Conduent Incorporated · NASDAQ:CNDT
Conduent — Investor Day (March 2023)
75 slides from Conduent's investor day presentation, Mar 30, 2023
Slide 1: Conduent Investor Briefing
March 30, 2023 Conduent Investor Briefing
Slide 2: Cautionary Statements: Forward-Looking Statements
March 30, 2023 2 Cautionary Statements Forward-Looking Statements This document contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” "plan," “intend,” “will,” “aim,” “should,” “could,” “fore
Slide 3: Cautionary Statements: Non-GAAP Financial Measures
3 Cautionary Statements Non-GAAP Financial Measures We have reported our financial results in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In addition, we have discussed our financial results using non- GAAP measures. We believe these non-GAAP measures allow investors t
Slide 4: Conduent Overview Video
Conduent Overview Video
Slide 5: Agenda and Introduction
5 Agenda and Introduction Welcome Giles Goodburn Company Overview and Opportunity Cliff Skelton Business Overviews Commercial Transportation Government Randall King Lou Keyes Mark E. King Financial Review Steve Wood Enhancing Value Creation Cliff Skelton Q&A March 30, 2023
Slide 6: Key Takeaways
6 Key Takeaways Experienced Management Team Repaired and strengthened the foundation Unique value propositions aligned to attractive market opportunities Financial outlook with revenue growth, margin accretion and cash generation A future-rationalized portfolio and capital allocation approach focuse
Slide 7: Our Goal: Driving Shareholder Value
7 Our Goal: Driving Shareholder Value Technology-led Capabilities Strong Talent and Culture Proven Outcomes for Marquee Clients Large and Favorable Market Opportunities Improved Margin Expanded Free Cash Flow Revenue Growth Shareholder Value Deployable Capital Strengths Outcomes March 30, 2023
Slide 8: Key Takeaways
A future-rationalized portfolio and capital allocation approach focused on unlocking more value and accelerating growth 8 Key Takeaways Experienced Management Team Repaired and strengthened the foundation Unique value propositions aligned to attractive market opportunities Financial outlook with rev
Slide 9: Our History
9 Our History 2010 2012 2014 2016 2018 2020 2022 ACS: Serial Acquisitions Part of Xerox Conduent Today 1988: ACS business launched 2010: ACS is acquired Acquires Lateral Data – Legal Solutions & Smart Data Acquires Strata and Bunch – Workers Comp Exits ITO business with sale to ATOS 2017: Conduent s
Slide 10: We Have Strengthened the Foundation
10 We Have Strengthened the Foundation • Clients lacked confidence • Operations and technology lacked predictability and stability • Culture lacked collaboration and team spirit • Inadequate internal planning discipline • Inadequate system uptime • Sales not growing or outpacing client attrition • A
Slide 11: The Results
11 The Results Supplier Excellence Recognition 2021 & 2022 Supplier of the Year 2021 & 2022 +30 pts Net Promoter Score 90% 20% ~2XImprovement in service level performance Recognized as supplier of the year by GM, Toyota Financial Services, H&R Block, and several other Fortune 50 companies 3-year Net
Slide 12: Recognition
Recognition Industry Leadership Recognition Culture Recognition 12March 30, 2023
Slide 13: Key Takeaways
A future-rationalized portfolio and capital allocation approach focused on unlocking more value and accelerating growth Financial outlook with revenue growth, margin accretion and cash generation Repaired and strengthened the foundation Unique value propositions aligned to attractive market opportun
Slide 14: Conduent Today
Conduent Today 14 Commercial Government Transportation Enhancing customer experience and business process efficiency across the enterprise Streamlining delivery of government services to constituents in need Creating safe, seamless journeys across the transportation ecosystem • Customer Experience M
Slide 15: Strong and Trusted Client Base
