Q2 2025 Conduent Inc Earnings Call
Greetings, welcome to conduits second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the form of presentation, any once require operator assistance, during the conference. Please press star zero on your telephone keypad,
Please note this conference is being recorded. I will now turn the conference over to David, Chad, VP of investor relations. Thank you. You may begin.
Thank you, operator. And thanks everyone for joining us today to discuss conduits. Second quarter 2025 earnings.
I am joined today by Cliff Skelton, our president and CEO and Giles Goodburn our CFO.
This call is being webcast, and a copy of the slides used during this call, as well as the press release filed with the SEC this morning on Form 8-K, is available on the Investor Relations section of the Conduent website. This information, as well as the detailed financial metrics package, are available there.
During this call, we may make statements that are forward-looking these 4 looking statements, reflect Management's, current beliefs assumptions, and expectations, and our subject to a number of factors that may cause actual results to differ, materially from these statements,
Information concerning these factors is included in conduit's, annual report on form. 10K filed with the SEC.
We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law.
The information presented today, includes non-gaap Financial measures because these measures are not calculated in accordance with us, gaap, they should be viewed in addition to and not as a substitute for the companies reported results.
For more information regarding definitions of our non-gaap measures and how we use them, as well as the limitations to their usefulness. For comparative purposes, please see our press release.
And now, I would like to turn the call over to Cliff.
Thank you, David. And thank you everyone for joining condo and Q2 2025 earnings call.
As always I'll Preamble the quarter turn on over to Jal for the detailed numbers and I'll close with some comments about the market changing landscape in public and Commercial sectors. And some strategic thinking, regarding our optimistic view of the rest of the year and into 2026.
Q2 is by and large right down the middle of the Fairway for us. Revenue for the quarter was slightly up sequentially at 754 million in line with our expectations with another solid quarter of adjusted Eva at 37 million and 4.9% of adjusted even a margin exceeding expectations up your on year and flat sequentially in a quarter. Usually representing the low point in the year.
Before Jaws gets into the detailed financials. Let me just confirm that our portfolio. Rationalization efforts remain on track.
Without getting too explicit. I can say that. Work is definitely underway.
We feel good about our sales performance, especially in the public sector. With an overall, ACV of 150 million up year-over-year and quarter over quarter.
Q3 will be an important quarter for us in sales. And we're expecting improved performance from our commercial segment as some deals move to the right from Q2.
In the quarter, we signed 8 new logos expanded relationships with 22 existing clients.
And renewed several contracts, including the Direct Express contract supporting the federal government as a sub to a leading financial institution.
The other good news here is that we're seeing an increase activity and sales opportunity in our transportation businesses.
Both tolling and Transit.
And our pipeline is strong in government as well.
Improvements.
We remain convinced that while Ai and gen AI are obviously here to stay and will continue to morph.
And the BPO space its primary focus is on using AI as an enhancement, not a replacement.
As was said, by a prominent aico, recently AI isn't seen as a replacement for people.
But more as a competitive Advantage for those individuals who utilize AI.
He went on to say more, people are going to be able to do more things.
That's effectively what we're seeing.
AI is opening doors to enable us to do more things at higher quality with fewer mistakes, potentially driving margin enhancements with a better end user experience.
Technology is definitely moving faster than risk tolerance in some areas but we will continue this journey with open minds for sure.
Finally, as part of our orderly sequencing, we elected a new chairman of the board Harsha Gotti.
Harsha joins the board and the chairman role at a strategic point in time where his experience will be put to good use.
We're certainly thankful for Scott lear's leadership over the past 4 years and she transitions from chairman to Leading the audit committee among other roles on our board.
Regarding the rest of the year. Giles will be a little more explicit but we're intently focused on meeting. Previously mentioned expectations.
As you know, in this business Revenue can be a bit lumpy. However, margin is more controllable.
We expect to hit the high end of ibida.
And margin and expect to meet Revenue expectations.
Let me turn over the dialogue to Giles to take you through the detailed financials Giles.
Thanks cliff.
As has been done in the past with reporting, both GAAP and non-GAAP numbers.
