Clifford Skelton: I think the hype is starting to settle into real execution. We tried to kind of weather that storm and find our ways to some pilots and some early partnerships, including Microsoft. Some of those pilots, as I mentioned in my prepared remarks, are starting to bear fruit, especially around fraud and scanning and indexing. You know, healthcare has got some real opportunities. So, and of course, everybody's focused on what we can do in the call center space. So we're using those pilots. And also, what I mentioned about cyber, we think is a great new idea. There's an AI implication there as well.

Speaker Change: Everywhere I think the hype is starting to settle.

Speaker Change: Into into real execution.

Speaker Change: We tried to kind of weather that storm and find ways to some pilots and some early partnerships, including Microsoft some of those pilots right as I mentioned in my prepared remarks are starting to bear fruit, especially around fraud.

Speaker Change: Scanning and indexing.

Speaker Change: Health care has got some real opportunities so and of course, everybody is focused on what we can do on the call Center space.

Speaker Change: So we're using those pilots and also what I mentioned about cyber we think is a great new idea.

Clifford Skelton: But what I would say is Microsoft is leading the charge in many ways in the industry, and they've got a lot of partners that they can select from or not. And we've done some work. I met with their head of North America just last week.

Speaker Change: There is an AI implication there as well, but but what I would say is Microsoft is leading the charge in many ways in the industry and they've got a lot of partners that they can select from or not.

Speaker Change: And we've done some work.

Speaker Change: With their head in North America, just last week.

Clifford Skelton: I talked about what we can do from a go-to-market perspective with respect to AI, and the horizon is very bright, but we're going to be narrowly focused initially on those things that I just talked about. The partnership with Microsoft is obviously beneficial for them because they can use Azure for a lot of the hosting. But, you know, their sales force is quite strong, obviously, and we want to make sure that we can partner up as much as possible.

Speaker Change: To talk about what we can do from a go to market perspective.

Speaker Change: With respect to AI in the horizon is very bright, but we're going to we're going to be narrowly focused initially on those things that I just talked about the partnership with Microsoft obviously is as beneficial for them because they can use azure for a lot of the hosting but their sales force.

Speaker Change: Quite strong obviously and we want to make sure that we can partner up as much as possible, but again, we're going to stay narrowly focused on those three or four or five.

Clifford Skelton: But again, we're going to stay narrowly focused on those three or four or five proven pilots that we've already executed on, and we're going to move forward with those initially. And that's where we are, along with the partnership with Microsoft and a go-to-market perspective.

Speaker Change: Proven pilots.

Speaker Change: Pilots that we have.

Speaker Change: <unk> already executed on and we're going to we're going to move forward with those initially and that's that's where we're going.

Speaker Change: Along with the partnership with Microsoft on go to market perspective.

Speaker Change: Okay, Great and then I wanted to just sort of follow up on the.

Marc Riddick: Okay, great. And then I wanted to just sort of follow up on the status of the government express contract and sort of your thoughts there. Is there a sense of... I guess maybe just maybe if you could maybe put a little more color around that, and then I have one final, final question around cash prioritization.

Speaker Change: On the status of the government direct.

Speaker Change: Express contract and so your thoughts there.

Speaker Change: Is there a sense of.

Speaker Change: I guess, maybe just maybe if you could maybe put a little more color around around that and then I have one final follow up around.

Speaker Change: Cash prioritization.

Clifford Skelton: Yeah, yeah. Well, look, Steve told you in his prepared remarks what we don't know, which is we don't know where this thing is going because we don't have any official messaging at all. We have what our bank partner told us is a negotiation with another bank, and another bank, and they have their own technology partner that is the equivalent of ours. But here's what we do know.

Speaker Change: Yeah, well look Steve told you in his prepared remarks, what we don't know.

Speaker Change: Which is we don't know where this thing is going because we don't have any official.

Speaker Change: Messaging at all we have what our bank partner told us.

Speaker Change: As a negotiation with them with another.

Another bank and they have their own technology partner.

Speaker Change: This equivalent of ours, but here's what we do know we.