15 Strong and Trusted Client Base 47 states, District of Columbia, Puerto Rico 23 countries with transportation and government solutions Commercial Government and Transportation Government Transportation Both 17 of the top 20 U.S. health insurance companies 9 of the top 10 pharma companies 4 of the
Slide 16: Large and Growing Addressable Markets
Commercial Government Transportation $168B* $20B* $12B* 16 Large and Growing Addressable Markets Sources: Nelson Hall, Gartner, Frost and Sullivan, Devenir, ComplexDiscovery, Conduent Internal Analysis Conduent’s TAM ~$200B 3-yr CAGR (‘22-‘25) ~4% *Segment proportion of Conduent‘s $200B TAM March 30
Slide 17: Priorities of the Markets We Serve
Digital solutions to drive transformation and automation Greater safety and efficiency More efficient and secure payment solutions Improved customer experience Improved patron experience Interoperable and modular healthcare systems in the cloud Integrated, end-to-end offerings to increase value Mode
Slide 18: What We Do to Meet That Demand
What We Do to Meet That Demand Enhance customer experiences across multiple channels1 Digitize and manage documents2 Administer and process digital payments3 Automate healthcare-related claims4 Streamline business administration functions5 Provide hardware technology and system integration6 Commerci
Slide 19: Creating Valuable Outcomes for Clients
Creating Valuable Outcomes for Clients Increased sales, customer and employee satisfaction, first call resolution Reduced costs, increased efficiency and agility Increased accuracy, faster processing, greater compliance Faster, more secure payments, increased fraud prevention Faster commutes, improv
Slide 20: Business Overviews
20 Business Overviews Randall King President, Commercial Solutions Mark E. King President, Government Solutions Lou Keyes President, Transportation Solutions • Significant experience in technology- led business solutions and professional services • Extensive success in driving growth and client serv
Slide 21: Commercial Solutions
21 Commercial Solutions
Slide 22: Commercial Solutions | At a Glance
22 Commercial Solutions | At a Glance Documents captured, indexed and classified ISG Provider Lens: Global Leader Customer Experience Services Digital Operations, AI & Analytics, WFH ISG Top 15 Service & Technology Provider NelsonHall Leader in Next Generation Benefits Administration Largest Bill Re
Slide 23: Commercial Solutions Competitive Advantages
23 Commercial Solutions Competitive Advantages Flexible ScaleInnovative TechnologyEnd-to-End Value Chain Delivering across spectrum of small to large clients by leveraging scalable technology and platforms • Ability to ramp quickly for all types of interactions from sales and tech support to care ma
Slide 24: Focus Areas for Growth
Focus Areas for Growth CXNow platform enables fast access for small to large clients New capability creating multiple methods to fulfill payment needs • Recognized industry leader serving some of the most loyal brands in the world • Improving CX is a priority for most companies – we can help them wi
Slide 25: Transportation Solutions
25 Transportation Solutions
Slide 26: Transportation Solutions | At a Glance
26 Transportation Solutions | At a Glance 11.8M tolling transactions processed per day, including 48% of top 10 tolling agencies 100M transit tickets processed each day 8.7M citations and delinquent revenue payments processed annually Road Usage Charging Transit Public Safety / Curbside Management •
Slide 27: Transportation Solutions Competitive Advantages
27 Transportation Solutions Competitive Advantages Complete End-to-End Market Coverage Real Time Payments® Superior Back-Office Capability • Transit • Road Usage Charging (Tolling) • Curbside (Parking) and Public Safety • Real Time Payments® (RTP®) • Request For Pay (RFP) • Efficient vendor payments
Slide 28: Focus Areas for Growth
