Conduent Incorporated Common Stock 2026 Q2 Earnings Call

Good morning, everyone. Welcome to Conduent's second quarter 2026 earnings call. With me today are Harsha Agadi, our CEO, and Giles Goodburn, our CFO. Harsha will provide an overview of the business, and Giles will cover our financial performance in greater detail. We hope you have had a chance to review our press release issued earlier this morning. A copy of the press release and slides used during this call were filed with the SEC on Form 8-K. This information is also available on the investor relations section of our website. During this call, we will make forward-looking statements. These statements reflect management's current beliefs, assumptions, and expectations, which may change over time. Actual results could differ materially from those statements due to a number of factors. Information concerning these factors is included in our 10-K and 10-Q filings with the SEC.

Unless otherwise stated, the information presented today reflects our continuing operations. It does not include the divestitures announced during this quarter. It includes non-GAAP financial measures, which should be viewed in addition to, and not as a substitute for, our GAAP results. For more information regarding the definitions of our non-GAAP measures, how we use them, and the limitations to their usefulness for comparative purposes, please see our press release. I would like to turn the call over to Harsha.

Good morning, everyone, and thank you for joining us. Six months into my role as CEO, I have a clear view of where we stand as a company, where we need to improve, and most importantly, where I believe we have significant opportunity to create value. Over the past several months, I have spent a lot of time listening to clients, engaging with associates across our business, and reviewing our operations firsthand. My perspective was reinforced this spring at ELEVATE 2026, our client event in Chicago, where we heard directly from nearly 100 clients and partners, representing a diverse range of Fortune 100 companies, about what matters most to them: greater speed, simpler operations, continued innovation, and consistent execution.

Those conversations also reinforced that the five priorities we established at the beginning of the year remain the right ones: increasing speed and accountability, enforcing financial discipline, reducing our cost structure, optimizing our portfolio, and converting pipeline into growth. Today, I'll provide an update on the progress we're making against each of these priorities. Before I do, a brief comment on the quarter. Our second quarter results were in line with our expectations. As a result of the two divestitures we announced during the quarter, we are updating our full-year guidance to reflect the impact of those transactions. Let me start with our first priority, increasing speed and accountability. Over the past several months, we've continued simplifying our structure and how we operate, strengthening accountability, and aligning the organization around our highest priorities. We've also strengthened our leadership team to improve operational efficiency and support our transformation.

Approximately 80% of our senior leadership team is either new to Conduent or has taken on expanded responsibilities, bringing their deep experience and proven leadership across the industries we serve. We're also beginning a phased return-to-office approach, starting with locations where we have significant workforce. We believe that greater in-person collaboration will enable faster decision-making, stronger collaboration, and better outcomes for our clients. These actions are creating a simpler, more agile, and more efficient Conduent, one that is better positioned to deliver consistently for our clients and shareholders. Our second priority is enforcing financial discipline. We continue to strengthen financial discipline across the organization with tighter controls around hiring, discretionary spending, and capital allocation while increasing oversight of cash and liquidity across the business. These actions contributed to a meaningful improvement in our cash performance, with cash usage essentially flat compared with the prior quarter.

While we have more work to do, this is an important step in improving our cash generation and strengthening our financial flexibility. Our third priority is reducing our cost structure. Throughout the quarter, we continued simplifying the organization, reducing structural costs, and redirecting investments towards the capabilities that will create the greatest long-term value. We continue to make good progress against the approximately $100 million annualized cost savings program we announced in the first quarter and remain on track to implement the majority of this program this year. The program spans all businesses and corporate functions with a focus on optimizing technology spend, right-sizing certain roles, reducing duplication, eliminating bureaucracy, and simplifying our operating model across the enterprise. The fourth priority is optimizing our portfolio. We are taking a disciplined approach guided by a simple framework: fix, sell, and grow.

We will fix businesses where we see a clear path to improving performance, sell businesses that are no longer aligned with our long-term strategy, and grow the businesses where we have the strongest competitive advantages and the greatest opportunities to create long-term value. During the quarter, we announced the sale of our transit business to Modaxo and the sale of our tolling business to Quarterhill. Together, these transactions complete our exit from the transportation business, significantly reduce off-balance-sheet financial obligations, and further simplify our portfolio. We expect both transactions to close by the end of 2026. With these transactions, we now expect to generate approximately $234 million in gross proceeds, in addition to retaining a 7% equity interest in Quarterhill, whose current market capitalization is approximately CAD 300 million. This exceeds the commitment we made in the first quarter to generate at least $200 million through portfolio actions.

