Conduent Incorporated (CNDT) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Conduent Incorporated. Please note that today's meeting is being recorded. During the meeting, participants who properly registered and provided a control number may submit questions or comments pertaining to the subject matter of the specific proposals being presented. You can submit these questions or comments at any time by clicking on the message icon. It is now my pleasure to turn today's meeting over to Courtney Mather, Chairman of the Board. Mr. Mather, the floor is yours.

Thank you, and welcome to Conduent's Fourth Annual Meeting of Shareholders. I'm Courtney Mather, Chairman of the Board, and I will chair today's meeting. I want to thank everyone for joining our meeting today. And on behalf of the Board, I'd like to express our profound hope that you are all staying safe and well. 2019 was a transitional year for Conduent, and 2020 has dealt our economy and our personal lives a serious challenge. I'm proud of the changes Conduent made before the crisis and particularly proud of the way Conduent associates stepped up to deliver for our clients during the crisis. One silver lining in all of this is that the crisis shined a spotlight on what Conduent does so well, it gets the job done for its clients. They appreciate it -- the Board of Directors appreciate it, and we see it as a competitive advantage for our future. Speaking of the Board, I would now like to introduce them. The following members of the Board are on the call today: Kathy Higgins Victor, Chair of our Compensation Committee; Scott Letier, Chair of our Finance Committee and a member of our Audit Committee; Jesse Lynn , member of our Governance Committee; Margarita Paláu-Hernández, Chair of our Governance Committee and a member of our Compensation Committee; Cliff Skelton, Conduent's Chief Executive Officer. I would also like to introduce Director Nominee, Michael Montelongo, President and Chief Executive Officer of GRC Advisory Services, LLC, who is also on the call today. And also participating from PricewaterhouseCoopers, the company's independent auditor, is Pierre Sur, the lead PwC engagement partner. In addition, several members of the company's management team are with us on the phone today, including our Chief Executive Officer, Cliff Skelton, who I just introduced; Brian Walsh, our Chief Financial Officer; and Michael Krawitz, our General Counsel and Secretary. Please note that we are recording today's meeting so that shareholders who cannot attend the meeting today can replay the proceedings and also to make sure that we have an accurate record of the meeting. Finally, after the formal business of the meeting, we will have an opportunity to address general questions. If you are interested, please stay on the line after the formal business is concluded. I will now ask Michael Krawitz to handle some of our preliminary matters. Michael?

Good morning, Courtney, and welcome, everyone. Gregory Veliotis of Computershare has been appointed to act as inspector of election at this meeting. He has subscribed his oath of office, and he has submitted his report as follows. There were outstanding on March 25, 2020, the record date for this meeting, 209,058,215 shares of common stock. The holders of approximately 191,781,099 shares are present at this meeting or by proxy or approximately 91.74% of the outstanding shares of common stock. Accordingly, a quorum is present.

Since we have a quorum present, I now declare that the meeting is legally convened. We will now conduct the formal business of the meeting. Michael, please discuss the procedures for transacting the business of the meeting.

The agenda has been posted on the website for this meeting, and the meeting will take place as described in that agenda. The guidelines for this meeting have also been posted on the website for this meeting. Shareholders will have the opportunity to ask a question about any resolution that is before the meeting for consideration. If you wish to do so, please click on the message icon on your screen to submit your question and comment. Please keep your questions or statements brief and limited to the specific item up for discussion. At the relevant time, Antoinette Battiato, the Manager in our Office of the Corporate Secretary, will read questions submitted that pertain to the specific proposal being presented as we go through the formal business noted on the agenda. We will get to as many questions as we reasonably can for each item. We'll also have a general Q&A period after our formal business has been conducted so we can address any questions not related to a matter on which you are voting. Our annual meeting guidelines contain a list of questions that will not be entertained at this meeting. Note also that in our annual meeting guidelines, we ask that you please limit your comments and questions to no more than one submission per agenda item and one submission for the general Q&A period. For those shareholders who wish to vote online during the meeting, there is a Cast Your Vote button available on the screen that is available to shareholder who properly registered and provided a control number. Shareholders may vote until the polls close, which will occur shortly after agenda item 3. If you have voted your shares prior to the start part of the meeting, your vote has been received by the company inspector of elections and there is no need to vote those shares during the meeting unless you wish to revoke or change your vote.