28 Focus Areas for Growth Depth and breadth of offerings along with market conditions driven by innovation provide attractive opportunities for Conduent to extend transportation leadership position Payments Geographic and Solution Expansion • Expansion into Digital Payments including Real Time Payme
Slide 29: Government Solutions
29 Government Solutions
Slide 30: Government Solutions | At a Glance
Government Healthcare Payments and Child Support Eligibility and Enrollment 30 30 Government Solutions | At a Glance 588M Claims processed in 2022 • Conduent Medicaid Suite • Pharmacy Benefits Management • Maven Disease Surveillance Tracking $106B In benefits disbursed in 2022 • Card Programs • Stat
Slide 31: Government Solutions Competitive Advantages
31 Government Solutions Competitive Advantages Extensive and Diverse Network Across States A Top Provider of Modern Cloud- Enabled, Medicaid Suite Leading Innovation in Payments Only Provider with Comprehensive End-to-End Solutions Services provided for 45 out of 50 U.S. states Deep knowledge of gov
Slide 32: Focus Areas For Growth
32 Focus Areas For Growth Medicaid Administration • Modernization mandates resetting the market • Conduent is the only supplier with cloud-native solution • Comprehensive Medicaid solution suite (CMdS) with expanding market opportunity: • Multiple primary modules already developed • Continuing inves
Slide 33: Digital Payments
33 Digital Payments
Slide 34: Digital Payments
34 Digital Payments Kathy Mertes Global Head, Digital Payments • 30 years in the banking and payments field across multiple industries including government, corporate and healthcare • Deep experience in credit card fraud prevention, consumer payments, and product and operational responsibilities for
Slide 35: Digital Integrated Payments Hub
Digital Integrated Payments Hub All digital, cloud-based payment gateway *FedNowSM (Live 2023) Automated Vendor Payments (Paymode-X) Automated Clearing House (ACH) Future Innovations Account Validation Services Digital Wallet Zelle Network® Real Time Payments® (RTP®) Payment Reconcilement Payment I
Slide 36: Key Takeaways
A future-rationalized portfolio and capital allocation approach focused on unlocking more value and accelerating growth Repaired and strengthened the foundation Unique value propositions aligned to attractive market opportunities 36 Key Takeaways Experienced Management Team Financial outlook with re
Slide 37: Financial Key Takeaways
37 Financial Key Takeaways Financial outlook with revenue growth, margin accretion and cash generation Continued sales growth Normalizing of client losses Expanding margins and enhanced cash flow generation Deployable capital maintaining a strong balance sheet March 30, 2023
Slide 38: Agenda | Financial Historical Context
38 Agenda | Financial Historical Context 2022 to 2025 Revenue 2022 to 2025 AEBITDA 2023 & 2025 AEBITDA to AFCF Medium Term Financial Outlook Outlook Balance Sheet Strength 2019 to 2022 Key Revenue Hydraulics 2019 to 2022 Adjusted Revenue 2019 to 2022 AEBITDA 2019 & 2022 AEBITDA to AFCF Historical Co
Slide 39: Key Revenue Hydraulics (Historical, 2019-2022)
39 Key Revenue Hydraulics (Historical, 2019-2022) - 100 200 300 400 500 600 700 800 2019 2020 2021 2022 ACV & ARR ACV ARR Sequential improvement in ACV (13% 3-Year CAGR) and ARR (8% 3-Year CAGR) performance. 13% CAGR 8% CAGR $m March 30, 2023
Slide 40: Key Revenue Hydraulics (Historical, 2019-2022)
40 Key Revenue Hydraulics (Historical, 2019-2022) - 100 200 300 400 500 600 700 800 2019 2020 2021 2022 ACV & ARR ACV ARR - 50 100 150 200 250 300 350 400 2020 2021 2022 Losses (by Vintage) 2020 & Prior 2021 & 2022 Sequential improvement in ACV (13% 3 Year CAGR) and ARR (8% 3 Year CAGR) performance.
Slide 41: Key Revenue Hydraulics (Historical, 2019-2022)
41 Key Revenue Hydraulics (Historical, 2019-2022) - 100 200 300 400 500 600 700 800 2019 2020 2021 2022 ACV & ARR ACV ARR - 50 100 150 200 250 300 350 400 2020 2021 2022 Losses (by Vintage) 2020 & Prior 2021 & 2022 Sequential improvement in ACV (13% 3 Year CAGR) and ARR (8% 3 Year CAGR) performance.
