CONDUENT Inc Q1 FY2025 earnings call

• Continuation of portfolio rationalization efforts with divestitures completed in 2024 generating nearly $800 million of net proceeds, with more divestiture targets in 2025.
• Q1 2025 had adjusted revenue of $751 million, adjusted EBITDA of $37 million, and EBITDA margin of 4.9%.
• New business signings improved year-on-year, with a strong Q2 expected in sales.
• AI and Gen AI utilized in various areas including fraud prevention, language smoothing, IVR enhancements, etc.
• Government business sees opportunities in fraud reduction and efficiency efforts at state and local levels.
• Transportation segment making progress in market share improvement in transit and tolling.

Commercial segment: Adjusted revenue was $402 million, down 4.1% year-over-year. Adjusted EBITDA was down 11% year-over-year with a margin of 10% (down 70 basis points year-over-year). Government segment: Adjusted revenue was $216 million, down 16% year-over-year. Adjusted EBITDA was $38 million, down 31% year-over-year with a margin of 17.6%. Transportation segment: Adjusted revenue was $133 million, down 7.6% year-over-year. Adjusted EBITDA was $6 million, up from $1 million in Q1 2024, with a segment margin of 4.5% (up 380 basis points versus Q1 2024).

• Full year 2025 outlook remains unchanged.
• Expect Q2 2025 revenue to be sequentially higher than Q1 but slightly below Q2 2024.
• Adjusted EBITDA margin expected in the range of 4% to 4.5% in Q2.
• Anticipate top line growth in the second half of the year with margin expansion as cost programs are implemented.

• Minimal exposure to tariffs in transportation related to equipment sales and implementations, but monitoring second-order effects like shifts in client procurement cycles and changes in government funding priorities.

Q: Could you give more detail on how government efficiency leads to opportunities for the business?

A: A lot of federal funds for entitlements are distributed through states. Opportunity arises in fraud reduction areas. For example, in SNAP and Medicaid, helping states fared out fraud issues and get paid for the process. Also, issues like duplicate addresses leading to fraudulent payments present opportunities.

Q: Any regulatory hurdles in deploying AI in sensitive government or healthcare applications?

A: No, we haven't encountered regulatory hurdles. Using AI in various ways in commercial and government spaces, not using it as a replacement for people, still heavily reliant on people.

Q: About new business wins up year-over-year, any catalysts and progress in gaining share of wallet?

A: Invested in new talent in sales organization with new structure, closer to clients driving new capability opportunities. Also, focus on new logo, new capability, and expanding share of wallet with 1.6 products per client in commercial space, aiming to double that.