Clifford Skelton: We do know that after 15 years, this is a very, very complex arrangement, and it's very risky for the government. We've got $1.6 billion of deposits that happen every month for Social Security recipients and veterans, and our technology distributes those disbursements, and the fraud risk is inordinately high. The operational risk is inordinately high, and it's been attempted to shift to other partners in the past and failed. I would say the risk is significant for a conversion, and notwithstanding the fact that it probably takes you a year or two for that to manifest, even if it does happen, we think there's a high probability that this thing could be retained. But we don't have formal messaging in any way from our bank partner or the government. I just would tell you that we know this is a lot more complex than it seems.

Speaker Change: We do know that after 15 years is a very very complex arrangement and it's very risky for the government. We've got $1 $6 billion of deposits that happen every month for social security recipients VA recipients and we are technology distributes those those disbursements in the fourth.

Speaker Change: Rod risk is inordinately high.

Speaker Change: Operational risk is inordinately high and it's been attempted to shift to other partners in the past and failed. So I would say the risk is as significant to our conversion and we're you know notwithstanding the fact that it <unk>.

Speaker Change: It takes a year or two for that to manifest even if it does happen.

Speaker Change: We think theres a high probability that this thing could be retained but we don't have we don't have formal.

Speaker Change: Messaging on and.

Speaker Change: In any way from from our bank partner or other government I just I just would tell you that we know this is a lot more complex.

Speaker Change: And then on the surface.

Speaker Change: Okay and then the last thing for me. It's certainly when you are looking at the work that you have there and sort of getting too.

Marc Riddick: Okay, and then the last thing for me, it's certainly when you're looking at the walk that you have there and sort of getting to certainly reduce leverage and the like. Can you sort of maybe talk about, and it might be a little early for this, but maybe future thoughts on returning capital to shareholders and sort of, you know, whether that would take the form of, you know, thoughts around the potential dividend share repurchase, that type of thing? Early thoughts or thoughts on sort of when you sort of get to the other side of the walk, and how that might evolve. Yeah, yeah.

Speaker Change: Certainly.

Speaker Change: <unk> leverage in the life can you sort of maybe talk about and it might be a little early for this but maybe.

Speaker Change: Future thoughts on returning capital to shareholders and sort of what.

Speaker Change: Okay.

Speaker Change: Performance.

Speaker Change: Hum.

Speaker Change: Thoughts around the potential dividend share repurchase that type of thing or any thoughts.

Speaker Change: Early thoughts on sort of when you start to get to the other side of the walk through how that might evolve.

Speaker Change: Yeah, Mark I'll take that so if you think about $1 billion of.

Stephen Wood: Yeah, Mark, I'll take that. So if you think about the billion dollars of deployable capital that we've talked about generating and deploying, and you know, we're 66% through that. But if you piece together the various comments that we've made and think about debt that we've already prepaid, authority to pay down more debt that we've got from the board, the repurchase of the ICON shares, and then the other share repurchases that we've been making, we're sort of upwards of $880 million of that billion dollars already earmarked, I would say, for deployment. So there's about 120 to 140 million to go that we haven't been declarative on yet.

Speaker Change: Global capital that we've talked about generating and deploying immuno with 66% for that but if you piece together the various comments that we've made and think about.

Speaker Change: That we have.

Speaker Change: <unk> already prepaid authority to paying down more debt.

Speaker Change: But we've got from the board.

Speaker Change: The repurchase of the Icahn shares and then the other share repurchases that we've been making.

Speaker Change: Sort of upwards.

Speaker Change: $880 million of.

Speaker Change: That $1 billion already.

Speaker Change: Sort of earmarked I would say for deployment, so there's about $120 million to $140 million to go.

Speaker Change: That we haven't been declared evolve and so right now I feel that we're pretty good being in that situation I think we've got to work through the remainder of the divestitures and get that stuff done.

Stephen Wood: And so right now, I feel that we're pretty good being in that situation. I think we've got to work through the remainder of the divestitures and get those things done. Clearly, we've got to, which is kind of reflected in how we're thinking about the second half of the year, we've got to get operating cash flow moving in the right direction. And then, you know, we've got about 120 million that at some point in the medium term, short to medium term, we'll be able to start thinking about deployment.