The reconciliations are enough filings, and in the appendix of the presentation.
Let's discuss the key sales metrics on slides, 5 and 6.
We signed 150 million of new business. ACV in the quarter up 6% versus the prior year and 38% sequentially.
First half 2025 new business. ACV is up 9% versus the first half of 2024. And we positioned for strong year-over-year. ACV growth in the second half of 2025.
All 3, business segments, demonstrated sequential new business ACV. Growth this quarter.
with each business segments, closing a deal of at least 10 million ACV in the quarter,
New business tcv was up 21% versus the prior year at 331 million.
And distributed relatively equally across the segments.
Renewals in the quarter were solid.
And included the direct express program, Cliff mentioned earlier.
the net ARR, activity metric, our combined measure of wins losses, pricing effects and other contractual changes was positive at 63 million
Our qualified ACV pipeline remains, strong at 3.3 billion which is up 5% year-over-year and 6% since the beginning of 2025.
Which positions us well to achieve the second, half year-over-year, ACV, growth and will drive Revenue growth across all segments in 2026.
Let's turn to slide 7 and review our Q2 2025, pnl metrics.
Adjusted revenue for Q2 2025 with 754 million compared to 774 million in Q2 2024 down 2.6% year-over-year.
Well, Transportation achieved Revenue growth, this quarter, the decline was driven by our commercial and government segments, which are discussing more detail in a moment.
Adjusted ibida for the quarter was 37 million as compared to 24 million in Q2 2024.
And our adjusted ibida margin of 4.9% is up 180 basis points year-over-year.
Which was driven by excellent progress we have made in one of our large transit contracts.
The first half of the year has delivered stronger margins than we had originally planned and sets us up well for the second half of the Year where we will benefit from the continued progress in our cost efficiency. Programs price increases in a couple of our larger contracts, as well as the traditional seasonality, we experience in the second half of the year
All of which will contribute to our progression towards the previously, communicated exit rates.
Let's turn to slide 8 and review the segment results.
Was 365 million down 5.9% as compared to Q2 2024?
New business continues to outpace Lost business in this segment. However, similar to q1, we continue to experience volume degradation in our largest commercial client, which is a significant contributor to the lower revenues.
Adjusted. I was 27 million and the adjusted. Even a margin of 7.4% was down. 190 basis, points year-over-year.
But the drivers here were lower Revenue.
higher Talent, acquisition costs supporting new business signings as we grow into the expanded delivery footprints in the Philippines and India
and high usage of centralized technology costs.
Adjusted revenue for the quarter, was down 2.9% at 238 million.
Decline is attributed to the impacts associated with completing or extending several implementations.
However, new business has now started to outpace loss business in this segment.
Adjusted ibida was 60 million and increase of 22% year-over-year with adjusted, even a margin of 25.2% up to 520 basis points versus Q2 2024.
The drivers here resulted from our AI initiatives and efficiency programs resulting in lower fraud, labor and Telecom expenses.
Transportation segment, adjusted Revenue was 151 million and increase of 7.1% year-over-year.
While adjusted EA was 8 million in the quarter and adjusted, even a margin was 5.3% for the quarter up 320 basis point versus Q2 2024.
This was driven by the outcome of a couple of significant events achieved in a large Transit contract.
These significant events achieved in the first half of the year related to our large Transit contract in Australia.
Firstly, we signed an amendment to the contract, which included additional scope. And, secondly, we repurchased the non-controlling interest in the joint venture that delivers the client contractual obligations.
This allows us to execute more efficiently and resulted in a positive, catch up, adjustment in the quarter.
Unallocated costs were 58 million for the quarter versus 64 million in Q2 202024.
The Improvement here is driven by a cost efficiency programs in our corporate functions.
Let's turn to slide 9 and discuss the balance sheet and cash flow.
We ended the quarter with approximately 294 million of total cash on balance sheet and at 550 million revolving credit facility was largely undone.
We are currently in the process of refinancing our revolving credit facilities which we expect to have finalized in the very near future.
