Greetings. Welcome to the Conduent Q1 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, David Chen, VP of Investor Relations. Thank you. You may begin.

Thank you, operator, and thanks everyone for joining us today to discuss Conduent's first quarter 2025 earnings. I'm 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 were filed with the SEC this morning on Form 8-K. This information as well as the detailed financial metrics package are available on the Investor Relations section of the Conduent website. During this call, we may make statements that are forward-looking. These forward-looking statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements. Information concerning these factors is included in Conduent's Annual Report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law. The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. 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. You've just heard a new voice and David Chen, our new Head of Investor Relations. David has been with the company for a few years and also heads up our mergers and acquisitions team. Given the continuation of our portfolio rationalization efforts, we thought a strong connection between M&A and IR was important. So welcome, David. Now as you can tell already, you'll also hear the voice of Giles Goodburn, our former Head of IR and FP&A who now succeeds Steve Wood as our Chief Financial Officer. Steve has done a great work over the last four years, has been a critical confident to me and has been preparing Giles for this position along the way as his successor. I'd like to thank Steve for his hard work, wise counsel and strong leadership as he moves on to another phase in his career. As always, I'll preamble the quarter, turn it over to Giles for the detailed numbers, and I'll close with some strategic thinking on why we feel optimistic in what some may call uncertain times. Let me start by saying Q1 represented a strong start to the year for us. We feel good about the adjusted revenue print of $751 million and particularly good about adjusted EBITDA and EBITDA margin of $37 million and 4.9%, respectively. Nevertheless, we need to keep the pedal down in Q2 to meet those first half revenue expectations we laid out last quarter. We remain optimistic and still see Conduent achieving those guidance numbers and our 2025 exit rate metrics. New business signings were improved year-on-year, and we're expecting a relatively strong Q2 in sales. The good news is that while many suffer through macroeconomic uncertainty and the known and unknown effects of tariffs, we feel somewhat fortunate not to…

Thanks, Cliff. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let's discuss our key sales metrics on Slide 7 and 8. We had a stronger start to the year in 2025 than we did in 2024 with first quarter new business ACV, up 14% versus the prior year at $109 million. And with Q2 shaping up strongly, we expect to be well positioned at the midpoint of the year. In the quarter, we signed 10 new logos and expanded relationships with 20 existing clients through new capability sales. Government ACV was up sequentially again this quarter, and we believe this trend will continue in Q2. New business TCV was up 96% versus the prior year at $280 million with approximately one-third of that TCV being generated by an eight year deal in our international transit business with our client in Lima, Peru, which also helped drive the average contract length up to 4.2 years for the quarter. The net ARR activity metric, our combined measure of wins, losses, pricing effects and other contractual changes was positive and sequentially higher again this quarter at a $116 million. Our qualified ACV pipeline remained strong at $3.2 billion, which is up 16% year over year and 3% since the beginning of 2025. Both our government and commercial segments have grown their qualified ACV pipeline significantly over the last 12 months positioning us well to hit our growth targets in the near term. Let's turn to Slide 9 and review our Q1 2025 P&L metrics. Adjusted revenue for Q1 2025 was $751 million compared to $821 million in Q1 2024, down 8.5% year-over-year. This was predominantly driven by our government segment, which we foreshadowed…

Thanks, Giles. Well, it was good to hear the continuation of a British accent from our CFO. The numbers just described while now executed represent what we've been foreshadowing for the last two years. We continue to be on track. Also, I thought it would be important to outline some other real opportunities going forward. If you'll turn to Slide 14, you'll see some of the non-financial performance proof points. Overall, AI and Gen AI remain at the forefront of what we're utilizing on behalf of our clients and their end users. As I've mentioned before, AI in our space is not hyped or sold. It's used to drive quality. We've rolled it out in our life to work portal, in our call centers and in our payment fraud space, which I'll talk about here in a minute. In commercial, we're seeing the fruits of our labor with our new client partner enterprise sales model, driving sales pipeline and clients evidenced by all-time high NPS scores and Supplier of the Year awards. We've also been tapped by many of our commercial clients to help them achieve their efficiency and cost reduction initiatives. The government business is turning the corner just as we said it would. Strong sales pipeline, improved retention and new talent are lining up for the turnaround we were planning for. And in transportation, we're seeing particular progress in market share improvement in transit where our new fare gates and card tap-and-go fare collection capabilities are selling well. We recently finalized and signed our new scope and plan with our biggest flagship client in the state of Victoria and Australia and new avenues are opening up in tolling as well. Just take a look at Governor Hochul's success in New York with congestion management pricing. That's our technology…

[Operator Instructions]. Our first questions come from the line of Pat McCann with NOBLE Capital. Please proceed with your questions.