Speaker Change: Clearly, we got to which is kind of a resident in how we're thinking about the second half of the year, We've got a GAAP operating cash flow moving in the right direction.

Stephen Wood: But I think we feel pretty good about having allocated and earmarked, you know, around 880 million of that, reducing the leverage, giving out, you know, a target, you know, Net Leverage Ratio of one term, and obviously, we've made pretty significant strides to reduce the share count. So, that's the way we feel about it right now. We feel pretty comfortable about where we are, but obviously, there's a little bit more to come as we get through the next few quarters.

Speaker Change: And then we've got about $120 million at some point in the.

Speaker Change: The medium term short to medium term, we will be able to start thinking about deployment, but I think we feel good right now with the path to generating $1 billion and I think we feel pretty good about having allocated and earmarked around $880 million of that.

Speaker Change: Reducing the leverage giving out target.

Speaker Change: Net leverage ratio of one turn and obviously, we've made pretty significant strides strides to reduce the share count. So that's the way we feel about it right now we feel pretty comfortable about where we are but obviously theres a little bit more to come.

Speaker Change: As we get through the next few quarters and I think that's right and I think.

Clifford Skelton: Yeah, I think that's right. And I think, you know, a lot of those are certainly board decisions. And what I would say is, Steve's got it exactly right. In the near term, we're going to stay the course that Steve outlined.

Speaker Change: Well those are certainly board decisions.

Speaker Change: And what I would say as Steve has got it exactly right in the near term, we're going to stay the course at Steve outlined.

Speaker Change: Excellent. Thank you very much.

Marc Riddick: Excellent. Thank you very much.

Speaker Change: Paul.

Speaker Change: Thank you. Our next question comes from the line of Gauci Street with singular research. Please proceed with your questions.

Operator: Thank you. Our next questions come from the line of Gaushi Sri with Singular Research. Please proceed with your question.

Gaushi Sri: Good morning, guys. Can you hear me?

Gauci Street: Good morning, guys, Hi, can you hear me yes.

Unknown Executive: Yep, gotcha. Thank you. In the last call, I think you mentioned healthcare as a sector where you see increased outsourcing. Is that the only sector you wanted to highlight, or is it across the board that you're seeing an increased interest in outsourcing?

Speaker Change: Got it. Thank you good luck.

Speaker Change: Hum.

Speaker Change: Previous call I think you mentioned.

Gauci Street: Canada as a sector, where you are seeing increased outsourcing is that the only sector you wanted to highlight.

Speaker Change: Is that across the board you are seeing an increased interest in outsourcing.

Clifford Skelton: We're seeing this certainly in healthcare, certainly in logistics. Certainly anywhere where they, in turn, are being squeezed, from an efficiency point of view, we're starting to see an increased interest in outsourcing, and not just outsourcing. In many cases, refinement of the outsourcing relationships we already have and an increased appetite, believe it or not, for nearshore and offshore capabilities, which is obviously where the margins are quite a bit stronger for us, and we'd be far more interested in pursuing. The product spectrum of certainly CX, but also scanning, indexing, some FANP, but we, you know, I would say primarily healthcare and logistics. But I don't think it's contained only in those two.

Speaker Change: Look we're seeing we're seeing certainly in healthcare certainly in logistics.

Speaker Change: Certainly anywhere where they in turn are being squeezed.

Speaker Change: From an efficiency point of view, we're starting to see.

Speaker Change: Increased interest in outsourcing and not just outsourcing in many cases refinement of the outsourcing relationships, we already have and an increased appetite believe it or not for near shore nearshore and offshore.

Speaker Change: Capabilities, which is obviously where the margins are.

Speaker Change: Quite a bit stronger for us and we'd be far more interested in pursuing and that's across.

Speaker Change: The product spectrum of certainly CX.

Speaker Change: But also scanning indexing some F A&P.

Speaker Change: But I.

Speaker Change: I would say, primarily healthcare and logistics, but I don't think it's contained only to those too Steve.

