CONDUENT Inc Q2 FY2025 earnings call

• Portfolio rationalization efforts remain on track. - Sales performance in public sector had an overall ACV of $150 million, up year-over-year and quarter-over-quarter. - Signed 8 new logos, expanded relationships with 22 existing clients, renewed several contracts including Direct Express. - Increased activity and sales opportunity in transportation businesses. - Rolled out AI initiatives across various areas. - Elected new Chairman of the Board, Harsha Agadi.

Commercial segment: Adjusted revenue was $365 million, down 5.9% year-over-year. Adjusted EBITDA was $27 million with a margin of 7.4%, down 190 basis points year-over-year. Government segment: Adjusted revenue was $238 million, down 2.9% year-over-year. Adjusted EBITDA was $60 million, up 22% year-over-year with a margin of 25.2%, up 520 basis points. Transportation segment: Adjusted revenue was $151 million, up 7.1% year-over-year. Adjusted EBITDA was $8 million with a margin of 5.3%, up 320 basis points.

• Raised the midpoint of the guided full year adjusted EBITDA margin to between 5% and 5.5%. - Adjusted full year adjusted revenue guide to between $3.1 billion and $3.2 billion. - Expect Q3 2025 adjusted revenue to be sequentially higher than Q2 but slightly below Q3 2024, and adjusted EBITDA margin to be in the range of 5% to 5.5%.

Q: My first question had to do with the Big Beautiful Bill. I was wondering if you could give any comments there as far as any potential impacts to the business, particularly around the SNAP program.

A: Thanks, Pat. Yes. Listen, the Big Beautiful Bill at this stage, is more ideation than execution. I mean it's coming. But we see more opportunities than we see impediments, but it's uncertain. So if you look at some of the work requirements, some of the residency requirements, et cetera, 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's sort of irrelevant to our business one way or the other. What's relevant to our business is whether we can capitalize on these new requirements and how we assess the implementation of those requirements on behalf of our clients. So like I said, it's uncertain at this stage. We do believe that there is some fraud reduction opportunities, both in SNAP and in our open loop systems. 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 are resident within the bill, but the full implementation has not been enacted yet in a way that we can monetize.

Q: And with regard to the Commercial segment, could you talk a little bit about what are maybe the largest drivers of the new business signing momentum?

A: It's been pretty consistent. Where we -- across our new logo or new capability and our add-on, I would say we're doing more in the new logo new capability arena in terms of performance on a relative basis. We've got to get our account managers hitting the stride in terms of that add-on because that's where the impact revenue comes from, meaning revenue that's produced within the year that you sell. So we're seeing pretty even consistency. I'd like to see better performance out of the account management team. 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 we've got to hit our stride in all three of those categories.

Q: As this AI-driven solutions become a meaningful part of your offering, are you seeing any pull effect where clients who initially buy a compliance or fraud solution then expand into other Conduent services?

A: Yes. I mean if you look at what we're doing in AI, in the past, I've said that AI was sort of in preparation mode. We're now in execution mode across 8 key initiatives where we're actually in production. And fraud is one of those in the government space, specifically in our open loop system, which we're now trying to migrate to our closed-loop SNAP solution. But we're seeing -- we're not talking to clients that are saying give me AI, give me 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 in our customer-facing environments like Life@Work. We've got them across our transportation business. As I mentioned, government fraud, pharma. And certainly, like everyone else in our contact centers, we're seeing a lot of AI improvements around voice translation, around improved IVRs, et cetera. So the real answer is it's everywhere. Process improvements in our scanning and indexing. And it's -- as I mentioned in the commentary, it's here to stay. Now the question is, how do you -- we're not an AI company. We're an implementer of AI technology to try and prove that improvement in quality, efficiency and that end user experience. So it's across the board, Gowshi. No one area, including fraud is any more important than the others.

Q: I wanted to start maybe -- I think you've talked in the past about your efforts to gain a greater share of wallet. Maybe if you could give a little bit of an update there as to what you're seeing with those efforts as well as maybe how that sort of plays out with the competitive landscape and maybe what you're seeing there?

A: Yes, Marc, I think Cliff alluded to this a little bit earlier, but some of the investments that we've made in the commercial space with new leaders and our client partner strategies. Over the last 2 quarters, we've written, I think it's over 40 new capabilities with existing clients, which is expanding share of wallet with some of the bigger clients that we have in the commercial space. So we see early shoots of that working, and we've certainly got aspirations and expectations of a continuation of driving new capabilities in our existing client base as we move into Q3 and Q4. So I think that piece is working. We just need to see more of it.