Hi, thanks for taking my questions. Congrats on the quarter and a real quick congrats to Giles on taking over as CFO.

Thanks, Pat.

Absolutely, Giles. And my first question had to do with the -- what you were just talking about, Cliff, with regard to the government business. I understand like what you said that much of your government business is at the state and local level albeit some of that flows from the federal government from federal programs. So I guess I'm wondering if you could give a little bit more detail as far as how some of these aspects of the push for efficiency in the government actually lead to an opportunity for you in that space rather than a detriment to your business there. Maybe I'll leave it at that for now.

It's a good question, Pat. Look, there's two ways to answer the question. A lot of the federal funds for entitlements are distributed through the states. And both Congress and the President have said they're not going to mess with or touch entitlements. The administrative cost for the states are here is where the opportunity is for us. And so you take SNAP, for example, where we have 21 states distributing food stamps we see that not diminishing. In the case of summer SNAP, 16 of those have summer SNAP programs. Most of those have renewed the summer SNAP programs. All those dollars are federal dollars, but the administrative costs are shared between the states and the Feds. All that is being reviewed, but all that looks to be not touched. And all the indications are that they're not going to be touched. Where the opportunity arises is in areas like fraud that I mentioned during my script, which -- if you think about the fact that what dose and the administration has said is, look there's fraud going on. There are people receiving Medicare benefits that shouldn't be getting them. And there are people that are getting unemployment insurance benefits that shouldn't be getting them. The opportunity for us is to find those folks that are not getting them and help the states fared out the issues and the problems and get paid for that process. And so we see it as upside. As I mentioned with respect to fraud, we've looked at address takeover fraud in our payment business. And we found a lot of duplicate addresses that should not have been in the mix where people were receiving duplicate payments fraudulently and we see the same kind of fraud process to address people that shouldn't be get in Medicaid benefits, for example, because they have duplicate addresses as a way to generate revenue for us. Finally, you've seen in the press where MCOs oftentimes are getting paid twice for the same Medicaid member because people move and they don't change their address. And so what's happening is these MCOs are receiving federal funds that they shouldn't receive. Now they try and pay those back, but that's another area where we can fair it out areas where the federal government is paying too much money to the states or MCOs. So those are sort of some an overview of how we're attacking the problem.

Great. Thanks. And then I also wanted to touch on the cyber event. Could you say a little bit more about what actually happened in I'm getting the sense you guys are pretty much maybe through it. Can you touch on that as well as is pretty much behind you now?

Well, look, all the costs of the cyber event are already baked in into our P&L. And so that's number one. Number two is there was essentially no operational impact virtually no operational impact to the cyber event. We were, in some cases, only down for a couple of hours. The environment was restored almost immediately. The issue we're dealing with is the records issue. How much PII and PHI, if any, has been exfiltrated. And that's a very complex process that we're underway with now with our clients. And so, yes the event is behind us. All the aspects of what happened is behind us, all the protections and the vulnerabilities, if there were any were mitigated, but the examination of the data is still underway and that's why we've put the reserve into the mix.

Great. Thanks so much. I will leave it there and jump back in the queue. Thanks a lot.

Thank you. Our next questions come from the line of Chris Sakai with Singular Research. Please proceed with your questions.

Yes. Hi, good morning. I'm in for Joichi. Given your progress in AI-driven solutions like fraud prevention and Gen AI assistance. Have you encountered any regulatory hurdles and deployment, particularly in sensitive government or healthcare applications?

