Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Conduent Inc (CNDT, Financial) reported Q3 adjusted revenue of $781 million and adjusted EBITDA of $32 million, slightly exceeding expectations.
- The company completed the initial phase of its divestiture program, deploying 75% of the targeted $1 billion against debt prepayment and share repurchases.
- Conduent Inc (CNDT) has a strong sales pipeline, particularly in the commercial segment, with expectations for a strong finish to the year.
- The company has improved client retention by 40% since 2021, with annual churn reduced from over 11% to around 7%.
- Conduent Inc (CNDT) has a high base of recurring revenue, approximately 90% reoccurs each year, providing stability and predictability.
Negative Points
- Q3 2024 adjusted revenue was down 6% year over year, and adjusted EBITDA margin decreased from 7.2% in Q3 2023 to 4.1% in Q3 2024.
- The government segment experienced a 12% decline in revenue year over year, with adjusted EBITDA down 37%.
- Transportation segment adjusted EBITDA was breakeven in Q3, compared to $3 million in Q3 2023, due to revenue mix issues.
- The company expects adjusted free cash flow to be around negative $50 million for the year, impacted by billing milestone adjustments.
- Conduent Inc (CNDT) continues to face challenges with stranded costs and efficiency programs following divestitures.
Q & A Highlights
Q: How do you view the impact of election results on your business units, particularly regarding potential changes in regulation?
A: Clifford Skelton, CEO, stated that Conduent's public sector business, primarily in entitlement and transportation, is rarely affected by political swings. While policy changes can impact revenue streams, historically, there has been little differentiation in business impact between administrations. Overall, the company expects no significant effect on revenue and sales from election outcomes.
Q: Can you provide insights into the Medicaid Management Information Systems (MMIS) business and the timing of new contracts?
A: Skelton explained that the MMIS landscape has changed with CMS mandating modularity, creating opportunities across various modules. While specific RFP timings are uncertain, the focus is on forming relationships with decision-makers to capitalize on growth opportunities when RFPs are released.
Q: What is the status of the portfolio rationalization and divestiture program?
A: Skelton mentioned that the company continues to see opportunities for portfolio rationalization, aiming to become more nimble. The process is ongoing, with a focus on narrowing the portfolio to enhance growth and efficiency. Stephen Wood, CFO, added that the company will remain opportunistic in finding strategic buyers for assets that fit better outside the current portfolio.
Q: Are there any state or local election results that might impact your business?
A: Skelton noted that most public sector contracts are with states, which aim to serve constituents regardless of party. While there are episodic events, such as changes in SNAP funding, these have normalized. Wood added that the company's government business is well-positioned to support state technology upgrades, which are more critical than election outcomes.
Q: What are the key drivers of margin expansion towards the 2025 exit rate?
A: Wood outlined four components: $50 million in stranded cost removal, $50 million in cost efficiency work, targeted pricing and mix levers, and revenue growth. These efforts are expected to drive margin expansion as the company progresses towards its 2025 goals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