Stephen Wood: Yeah, I think, Gaushi, the other thing I would add is think about, kind of, Cliff's remarks about how we're seeing new opportunities to deploy some of the solutions that we've traditionally thought about commercial solutions in the into, you know, our public sector markets. And so I think we think of that as an interesting, you know, market adjacency that's where we're seeing, you know, a good fit for some of the solutions that we've traditionally thought of as being just in the commercial market.

Speaker Change: I think I think <unk>. The other thing I would add on is to think about on a close remarks about how we're seeing new opportunities to deploy some of the solutions that we have traditionally thought about commercial solutions in the into.

Speaker Change: Public sector markets and so I think we think of that as an.

Speaker Change: Interesting market adjacency, that's where we're seeing good fit for some of the solutions that we've traditionally thought of as being just in the commercial market.

Stephen Wood: And I think, you know, in addition to logistics and healthcare, we've got kind of a strong, we've always traditionally had strong positions in the travel and entertainment sector and also in the automotive sector. And so I think we're seeing that propensity to address cost and transformation pretty broadly across many of the verticals that we operate in. Clifford Skelton, Stephen Wood, Unknown Executive, Giles Goodburn, Patrick McCann, Conduent, Inc. That's a really good point that I think one of the secret sauces here, gauchos.

Speaker Change: <unk>.

Speaker Change: In addition to logistics and health care, we've got kind of strong.

Speaker Change: <unk> has strong positions in the travel and entertainment sector and also in automotive and so.

Speaker Change: I think where we're seeing we're seeing that propensity to to address cost and transformation pretty broadly across many of the verticals that we operate in that's a really good point I think one of the secret.

Speaker Change: Sauces here she is.

Clifford Skelton: To stop thinking in silos in terms of product suites and sectors. In other words, you know, we have massive call center capabilities that could be deployed in the public sector. We have accounts payable and procurement capabilities that state and local governments need. There is a lot of there's a lot of cross functionality here that has not been tapped. So I think, you know, it's not confined or contained to any one industry and also involves the public sector. So it's, it's coming from everywhere. We just got to; we just got to execute on it.

Speaker Change: Stop thinking in silos in terms of product suites and sectors in other words.

Speaker Change: We have massive call center capabilities it could be deployed in the public sector, we have accounts payable and procurement capabilities that that state and local governments need.

Speaker Change: There are a lot of there's a lot of cross functionality here that heretofore has not been tapped so I think.

Speaker Change: It's not confined are contained to any one industry and it also involves some public sector. So.

Speaker Change: It's coming from everywhere, we just got we just got to execute on it.

Speaker Change: Okay.

Gaushi Sri: Okay. You also mentioned that when clients are considering offshoring to countries that they hadn't previously considered, what new geographic markets are emerging as attractive outsourcing destinations, and do you guys have capability in those regions?

Speaker Change: You also mentioned that when it signs of considering a loss sharing to countries that they hadn't previously considered what's new geographic markets that are emerging as attractive outsourcing destinations.

Speaker Change: Do guys have capability in that in those regions.

Clifford Skelton: I think there's a little bit of, and Steve can, you know, Steve runs a lot of our geographies in terms of country managers, so I'll let him comment as well, but I think there's some experimentation going on.

Speaker Change: Well I think theres, a little bit of it and then Steve can Steve runs at a lot of our.

Steve: Geographies in terms of country managers, so I'll, let him comment as well, but I think there are some experimentation going on I mean, there is.

Stephen Wood: You know, there are quick looks at places like South Africa and Egypt. But you know, I don't think there's any widespread movement in those directions. The traditional places remain strong. The Philippines, for example, remain strong. India remains strong. We've got a large presence in Guatemala and Jamaica. And so, you know, I think we're seeing certainly some growth in the Philippines, for sure, and a resurgence in India. But Steve, what do you think? Yeah,

Steve: Theres quick looks at places like South Africa and Egypt.

Steve: I don't think Theres any widespread movement in those directions. The traditional places remained strong Philippines remains strong India remains strong we've got a large presence in Guatemala in Jamaica.

Steve: And so.

Speaker Change: I think we're seeing certainly some growth in the Philippines for sure.

Steve: And a resurgence in India, but Steve what do you think.