Chris, we really haven't. We're using AI in a couple of different ways, much of it in the commercial space. But as I previously mentioned, with respect to fraud, we're also using in the government space, primarily around fraud. In the commercial space, we use it for language smoothing for language translation, for IVR enhancements for portal enhancements and as I said, for fraud reduction efforts in the public sector. But no, we really haven't encountered issues around privacy or mistakes from Gen AI. And we're not using it as a replacement for people. We're still heavily reliant on people and where we're in the people business, we continue to see the same amount of need for people in the complex environments. And AI is not really and doesn't appear to be a substitute for that. So the answer to your question directly is no. We have not seen any regulatory hurdles in the way.

Okay thanks for that. And you mentioned that your business is relatively insulated from macroeconomic and geopolitical shocks. Are there any less obvious second order effects such as shifts in client procurement cycles or changes in government funding priorities that you're monitoring closely?

We're not really experiencing that, Chris. I can tell you that what Giles and I mentioned was the 1 area of slight vulnerability for us is in our transportation business, transit specifically where we buy equipment and deploy equipment for Fare Gate and the like. Most of that business is international country to country as opposed to international to the U.S. or China to the U.S. There's a little bit of transit business in the U.S., but very small in the grand scheme of things. So we're not really vulnerable to the tariff situation. With respect to other government programs, one of the decisions Congress made yesterday was that the Fed matching rate for Medicaid technology and technology implementations where the federal government supplies 90% of the funding for all those implementations and technology in the Medicaid space at the state level will not be touched. So we're not really feeling any hurdles to the progress that Giles laid out. In fact, as I mentioned, we see real opportunities.

I think the other piece, Chris, is that we maintain close relationships and close communication with our state and local government clients as well so that we know what's going on with them and how we can support and help them as things move forward.

Okay, great. And then last for me, what criteria are you using to identify assets for divestiture and how do you plan to balance future proceeds between debt reduction, reinvestment and potential shareholder returns?

Let me take the first part of it and the second part, I'll turn it over to Giles. Look, we've said all along that the secret sauce is to figure out how we can be not as wide or as diverse and be more focused on synergies and growth capabilities internally. By the same token, we believe there are synergies and scarcity value on the outside for some of our assets. And so the test we've put in place is where the scarcity values value opportunities. Where are the maximum multiples we can get if we look to divest? And versus what we can do internally with those same resources and we've identified what we see as another roughly, let's call it, $350 million of opportunity along that process flow that we intend to pursue in 2025. But Giles, why don't you comment.

Yes. I think on the capital allocation side, they'll be similar to the first phase, Chris. We'll continue to maintain a balanced approach -- we've only got $85 million of debt left on the Term A. And we'll also continue to make investments internally, which is what we've done through Phase 1. If you look at some of the investments we've made internally around some of the things that Cliff alluded to earlier with AI, with increasing our capacity in some of our international delivery centers investments in our GHS Medicaid modularization platforms. And then what we've done with our vector platform as well to support the New York congestion management pricing -- a significant investment that we made, but we've been frugal in the way that we allocate capital internally. So I think you can look to see kind of similar characteristics as we used in the first phase of the rationalization plan as far as capital allocation is concerned.

Okay, great. Thanks for the answers.

Chris, just one last point. Importantly, to follow on Giles' point, what it really provides for us is a remaining portfolio that's more nimble, easier to manage, lower costs in the center, higher growth rates. That's the bottom line on where we want to land.

Okay, great. Thank you.

Thank you. Our next questions come from the line of Marc Riddick with Sidoti. Please proceed with your question.

Hi. Good morning.

Hi, Marc.

So first of all, congratulations both to Giles and David for the changes there and certainly look forward to continue working with you there. Just wondering if you could --

Absolutely.

I was wondering if you could start a little bit on the opportunity set and kind of dovetailed the comment, Giles, is around the connection you state and local contacts and what have you. Maybe you could shed a little bit as to maybe what you're hearing from them and how that ties into the opportunities that you're seeing? I mean maybe it's a little early, but I was wondering if you're getting much in the way of feedback from your state and local contacts to the headlines and maybe what areas are taking the lead as far as priority of concern there?