On April the 30th, we received the final payment of 50 million relating, to the curbside management and Public Safety dome, which completes the receipt of proceeds from Phase 1 of our domestic program.
Our net leverage ratio remained at 2.7 turns this quarter.
We see this is the high point in our journey and forecast. This ratio to begin to reduce in Q3 and sequentially again in Q4 in line with that forecasted Improvement in adjusted ebita.
Capital expenditure for the quarter was 3.1% of Revenue in line with expectations.
In the quarter, we launched a new 3-year share buyback program for an aggregate of Millions.
During Q2 we repurchased, approximately 2.7 million shares at an average price of $2.70.
Let's turn to slide 10 and look at our 2025 Outlook.
Given the stronger than planned adjusted. Even a margin in the first half of the year and the confidence. We have in our Outlook, we have increased, the midpoint of our guided full year adjusted at IBA, margin range to between 5 and 5 and a half percent.
As for Revenue.
While we are confident, we will demonstrate year-over-year Revenue growth in the second half of this year.
We will fall slightly short of revenue growth on a full-year basis and have adjusted our full-year adjusted revenue guidance accordingly to between $3.1 billion and $3.2 billion.
RX, our 2025, exit rates, remain intact. And at this point can be used as a proxy for 2026.
Expectations for Q3 2025 are as follows.
We expect adjusted revenue to be sequentially higher than Q2, but slightly below Q3 2024.
A sequential Improvement versus Q2.
We continue to expect a post Topline growth in the second half of the year and margin to expand as we work through our cost programs.
These outlooks have not been adjusted for any Phase, 2, divestiture activity, and therefore are representative of the company as it exists today.
Turning to slide 11. We can continue to make progress with Phase 2 of our portfolio rationalization strategy with a couple of transactions working through the marketing phase
We incrementally increase the total number of shares repurchased to 64 million.
And are confident and achieving the billion dollars of capital deployment, we committed to in early 2023.
That concludes the financial review of second quarter 2025 and if you now turn to slide 12, I'll hand it back to Cliff for his broader view on the business cliff.
Thank you, Charles, before we open it up for analyst questions, I'd like to share some thoughts, on our business strategy, and our optimistic View for the future.
Look in our simplest sense. We said and continue to say that will tell you what we're going to do and then we'll do it.
Q2 financials are yet. Another example of upholding, our execution promise.
We'll continue to do just that.
We previously said we pursue an optimized portfolio. We have an R
We'd improve culture, operations, and technology.
We've done so evidenced by Awards by Newsweek as well as other culturing industry analysts Awards and dramatically improved retention as well as technology uptime.
We pay down debt, we have and will continue to do so.
Would you use available capital in a balanced way?
We have and continue to also buy back shares.
We'd improve margins and cash flow as we move out of the 2024, trough
We have done so and will continue to do more in 2026. As we hit those 2025 exit rates we described.
We'd upgrade our talent with folks that have been there done that. We have
And we recently bolstered talent and commercial administration and finance.
We'd take cost out of the center we have and will continue to do even more of that.
We said we'd leverage new government expectations.
We've done that, especially in our transportation businesses, both tolling and Transit. And in the government fraud categories, where we expect to see some more enhancement.
Finally, we said we'd use AI to strengthen our capabilities.
We have evidence by what we're seeing across the quality efficiency and end-user experience outcomes.
In fact, we'll soon have a customer client, AI experience Center to enable further ideation and innovation in the AI space.
Regarding AI 1 of the underappreciated features of conduit is that we manage end-to-end business, processes for our clients, and most of our Solutions are delivered using conduits proprietary Technologies and platforms.
This uniqueness removes some risk of substitution from Ai and in fact, allows us to leverage AI to create differentiation in our Solutions.
And to create new adjacencies such as our fraud solution for account Takeover in the government space.
Finally.
What we are seeing in the business process, Outsourcing and Technology Services Market.
Is the juxtaposition of uncertainty and optimism.
There's continued uncertainty.
in tariffs, and what it means for organizations or will mean
Ai and exactly how organizations should capitalize on it.
government and legislative changes and what they mean or will mean
The economy and inflation and where things are headed.