Slide 42: Adjusted Revenue Walk (Historical, 2019 to 2022)
42 Adjusted Revenue Walk (Historical, 2019 to 2022) Key Takeaways • Significant losses in 2020 and prior. • Volume losses include items not expected to re-occur. • Improving Sales Performance driving ramped revenue. (4.0%) CAGR 4,359 3,851 2.6% CAGR 90% of Base Revenue is Recurring $m March 30, 2023
Slide 43: Adjusted EBITDA Walk (Historical, 2019 to 2022)
43 Adjusted EBITDA Walk (Historical, 2019 to 2022) Optimizing our Delivery Model 10.4% 10.2% Key Takeaways • Losses have driven a margin- replacement cycle; as losses normalize, this headwind should dissipate. • The revenue volume/mix includes significant operational efficiencies. • Investments in i
Slide 44: Adj. EBITDA to Adj. FCF Walk (Historical)
44 Adj. EBITDA to Adj. FCF Walk (Historical, 2019 & 2022) 13% 1.5% Key Takeaways • Capital use is tapering as the initial phases of technology stability programs conclude. • Restructuring primarily reflects data center optimization and early lease surrenders. • Cash taxes are influenced by geographi
Slide 45: Agenda | Financial Outlook
45 Agenda | Financial Outlook 2022 to 2025 Revenue 2022 to 2025 AEBITDA 2023 & 2025 AEBITDA to AFCF Medium Term Financial Outlook Outlook Balance Sheet Strength 2019 to 2022 Key Revenue Hydraulics 2019 to 2022 Adj. Revenue 2019 to 2022 AEBITDA 2019 & 2022 AEBITDA to AFCF Historical Context March 30,
Slide 46: Key Revenue Hydraulics (Outlook to 2025)
46 Key Revenue Hydraulics (Outlook to 2025) 8-10% CAGR We expect to continue to grow ACV at a high single- digit to low double-digit rate, and ARR at a mid-to-high single-digit rate. 6-8% CAGR ACV & ARR*$m * We look to these metrics on an annual basis as sales have been and are lumpy (e.g. Q4 2022 w
Slide 47: Key Revenue Hydraulics (Outlook to 2025)
- 50 100 150 200 250 300 350 400 2020 2021 2022 2023 2024 2025 Losses (by Vintage) 2020 & Prior 2021 & 2022 2023 - 2025 47 Key Revenue Hydraulics (Outlook to 2025) 8-10% CAGR We expect to continue to grow ACV at a high single digit to low double-digit rate, and ARR at a mid-to-high single digit rate
Slide 48: Key Revenue Hydraulics (Outlook to 2025)
- 50 100 150 200 250 300 20-22 23-25 Lost Organic Volume Organic Large Client(s) COVID - 50 100 150 200 250 300 350 400 2020 2021 2022 2023 2024 2025 Losses (by Vintage) 2020 & Prior 2021 & 2022 2023 - 2025 48 Key Revenue Hydraulics (Outlook to 2025) 8-10% CAGR We expect to continue to grow ACV at a
Slide 49: Adjusted Revenue Walk (Outlook, 2022 to 2025)
49 1.0% CAGR Key Takeaways • Losses begin to normalize towards 3% - 5% of revenue once pre-2021 vintage losses are overcome. • Volume trends have normalized. • Continued improvement in CAGR of sales at high single digit rates YoY. • Strategic Revenue includes new product capabilities, such as Real T
Slide 50: Adjusted EBITDA Walk (Outlook, 2022 to 2025)
50 Adjusted EBITDA Walk (Outlook, 2022 to 2025) 10.2% 10.5-11.5% EBITDA Executing our Delivery Model Key Takeaways • Revenue volume/mix improvement from higher margin opportunities, and benefit from a partially fixed cost base. • Continued infrastructure and real estate efficiencies including real e
Slide 51: Adj. EBITDA to Adj. FCF Walk (Outlook, 2023 & 2025)
51 Adj. EBITDA to Adj. FCF Walk (Outlook, 2023 & 2025) 20-25% 15-20% Key Takeaways • Capital programs normalize to approximately 4% of revenue. • Restructuring tapers with less burden from data center optimization and real estate. • Cash taxes in 2023 are lower due to the expected Federal Refund and
