CONDUENT Inc Q1 FY2026 earnings call

Core Strategic Priorities (Unchanged from Q4 2025)

• Reduce cost structure: Completed an independent third-party review of the full cost base, identifying $100 million in cost reduction opportunities to be captured over the next 18 months. Management targets a long-term adjusted EBITDA margin above 10%. Q1 2026 adjusted EBITDA margins improved 190 bps year-over-year, and operating cash flow increased $50 million year-over-year driven by tighter capital expenditure and cash management discipline.
• Convert pipeline to growth: Total qualified ACV pipeline increased 10% year-over-year to $3.5 billion, with government pipeline up 27% YoY and commercial pipeline up 25% quarter-over-quarter. Updated go-to-market strategy focuses on cross-selling to existing clients, restructured sales incentives, larger defense opportunities, new logo acquisition, and a centralized deal desk. Commercial is now narrowly focused on healthcare and financial services, while public sector has renewed focus on U.S. federal health and human services aligned with administration priorities.
• Optimize portfolio: Management expects total proceeds from identified 2026 divestitures to exceed $200 million. Two businesses are currently actively marketed, with no change to expected proceeds from prior guidance, and inbound interest has been received for additional underperforming assets.
• Increase speed and accountability: Simplified the executive leadership team and implemented new accelerated decision-making processes to reduce implementation timelines post-contract close, which will reduce working capital needs and accelerate revenue and cash flow generation. CEO-level tracking of implementation KPIs targets 30-60 day reductions in time-to-revenue.
• Enforce financial discipline: Delivered improved Q1 margins and stricter capital expenditure discipline, resulting in improved operating cash flow.

AI Initiative Updates

• Three core use cases are being actively deployed and scaled: fraud and risk management (combined GenAI and rules-based AI for account takeover and payment fraud detection, with expansion planned to additional fraud verticals), customer/citizen interaction (GenAI agent assist to reduce handle time, branded Kani GenAI chatbot for personalized benefits experiences, with future autonomous agentic AI planned), and internal workforce productivity (AI-assisted coding and other efficiency tools). AI is also being used internally to reduce the company's own cost structure.

Q1 2026 Sales Highlights

• Total new business ACV was $114 million, up 5% year-over-year, marking the sixth consecutive quarter of YoY ACV growth. Commercial segment secured $48 million in new business, with wins including multiple long-standing healthcare clients. Public sector secured $66 million in new business, led by a $23 million Medicaid claims processing contract. The company signed a 14-year renewal for a government healthcare client and completed go-live of an integrated Medicaid solution for another large state client.

Conduent's overall Q1 2026 revenue was $723 million, down 3.7% from $751 million in Q1 2025. Total adjusted EBITDA was $49 million, up from $37 million year-over-year, for an adjusted EBITDA margin of 6.8% (up 190 bps YoY).

1. Commercial Segment: Q1 2026 revenue was $361 million, down 10.2% YoY. This accounted for 50% of total company revenue. Volume declines at one large client and lost business drove the drop, partially offset by new wins. Adjusted EBITDA was $43 million, up $3 million YoY, with an adjusted EBITDA margin of 11.9% (up 190 bps YoY) driven by cost efficiency and stronger performance across offerings.

2. Government (Public Sector) Segment: Q1 2026 revenue was $226 million, up 4.6% YoY, accounting for 31% of total revenue. Growth came from new business, higher volumes in government healthcare, and client price increases. Adjusted EBITDA was $59 million, with an adjusted EBITDA margin of 26.1% (up 850 bps YoY) driven by revenue growth, AI initiatives, and efficiency programs.

3. Transportation Segment: Q1 2026 revenue was $136 million, up 2.3% YoY, accounting for 19% of total revenue. Higher new business volumes and FX drove the revenue increase. Adjusted EBITDA was negative $4 million, with a year-over-year decline driven by additional post-implementation expenses for one specific contract.

Unallocated corporate costs were $49 million, up 4.3% YoY.

• 2026 Full Year Guidance: Revenue is guided to a range of $2.8 billion to $2.9 billion, with positive revenue growth expected for the government and transportation segments, and all revenue decline concentrated in the commercial segment. Adjusted EBITDA is guided between $160 million and $190 billion, driven by AI adoption, cost efficiency programs, price increases, and stronger operational performance. The 2026 quarterly adjusted EBITDA cadence expects a strong Q1, softer Q2, and Q1-like margins in the second half of the year.
• 2027 Preliminary Guidance: Management expects flat to positive full year revenue growth, with adjusted EBITDA between $190 million and $220 million, and expected positive free cash generation.
• No upward or downward revision to the 2026 divestiture proceeds target, which management now expects to exceed $200 million.

• The commercial segment faces continued organic volume declines and ongoing competitive pressure that requires continuous AI innovation to maintain market position.
• Federal government contract timing is being pushed out due to administration transition uncertainty, extending sales cycles even though contracts are not canceled.
• Commercial revenue has declined from lost business and volume declines at key large clients, which is driving the full-year 2026 overall revenue decline.
• Negative adjusted EBITDA in the transportation segment reflects unanticipated post-implementation costs for a large new contract.
• Portfolio divestitures face unanticipated complexity with buyers that may delay closing timelines.

Q: How does management weigh AI capability versus industry growth when deciding to fix, sell, or grow business units across segments? / A: Government contracts are long-term and sticky. As long as Conduent keeps updating its technology, which states already appreciate, this segment will retain its competitive moat. Transportation has slower growth but ample opportunity from increasing urban density. For commercial, AI innovation is required for survival, so Conduent is partnering with AI-focused startups rather than building tools in-house to test and deploy new solutions quickly, combining partner tech with Conduent's existing blue-chip client base. (273 characters)

Q: How much of the 2026 revenue step-down is from divestitures versus organic commercial softness, and what is the update on divestiture progress? / A: All revenue deterioration is confined to commercial, stemming from a combination of softer organic volumes and client losses from the prior 12-18 months. Two businesses are actively marketed for sale, with expected proceeds still in line with prior guidance, though closing has been slowed by minor transaction complexity. Management remains confident 2026 divestiture proceeds will exceed $200 million, and inbound interest has been received for additional assets, which are being re-evaluated as some have recently improved performance. (351 characters)

Q: What is the plan for prioritizing divestiture proceeds, and what progress has been made on AI revenue and impact? / A: Management's first priority is securing the $200 million+ in proceeds, which will provide optionality for debt paydown, share buybacks, or reinvestment in core businesses; a final decision is still pending with input from bondholders. AI is already delivering tangible benefits: AI-powered fraud detection in government has generated significant P&L cost savings, and the Kani GenAI chatbot for benefits enrollment delivered materially higher employee interaction rates than prior non-AI tools. (340 characters)

Q: Which new or existing verticals have surprised management positively in the first 115 days of the new CEO's tenure? / A: Government and transportation clients have been surprisingly constructive and transparent in collaborative work. Management has also been encouraged by the high volume of direct outreach from commercial client CEOs seeking custom AI and digital solutions, which is supporting the growing sales pipeline. Weekly revenue reviews with new commercial leadership have started to move the needle on performance, and management sees expansion opportunity in other English-speaking markets including Canada, the UK, and Australia. (328 characters)