Interest rates and unemployment, and how to react yet. The market is blossoming for many and companies, see the green shoots of opportunity in all these factors.
Innovation is still valued.
Customers come first and most clients remain optimistic.
The fundamentals still matter. So we're sticking to them.
Transformations, take some time, but here at condo, we are on track at this stage. We have to stay consistent in saying what we'll do doing it. And continuing to tell our story,
I hope you all hang in there with us on this journey because it's working.
There always puts and takes along the way. But again, the plan is working
The expectation is clearly around growth cash, flow margin, lower debt, and shareholder sentiment. We can be proud of
As always, our Associates will continue to work hard on our clients and their end users. It's never perfect. Will we strive for excellence every day?
Thank you for listening. We'll now open it up for questions, operator.
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Our first questions come from the line of Pat McCann with Noble Capital, please proceed with your questions.
Hey, congrats, and thanks on the quarter. And uh, thanks for taking my questions. Uh, my first question had to do with the, uh, the big beautiful bill. I was wondering if you could, uh, give any comments there. Uh, as far as any potential impacts to the business, uh, particularly around the stamp, uh, program, it seems like, maybe we can finally, uh, put some of that on certainty around, uh, uh, budget cuts and so forth, uh, behind us with regard to, to the business. So, I'm just curious. If you could, uh, give a give a little bit of color there.
Thanks B. Yeah, listen the the big beautiful bill at this stage.
Is more ideation than execution. Uh, I mean, it's coming
But, uh, we we see more opportunities and we see impediments, but it's, it's, it's uncertain. So if you look at some of the, the work requirements, some of the residency requirements, Etc, that work has to be done by somebody. So regardless of whether you believe that Medicaid spending is going down or not going down that sort of irrelevant to to our business, uh, 1 way or the other. What's relevant to our business is whether we can capitalize on these new requirements.
And how we uh, assess the, the implementation of those requirements, on behalf of our clients. So like I said, it it's, it's uncertain at this stage. Um we we do believe that there are some fraud reduction opportunities both in snap and in in our open loop systems. Uh again those are being rolled out regardless of the big, beautiful bill. So if anything we as I said in my commentary, some of the green shoots of opportunity or resident within the bill. But the full implementation is not is not been enacted yet that you know, in a way that we can monetize.
And and with regard to the commercial segment, could you talk a little bit about what our maybe the largest drivers of uh the new business signing, uh, momentum?
It's been pretty pretty consistent where we, you know, across our new logo or new capability and our add-on. I would say we we're doing more in the new, new logo, new capability Arena, uh, in terms of performance on a relative basis. We've got to get our account managers, um, hitting a stride in terms of that add-on, because that's where the impact Revenue comes from meaning Revenue. That's produced, you know, within the year that you, you sell. Uh, so we're seeing pretty even consistency. I'd like to see better performance out of the account management team, uh, we're seeing, as I said, good performance out of the new logo, new capability on a year-over-year basis, but across the board in commercial. We see an optimistic Q3 and, um, we we've got a, we've got to hit our stride in all 3 of those categories.
Great. And then, and then, finally, I was just curious with regard to, uh, with regard to the rationalization efforts. You mentioned. There are a couple of, uh, potential news items in, uh, in process right now and I was wondering timing-wise, could you give any more information in terms of should we expect any new? You know, be between now and the end of the year or you know if there's any additional framing, you could give that would be great.
Yeah, thanks for the question. Pat, I don't want to get, too far out over my skis on this 1. Let me, let me just say that there is work underway. As we've said in the past, um, we're looking to, um, find ways to improve the balance sheet, improve uh, cash flow, improve margins, and whatever. We do kind of hits the mark, in those. In those areas. We, we think there are opportunities, um, across the portfolio, some more, um, closer to the book than others.
So, uh, let me just say that there's work underway without being more explicit. Do I think something's going to happen by the end of the year? I certainly um hope so and believe. So
Great, thank you so much.
Thank you. Our next question is come from the line of galaxies Street, heart with singular research, please proceed with your questions.