We intend to use the majority of these proceeds to reduce debt, further strengthening our balance sheet and financial profile, and providing us with greater optionality to invest in high-return growth opportunities. These actions also sharpen our strategic focus, allowing us to concentrate our capital, resources, and management attention on the remaining businesses where we believe we can create the greatest value for our clients and shareholders. Portfolio optimization is not a one-time event. It is an ongoing discipline that will help us build a simpler, more focused, and high-performing Conduent while maximizing long-term shareholder value. Our final priority and the fifth priority is converting pipeline into growth. During the quarter, we continued to build momentum through a more focused go-to-market approach. The progress is reflected in the strength of our pipeline.

Across our commercial and government segments, we have approximately $3 billion in qualified new business opportunities, which has grown sequentially over the past several quarters. While there is more work to do, the continued growth in our pipeline reinforces our confidence that the actions we've taken to improve execution, sharpen our market focus, and strengthen our client relationships are beginning to deliver. At the same time, it's important to recognize that there is a natural timing difference between winning new business and seeing the full revenue impact. As we've discussed previously, some contracts continue to roll off, and we also continue to see volume declines in certain existing client programs. Our focus is not simply replacing revenue but improving the quality of our portfolio by winning business in areas where we have a stronger competitive differentiation and a better long-term growth potential.

This is a natural part of our transformation as we shape the portfolio toward higher value opportunities and differentiated solutions. Those trends are reflected in the client momentum we saw during the quarter. In commercial, I'm pleased to let you know we have sold approximately $100 million of new business in the first two quarters. We also continue expanding into adjacent markets with new capabilities that create additional avenues for growth. I'll share a few examples. We signed a new pension risk transfer administration engagement with Securian, expanding our position in the growing retirement administration market with a differentiated end-to-end solution. Trillium Health Resources selected our Health Services Plus platform to support claims processing, provider data management, and member services, validating the investments we've made in our healthcare platform and reinforcing our ability to deliver integrated solutions for healthcare organizations.

We also expanded our relationship with Avis Budget Group through a new vehicle citation offering, leveraging multiple solutions from across our businesses. Importantly, this establishes a new scalable offering that can be applied across organizations managing large vehicle fleets, opening an attractive adjacent market for Conduent. We're also seeing continued expansion with several leading U.S. healthcare payers, reflecting the strength of our relationships and our ability to deliver additional value across our portfolio of solutions. Turning to our government business. We have sold approximately $89 million of new business in the first two quarters, and we continue to demonstrate the value of our expertise in modernizing mission-critical public programs. Let me share some examples.

During the quarter, we implemented a modernized state-of-the-art Medicaid platform for the state of New Mexico, replacing a 24-year-old legacy system with a single integrated platform that enables faster, more efficient claims processing, and improved access to care and continuity of service for approximately 900,000 Medicaid members. We also secured a multi-year renewal in Virginia to continue operating and modernizing the Commonwealth's Medicaid systems, enabling the transition to a more integrated platform designed to improve access to information, strengthen fraud prevention, and enhance program performance for approximately 1.6 million enrolled Virginians. We continued advancing electronic benefits transfer modernization by completing pilot or production deployments of chip-enabled EMV technology in 3 states, with a fourth state scheduled to roll out by the end of the summer. Together, with enhanced fraud prevention capabilities, these technologies are helping states better protect benefits while improving security for program participants.

Beyond the wins we've announced, our qualified pipeline remains extremely strong. While the timing of individual awards can vary, the breadth and the quality of our pipeline reinforces our confidence in our ability to continue converting pipeline into sustainable growth. The client momentum we're seeing is supported by attractive long-term market fundamentals. Our go-forward portfolio addresses a large and growing market of approximately $200 billion, expanding at an estimated annual rate of about 4%. We believe Conduent is extremely well-positioned to capture this opportunity because organizations increasingly need partners that can modernize complex operations through integrated end-to-end solutions, not isolated point products. That is where Conduent stands apart. We combine deep operational expertise with technology automation and AI to transform mission-critical business processes for our clients. That differentiation is becoming even more important as organizations look to adopt AI increasingly.