Stephen Wood: Yeah, only a little bit really to add there. I think that's right.

Steve: Yes, only a little bit really to add though I think I think that's right I think the key clearly is to have a mix a mix of <unk>.

Steve: Initial capability, an offshore capability and I think we like our geographic mix.

Stephen Wood: I think the key clearly is to have a mix of nearshore capability and offshore capability, and I think we like our geographic mix. I think, as I said in my remarks, we're adding some capacity in a couple of places there because we're seeing an increase in demand. I think there can be a tendency to want to go off and explore.

Steve: I think.

Speaker Change: As I said in my remarks with <unk>.

Speaker Change: We're adding some capacity in a couple of places that because we're seeing increase in demand.

Speaker Change: I think there is.

Speaker Change: That can be a tendency to want to golf and explore.

Stephen Wood: Slightly more esoteric geographies, but I think the key to our business is building scale in key markets and driving cost efficiency in those locations, which is what we're focused on. And so I think we're very happy with our geographic mix. I think it's a nice balance. And, you know, we're seeing continued demand for those geographies.

Speaker Change: Slightly more esoteric geographies, but I think the.

Speaker Change: The key in.

Speaker Change: And our business is is building scale in key markets.

Speaker Change: Driving cost efficiency in those locations, which is which is what we're focused on them. So that we're very happy with our geographic mix I think it's a nice balance.

Speaker Change: And.

Speaker Change: We're seeing continued demand for those geographies.

Speaker Change: Okay.

Speaker Change: Okay. Thank you.

Stephen Wood: Thank you. Just one last question. Since I'm relatively new to this name, just in case, I'm trying to understand how a typical revenue model with the Gen AI Microsoft collaboration would work, what a typical engagement would be like, and how does that collaboration revenue model work for you?

Speaker Change: One last question.

Speaker Change: So is that relatively new to this just in case I'm trying to understand how would a typical revenue model with our with the journey II, Microsoft collaboration work well.

Speaker Change: What would a typical engagement be like and how does that collaboration revenue module work for you.

Speaker Change: It all starts with the go to market.

Speaker Change: <unk> look I mean, as you know <unk> takes a lot of compute power, which means data centers being built everywhere and a lot going into the public cloud and specifically azure and so Microsoft's interest in.

Speaker Change: In the partnership.

Clifford Skelton: Which, by the way, is very early in terms of what we hope to achieve, would be, look, the more business we get, the more business they get, because the business is going to be hosted in the public cloud, in Azure, and so that's a growth strategy for the company, for their company. In our case, we want to get more Gen AI out in the marketplace, and we want to prove that our products can be enhanced with AI.

Speaker Change: Which by the way is very early in terms of.

Speaker Change: Of what we hope to to achieve would be look more business, we get the more business they get because the business is going to be.

Speaker Change: Hosted in the public cloud and Azure and so that's.

Speaker Change: That's a growth.

Speaker Change: Strategy for the company for their company and in our case, we want to get more we want to get more generic in the marketplace and we want to prove that our products can be enhanced.

Clifford Skelton: So with AI, gen AI, so it's not like there's an exchange of revenue back and forth. It's basically, you know, it's basically, we both win at the same time. I don't know if that got to what you were after, Gashi, so maybe ask it again if I didn't answer it exactly. I think...

Speaker Change: With <unk> with AI is gen AI, so its not its not like Theres, an exchange of revenue back and forth.

Speaker Change: It's basically.

Speaker Change: It's basically we both win at the same time.

gassy: Sort of the model I don't know if that got to what you were after gassy. So maybe ask it again, if I didn't answer it exactly.

Speaker Change: I think I understand that's all I had for right now. Thank you guys for taking my question.

Clifford Skelton: I think I understand. That's all I have for right now. Thank you guys for taking my question. Sure.

Brian: Sure Brian Thanks.

Speaker Change: Okay.

Operator: Thank you. This does conclude the question and answer session, and with that, today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Speaker Change #100: Thank you. This does conclude the question and answer session and with that concludes today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

Speaker Change #100: [music].

unknown: Please See The Complete Series Exclusively On www. SaiLink.com