Uh, good morning guys. Can you hear me?
Yeah, if you look at what we're doing, in AI.
In the past, I've said that Ida I AI was sort of um in preparation mode. We're now in execution mode across 8 key initiatives where we're actually in production and fraud is 1 of those in the government space specifically in our open loop system which we're now trying to migrate to our closed loop snap uh solution. But we're seeing, you know, we're not talking to clients that are saying, give me AI, give me a AI. What we're seeing is clients saying, give me efficiency. Give me quality improvement. Give me process Improvement, and AI is a good way to do it. We've got it, um, in our customer facing, um, environments like life at work. Uh, We've we've got, um, across our transportation business, as I mentioned, the government fraud.
Pharma, uh, and certainly like everyone else in our context centers, we're we're seeing a lot of, uh, a lot of AI improvements around voice translation, uh, around improved ivrs, Etc. So, the the real answer is, it's, it's everywhere and process improvements in our scanning and indexing. Uh, and it's, it's, as I mentioned in the commentary, it's here to stay. Now, the question is, how do you we're not? We're not an AI company. We're, we're an implementer of AI technology to try and improve that Improvement in quality efficiency and that end user experience. So,
It's it's across the board gashi. I know 1 area, including fraud is any more important than the others.
Okay.
and and on the regulatory um industry developments as Medicaid redetermination Cycles snap fraud crackdowns
You do you think the market is substantially underestimating? This as a revenue Catalyst to the next 6 to 12 months?
Uh, it's a good question. Um,
it's it's an unknown answer at this point. Um, I believe, as I said earlier, There's real opportunity. Um, you know, the, the states can't do the work by themselves. They have to, they have to Outsource that work to folks like us.
Uh, they can't determine eligibility, they can't determine work requirements. So they can't uh determine residency, requirements without phone, calls, and emails and chats, Etc. And that's what we do on behalf of the states for the El, for the Medicaid Eligibility work. So,
The answer to your question should be yes.
But, you know, it all is contingent upon how States, roll out the implementation of and the speed at, which they roll out the implementation of these of these regulatory requirements that have been pushed down by the federal government.
Okay, okay. And, and, and for talent acquisition use, you know, you've highlighted Newsweek's Most Loved Places. Have you seen materially lower attrition rates for critical roles? And, or is the wage pressure still an offsetting factor? Because I think you mentioned that as you scale new offerings.
Yeah, it's a great question there. I, I would say the the wage pressure is, is more muted than I would have said a year ago. Uh, our retention is improved, our attrition, is, is lower than it was on a consistent basis. Yet what we, we grade for lack of a better way to, to orient people. We, we have 12 grades in our, in our upper grades. With, let's say, 9 through 12, which are the most senior folks, in our company, we've seen much lower attrition, uh, but Talent is always competitive. Um, the money will always matter, uh, culture will always matter.
And we're, we're never going to stop trying to, to get the best talent we can. In order to do the best job we can. And we've, uh, as I mentioned earlier, we've done a lot of work in our commercial space. Especially, we're doing work in our public sector space. Uh, and so the talent is is critical, but the the direct answer to your question is yes. We've seen uh, we've seen some some lower attrition and some some uh, muted um, salary expectations compared to the way it was a year ago.
I'll make this my last question. Um, given that, uh you guys I know inflection point with the ongoing portfolio actions, uh and a stated goal of unlocking shareholder value. What what should be investors watch for in terms of the Strategic shift in the board driven initiatives under the star guidance chairmanship,
Oh, let me go first. And then for Joe, has any monetary implications looked?
Um, we're constantly examining the board constituency. We're, we're constantly examining the right experience base for for potential board members to make sure we've got the right team on the field. Um, I will say that Scott Lair has done a fantastic job, leading and mentoring in some very tough times, including when, when um, the icon folks were in the, in the, in the stock. So, um, we're very, we're very appreciative of that hard work but after 4 years, you know, it was time to start. Um, changing things out. The new chairman comes with lots of experience.