Thank you, Michael. I now ask you to present the matters to be voted on during this meeting.

First, the election of directors. On behalf of the Board of Directors, I nominate the following persons named in the proxy statement for election as directors to hold office for a term of 1 year and until their successors have been elected and qualified: Kathy Higgins Victor, Scott Letier, Jesse Lynn, Courtney Mather, Michael Montelongo, Margarita Paláu-Hernández and Cliff Skelton.

Are there any comments or questions on this proposal?

There are no questions, Courtney.

Since there are no additional comments or questions, we will proceed.

The second item for voting is a ratification of independent auditors. And I move for the adoption of the following resolution: resolved that the selection of PricewaterhouseCoopers LLP to act as the company's independent registered public accounting firm for the year 2020 be and hereby is ratified.

Are there any comments or questions?

No, there are no questions.

Since there are no comments, we will proceed.

The third item for voting is the proposal regarding approval on an advisory basis of the 2019 compensation of our named executive officers. I move for adoption of the following resolution: resolved that the company's shareholders approve on an advisory basis the compensation of the named executive officers as disclosed in the company's proxy statement for the 2020 Annual Meeting of Shareholders pursuant to Item 402 of Reg S-K, including the compensation discussion and analysis, the summary compensation table and the other related tables and disclosures.

Are there any comments or questions?

No, there are no questions.

Since there are no questions, the discussion of the proposals and resolutions is now concluded. Ladies and gentlemen, the polls will close shortly. If there's any shareholder who would like to vote before the polls close, please vote now by clicking on the Cast Your Vote button on your screen so that we can make sure your vote is counted. As was said earlier, if you voted your shares prior to the start of the meeting, there's no need to vote those shares again during the meeting unless you wish to revoke or change your vote. [Voting]

Does it appear that all the votes are in?

Yes.

Then I now declare the polls closed. Michael, will you please present the report of the inspector of election?

The inspector of election has presented his preliminary report to me, and he has determined that, first, for the election of directors, each of the director nominees received at least a majority of the votes cast at this meeting for his or her election. This satisfies the majority vote requirement of the election of each of these directors. Second, for the ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the year 2020, at least a majority of the votes have been cast for this proposal. And finally, on an advisory basis of the 2019 compensation of our named executive officers, at least the majority of the votes have been cast for that proposal. For reference, the preliminary results indicate that each of the items on the agenda received favorable votes of at least 87% of the votes cast. The final tally, which will include the votes cast during the meeting, will be filed with the Securities and Exchange Commission on a current report on Form 8-K.

Thank you, Michael. Having received the report of the inspector of election, I declare that all of the directors nominated by the Board have been elected, the selection of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for 2020 has been ratified and the 2019 compensation of our named executive officers has been approved. That concludes the formal business portion of our meeting today. There being no further business to come before the meeting, the meeting is adjourned. Cliff, before we turn to Q&A, would you like to say a few words?

Thanks, Courtney. I hope everyone is doing well, and I appreciate you dialing in today and for your support of Conduent. Brian Walsh and I just held the Q1 earnings call, and I encourage you to listen to that if you have not already. Today, I'd like to step back and share with you a broader view about Conduent, our transformation and our strategy moving forward. Without a doubt, we're on a turnaround mission, and it's exciting to see it start to bear fruit. That's not to say we're done, we have much more to do. However, when you boil it down, our challenge is not hard to understand. In both 2018 and 2019, quality was poor and sales was insufficient, causing more client revenue to leave than sales was able to overcome. However, we've made significant progress in reversing this trend. We have uncovered additional efficiency opportunities through the COVID crisis. We acted quickly to enable the majority of our workforce to work from home while satisfying service level requirements for our clients. In terms of leading indicators for success, sales for Q1 were up 44% compared to Q1 of 2019 and up 55% quarter-over-quarter. Lou Keyes, our Chief Revenue Officer, is with us on the call today. He has supplemented and energized the sales forces, and every new signing is a high point for our team. Now while not all revenue ramps immediately, no matter how you look at it, strong sales numbers bode well for our future. Client feedback on quality has also been very positive. We've had a significant improvement in our technology incident rate and reduced resolution time. Mark Prout, our Global Head of Technology, is also here with us on the call. He's done a great job in driving the rapid improvement in IT quality by implementing best practices and launching our new command center. He's also led a dedicated team who helped us transition over 50,000 associates to work-from-home environment in a matter of just a few short weeks. And it's not just Lou and Mark, every member of the leadership team and every associate has rallied around our transformation pillars of growth, quality and efficiency. Turning around a large enterprise is not easy, and it's always a bit slower than we'd like. COVID did not help. Although through a combination of our diverse product suite and determination, we fared better than many companies. I'm proud of all of our associates, and as a team, we look forward to delivering for our clients, our associates and to each of you. So with that, back to you, Courtney.