It's a mixed bag, Marc. I mean if you -- some states are more progressive in trying to get out front and work with the administration to figure out, how they can far it out fraud and reduce cost from a disbursement point of view. Other states are sort of in a wait and see. So it's quite varied. All the states are looking for efficiencies and always have been. So it's a mixed bag. I can tell you that there is a specific effort around more efficiency in the administration of federal funds. But the exact details are going to vary state by state. I can tell you 1 governor sent me a letter recently saying, how can you help us more with SNAP or food stamp fraud? Because as I mentioned in my narrative, the individuals that receive these this funding are the ones that eat the fraud. And you've seen many examples where people who have had their card scheme or address takeover or various ways that fraud occurs. And the states are very agitative or the fact that they're constituents are the ones that are taking the loss because those funds are generally not replenished. So it's a mixed bag. I mean the one I just referred to as Utah. We've got a lot of capabilities around our new card platform that has chip cards in it. It has card turn off and turn on capabilities for other fraud reduction tools. But as I said, some are more out front and it's a very significant opportunity and others are sort of holding back, waiting to see what really happens. Because if you look at the dose efforts, this target of $1 trillion cost reduction is just not manifesting as fast as advertised. I think, I saw numbers in the neighborhood of $155 billion out of the $2 trillion have been realized in some of the federal cost reduction efforts. So it's going a little bit slower. So there's a wait and see kind of demeanor out there as well.

Thank you for that. And then I was wondering if you could cut a little bit about the new business wins being up year-over-year. And maybe some of the catalysts that were behind that as well as maybe progress in the -- I know we've talked in the past about efforts as far as gaining share of wallet. I mean are you -- was that part of some of the new business win efforts? And how do we see that going forward?

Yes, Marc, I think there's a couple of things there. I think one is we've invested wisely in new talent in our sales organization with some element of new structure with client partners and getting closer to the clients and really driving more new capability opportunities through that group. And the second is some of the investments that we're making that we've discussed earlier around Medicaid and increasing the seat capacity out in some of our delivery centers. We're filling those up. Clients are still looking to us to help them solve some of their cost issues. And we continue to see that into the second quarter as well. So I think Q1, we were off to a relatively good start. Q2, we should be a little stronger, and we'll see that continue throughout the year.

And Marc, if you -- and I've mentioned this in the past, if you think about new business, it comes in 3 venues. It comes in a new logo. It comes in a new capability for current logo and it comes in with add-on volume from the same capability. That add-on volume typically comes from our account management teams. And that's been pretty consistent. In some quarters, that's been better than others. What we saw in Q1, and I hope to see even more so in Q2 is that new logo, new capability with a particular emphasis on this new capability and expanding our share of wallet with roughly 1.6 products per client in the commercial space, we think that should be double. And that's why we've invested heavily in this client partner arrangement, where client partners and enterprise sales executives can look at the breadth of the opportunity in a current client base. And we've got many of the health care clients, most of the health care clients out in the market are our clients. And so we see expanded opportunities from that client partner team and then an enterprise sales team. But we're just getting started. I mean, yes, it was a good quarter on new logo. We need to do even more of that because the new logos are your future. And that's -- if you don't feather that nest with new logos, you're not going to have add-ons to be available. So we're very focused on it. And we expect to see some pretty good progress in Q2 and more so on the back half of the year.

And just to sort of play the loop there, I just wanted to double check on -- so the leverage being at 2.7x, and this was covered in the prepared remarks, but just to confirm, that was as of the end of the quarter and then subsequently, you got the $50 million in April, so that's already knocked down from where you were at the end of the first quarter, correct?

Yes, that's correct, Marc. And we should see that net leverage can come down as the adjusted EBITDA for Q2, Q3, Q4 starts to increase with the cost efficiency programs that we've got going on. So as I said, I think we'll see it trend towards more kind of 1.5 turns as we think about the second half of the year. And then as we exit 2025, we're targeting that 1 turn that we always put out there as a target.

A lot of those cost efficiency efforts Marc, as you know have lag effects to them. So that's the benefit we're going to see in the back half of the year.

Excellent. Thank you very much.

Thanks, Marc.

Thank you. We have reached the end of our question-and-answer session. And with that, we'd like to bring the call to a close. We do thank you for your participation. We wish you a great day. You may now disconnect.