4 5 6 times as a CEO um you know big investment profile um several boards, including chairmans of several big companies
To include a a claims company, an Oiler serving company, Etc. So, uh, we're, we're pleased with where we are. Uh, we're not done looking at opportunities in terms of board constituencies, but I wouldn't expect any significant outcomes strategically or otherwise from the move.
Yeah, I think I think the next objective to remain the same um you know we've got to we got to complete Phase 2 of the uh, portfolio rationalization um, you know, continue to improve our, our margin sequentially. Um and then, you know, balanced approach to the uh to the capital as as it comes in from the diversity and how we deploy it.
Thank you so much. That's all I have. Thank you guys and good luck. Thanks, thank you.
Thank you. Our next question is come from the line of Mark, Riddick with sidonian company, please proceed with your questions.
Good morning.
start, maybe I I think
Your efforts to gain a greater share of wallet. Maybe could give a little a little bit of an update there as to to what you're seeing with with those efforts, as well as maybe, um, how that sort of plays out with, um, the, the competitive, uh, landscape and maybe what you're seeing there.
Yeah, Mark I think, um, you know, Cliff alluded to this a little bit earlier, but some of the Investments that we've made in the commercial space, um, with new leaders in our client partner strategies, um, over the last 2 quarters, um, you know, we we've we've, um, written. I think it's over 40, new capabilities, with existing clients, which is expanding, share a wallet with with some of the bigger bigger clients that we have in the in the commercial space. So so we see early shoots of that working and we've certainly got aspirations and expectations of a continuation of of of driving um, new capabilities in our existing client Place client bases, we move into Q3 and Q4. So, you know, I think I think that piece is working. We just need to, we just need to see more of it. Yeah. I mean this land and expense.
Van kind of methodology. That tells just alluded to is, is the secret sauce in the commercial space specifically with respect to new capabilities.
But, you know, the the share of wallet has 2, 2 forms to it. Of course, the products and services, which we are increasing on a on a per client basis.
From the, you know, the neighborhood of the 1.5 1.6 up to towards.
2 products per client, obviously the bigger, the client, the more products, the smaller, the client, the fewer. Uh, but that's, that's 1 component of the of this share wallet is really important. The other component is this is a volume driven business in many cases. And so, once we, once we're a resident with a client, we've got to retain as much of that volume as we can. And some of that is epic based on on the economy, uh, you know, uh, just on the environment, some of it's based on performance. And so that's why operational stability is so important to us. And we work hard every day to make sure that that technology up time. That the operational stability is solid because clients have choices and they can move volume around. We're not the only partner out there that they can give the volume to. So it's both it's we got to get in and sell, we're going to drive more, uh, share of wallet from a, a product perspective, but we got to retain those clients in that volume, uh, irrespective of what happens in the economy. So we're we're doing both as
As hard as we can. Anyway,
Great. And then I wanted to um I think you're prepared remarks uh, because you made mention as far as um some commercial activity that you I I think you you're expecting to ship out of that you think s*** out of Q2 into maybe Q3 or the remainder of the Year. Could you give us maybe a little color?
Some of that and was you.
Get the sense that that was just kind of more, uh, delayed.
Oh well, this 1 hits it's going to be the big 1. It's that's that's not what I was referring to. But there are lots of uh it it. Mike McDaniel are ahead of commercial. We're here, he'd tell you. There are lots of deals that he and his team are working that um, are very close to signing where we have. We have, um, the spirit and intent and sort of verbal commitment to get these deals. And some of those, um, are just pushing to Q3. And that's why we're expecting a better performance out of commercial. In Q3, I was speaking specifically to, to commercial. Uh, we also have to do, um, a little better job in government in, in uh, Transportation has been going well, government is also pushed to the right, a little bit, with a very solid pipeline. Those contracts take longer to execute and so, we're expecting more out of the government team in the second half of the year as well.
Great, thank you very much.
All right. Thanks Mark. Thanks both.
Thank you. We have reached the end of our question and answer session. And with that, ladies and gentlemen, we appreciate your participation. This does conclude today's teleconference
Please just connect your lines at this time and enjoy the rest of your day.