Slide 52: Medium Term Financial Outlook (2025 Exit Rate)
Refer to the appendix for other modeling considerations Adj. Free Cash Flow Conversion20-25% Adj. EBITDA Margin10.5-11.5% Commercial Government Transportation 52 Medium Term Financial Outlook (2025 Exit Rate) ~3% ~3% ~4% Adj. Revenue Growth3-4% March 30, 2023
Slide 53: Balance Sheet Strength
53 Balance Sheet Strength December 31, 2022 Total Cash $598M Available Credit $548M (Revolving Credit Facility) Total Available Liquidity $1,146M Debt $1,282M Net Debt $684M Net Adjusted Leverage Ratio 1.8x 18 18 18 218 5 485 520 2023 2024 2025 2026 2027 2028 2029 Contractual Debt Maturity ($M) 684
Slide 54: Base Case Cumulative Capital Available
Cumulative deployable capital available in the base case scenario (2022 to 2025) $500M 71% of Mkt Cap* 54 Base Case Cumulative Capital Available $598M ~$250M Up to Approx. $500M $400M *Market Cap at 3/27/23 $704M March 30, 2023
Slide 55: Key Takeaways
Financial outlook with revenue growth, margin accretion and cash generation 55 Key Takeaways Repaired and strengthened the foundation Unique value propositions aligned to attractive market opportunities Experienced Management Team A future-rationalized portfolio and capital allocation approach focus
Slide 56: Background
56 Background • Foundation work complete • Client buying patterns are more evident • Growth trajectories understood • Investment needs prioritized Ongoing portfolio analysis continues to confirm the sum of the parts valuation is superior to CNDT valuation “Staying the course” for our turnaround thro
Slide 57: Approach
57 Approach • Our portfolio is too wide and diverse • Some solutions will take too long to grow or require too much investment / bandwidth • Some solutions will command a higher multiple than CNDT • Sale of Midas Suite is a proof point • Prioritized the portfolio for grow / optimize / rationalize •
Slide 58: Outcomes: Deployable Capital with Divestiture Proceeds
12/31/22 Cash 58 Outcomes $598M $680M $250M $598M ~$250M $500M to $700M Approx. $1B Up to $400M Deployable capital available: base case plus proceeds from divestitures (2022 to 2025) $1.0B 142% of Mkt Cap* *Market Cap at 3/27/23 $704M $500-700M of potential divestiture proceeds Enhanced valuation wi
Slide 59: Capital Allocation Priorities
Internal Investments M&A Debt Reduction Shareholders Returns 59 Capital Allocation Priorities Approximately $1.0B of capital available to deploy Current spending sufficient to drive organic growth expectations No plans for large acquisitions Maintain modest levels of net leverage Proportion of exces
Slide 60: Proforma Financials (2025 Exit Rate)
60 Proforma Financials (2025 Exit Rate) Adj. EBITDA Margin9.5-10.5% Adj. Revenue Growth4-5% Commercial Government Transportation 3-5% ~3% ~4% Adj. Revenue$3.3- $3.6B Proforma financials after portfolio rationalization activity March 30, 2023
Slide 61: Conclusion
61 Conclusion Repaired and strengthened the foundation Unique value propositions aligned to attractive market opportunities Experienced Management Team Financial outlook with revenue growth, margin accretion and cash generation A future-rationalized portfolio and capital allocation approach focused
Slide 62: Conduent and BNY Mellon Digital Integrated Payment Hub Video
Conduent and BNY Mellon Digital Integrated Payment Hub Video 62
Slide 63: Q&A
Q&A 63
Slide 64: Thank you for joining us