Thanks, Cliff. Now we would be happy to answer any questions of a more general nature. As a reminder, our annual meeting guidelines for the meeting lists certain topics that we will not address at this Q&A. Also, as requested earlier, please limit your comments and questions to no more than one submission per shareholder. This is in addition to any question you may have asked in relation to a specific proposal. In order to get through as many questions as we can, some questions on the same topic or on related topics may be grouped, summarized or answered together. Michael, are there any questions that have not been addressed?

Yes, Courtney. The first question is why is this team the right group of executives to lead the company forward?

Yes. I'll take that, Courtney. Look, I think what the company needs right now is a team that knows what good looks like. We need a team that fills in our talent and our experience gaps. We need a team that's not siloed. We need a team led by folks that have seen large and successful turnarounds. We need the operators at the helm. We need someone who has led teams her whole career and particularly folks that have led something that others may not have been able to accomplish. We've changed out a lot on our team. We have a new CIO. We have a new general counsel. We have a new and first enterprise program management officer. We've got a new head of HRO. We've got a new head of our call center business. The entire leadership team with the exception of 2 members are new in their positions. So we think we've got the right team on the field. We think we've got the right leaders and operators that know how to turn something around, and we believe we're on the right course. And so I would say that we've got the right profile at this time.

Okay. There's one more question. Why is the stock not valued higher? And do you think the stock price will increase from here?

Look, it's probably best if I don't opine on where the stock is headed. Let me tell you my belief though. The company is a great company. I believe in the company. I believe we can grow the stock price and the company. I bought shares myself last week out of my own pocket. And all the early indications today would indicate that we're at the start of a turnaround. I would say that the reason we're kind of where we are is we haven't been able to demonstrate to the market we can grow. That is our mission, growing negative 6% to 7% -- 6% to 8% year-over-year from 2019 to 2020 is not acceptable. And so we need to fix that. We also need to create a strategy that's not creating a market that thinks that we have to have a divestiture. We have to grow what we have, and we're doing that. And COVID certainly didn't help. So this is a great company. We believe we can grow it. And when we do, we're going to see the stock grow along with it.

All right. The next question seems like it was intended for the third item but didn't make it into the queue in time. So I'm going to ask it now as a courtesy. Please disclose the CEO bonus targets and for -- to earn the maximum bonus of 200% for 2020. And I'll take this one. The standards for achieving a bonus are disclosed in the proxy statement, which will be filed in 2020, just as they were this year for 2019, which resulted in 0 payout for 2019. The next question is called unlocking trapped value. Given that Conduent trades at approximately 4x calendar 2021 EBITDA estimates and government technology services business is comparable to Conduent's government business segment traded approximately 12x calendar 2021 estimates, has the Board given priority consideration to tax efficiently separating Conduent's government business into a stand-alone publicly traded company, which would simplify Conduent from an operating perspective and significantly enhance both short term? And the question ends there.

Let me start, and Courtney can fill any gaps if he deems it appropriate. We would always consider opportunities, especially tax-advantaged opportunities for a move or a divestiture or things of that nature. We believe, however, that it has to make business sense, and we believe that we've got the right diverse profile of businesses that can help offset downsides, just like we're experiencing right now with COVID. So we think we've got the right profile of businesses. Certainly, we would consider opportunistically ideas around different venues like RMTs and others that would create a tax advantage. But all that said, it has to make business sense. And right now, we think the right business sense for our company is what we have on the field, and we want to win with what we have today.

The Board is open to any and all suggestions to add value and continues to keep the door open and review proposals and ideas from shareholders and other participants.

There are no more questions.

Okay. Again, thank you all for joining today. We hope that you and your families stay safe. Appreciate your time.

This concludes the meeting. You may now disconnect.