Thank you for joining us. The webcast replay and presentation material will be available at: www.conduent.com/investorbriefing2023 64
Slide 65: All rights reserved. Conduent and Conduent Agile Star are trademarks of Conduent, Inc. and/or
© 2023 Conduent, Inc. All rights reserved. Conduent and Conduent Agile Star are trademarks of Conduent, Inc. and/or its subsidiaries in the United States and/or other countries. 65
Slide 66: Appendix
66 Appendix - Other Modelling Considerations - Definitions - Reconciliations March 30, 2023
Slide 67: Other Modeling Considerations
67 Other Modeling Considerations *Assumes incremental Adj. FCF pays down Debt 2023 2024 2025 ~$90M ~$65MNet Interest Expense* ~$40M ~$20MRestructuring ~4.3% ~4%Capex (% of Revenue) ~50% ~30%Adj. Effective Tax Rate ~4.5% ~3.5%Interest Rate (Benefit Wallet) March 30, 2023
Slide 68: Definitions
68 New Business Total Contract Value (TCV): Estimated total future revenues from contracts signed during the period related to new logo, new service line or expansion with existing customers. New Business Annual Recurring Revenue (ARR): Metric measures the revenue from recurring services provided to
Slide 69: Non-GAAP Financial Measures
69 Non-GAAP Financial Measures We have reported our financial results in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In addition, we have discussed our financial results using non-GAAP measures. We believe these non-GAAP measures allow investors to better understand th
Slide 70: Adjusted EBITDA and EBITDA Margin
70 Adjusted EBITDA and EBITDA Margin We use Adjusted EBITDA and Adjusted EBITDA Margin as an additional way of assessing certain aspects of our operations that, when viewed with the U.S. GAAP results and the accompanying reconciliations to corresponding U.S. GAAP financial measures, provide a more c
Slide 71: Free Cash Flow
71 Free Cash Flow Free Cash Flow is defined as cash flows from operating activities as reported on the consolidated statement of cash flows, less cost of additions to land, buildings and equipment, cost of additions to internal use software, and proceeds from sales of land, buildings and equipment.
Slide 72: Revenue at Constant Currency Non-GAAP Reconciliations
(in millions) FY 2022 FY 2021 FY 2020 FY 2019 Revenue $ 3,858 $ 4,140 $ 4,163 $ 4,467 Adjustment: Divestitures(1) (7) (70) (72) (108) Adjusted Revenue 3,851 4,070 4,091 4,359 Foreign currency impact 39 (17) 1 24 Revenue at Constant Currency $ 3,890 $ 4,053 $ 4,092 $ 4,383 72 Revenue at Constant Curr
Slide 73: Adjusted EBITDA Reconciliation
1. Adjusted for the full impact from revenue and income/loss from divestitures for all periods presented. 2. Included in Depreciation and amortization on the Consolidated Statements of Income (Loss). 3. The tax impact of Adjusted Pre-tax income (loss) from continuing operations was calculated under
Slide 74: Free Cash Flow and Adjusted Free Cash Flow
Free Cash Flow and Adjusted Free Cash Flow (in millions) FY 2022 FY 2021 FY 2020 FY 2019 Operating Cash Flow $ 144 $ 243 $ 161 $ 132 Cost of additions to land, buildings and equipment (92) (80) (76) (148) Proceeds from sale of land, buildings and equipment — — — 2 Cost of additions to internal use s
Slide 75: All rights reserved. Conduent and Conduent Agile Star are trademarks of Conduent, Inc. and/or
© 2023 Conduent, Inc. All rights reserved. Conduent and Conduent Agile Star are trademarks of Conduent, Inc. and/or its subsidiaries in the United States and/or other countries. 75