Conduent, Inc. Stock

Good morning, everyone. It is a thrill to finally be in this room today and with everyone on the line to have you join us for ASCEND 2026 to 2028. My name is Kimberly Marshall. I'm the Chief Commercial Officer at Conduent. And as I noted, our organization, our executive leadership team, our esteemed CEO are thrilled to have you join us for a program that will walk you through how we're going to take this organization to 2028, telling you about what was to what is today, what we've already accomplished and you can have confidence in and where we are headed to deliver exceptional growth in the years ahead.

I want to remind everyone that throughout today's program, we will be making forward-looking statements and walk you through the agenda so you know what to expect. I can have the agenda, please. Thank you. So we will be beginning right now with some welcome and introduction. I have the esteemed pleasure of turning over shortly here to our CEO. We will walk through the financials of the organization today, where we're headed for growth, what you can expect and the material pieces around that from Giles Goodburn. We will then head into a short break, where I will come back and join you and walk you through the future of growth at Conduent, what you can expect specifically in our commercial business.

I will turn over then to George Wehbe, who runs our commercial business. Then you will hear from Anna Sever, who will walk you through the government business and the thriving energy and pipeline and growth that's happening in that segment of our world today. We will take another short break, and then you will have the opportunity to hear from our new CIO and CTO, who is joining us today, and we are -- and also our shared services leader so that we can hear from the organization what we are doing and how you will absolutely be able to have confidence in our 2028 vision. We will then close with Q&A. We welcome the opportunity to answer questions on what you're hearing and where you feel that we will be going together on this journey to 2028.

With that, let me welcome the man who needs no introduction, our fearless CEO, the myth, the man, the legend, Mr. Harsha V. Agadi.

Good morning, ladies and gentlemen, and welcome to this fine day in Manhattan. I want to start by a couple of introductions as there are a lot of people here in this room and some of you might not know who is who. So just briefly, I'll start with introducing, and I'd like each person to stand up so that everybody knows them. I'll start with our nonexecutive Chairperson. I actually would like to say nonexecutive Chairwoman because there are Chairmen, but we have a Chairwoman. And her name is Mrs. Palau-Hernandez. Please give her an applause. Thank you, Maggie.

Next, I want to introduce Michael Fucci, and he is one of our Board members and chairs, I call a painful committee for me, the Compensation Committee as well as audit. Then we have Ms. Greta Van. She is another Board member who chairs risk and sustainability, and she's more focused on risk. We mean business in this company, trust me. And finally, our youngest, dynamic, tallest Board member, Mr. Adam Demuyakor, please give him a hand. He chairs our Governance Committee.

We also have, amongst us, the entire senior leadership team, which I am, if all of you can stand at one time, and let's just give a quick applause as we get into the materials. Thank you very much. Thank you. And finally, very quickly, if Nitin Jain can stand and Remy Kaul and Cindy Gutierrez, they have been driving this Investor Day that you will see unfold very carefully today. Huge thank you to all of you. Ladies and gentlemen, I will assure you this is not my first rodeo. Trust me on this. We're going to go through this in a lot of detail.

To begin with, you're going to need to have a clear, as you can see, mission statement, and it's actually simplified, it's focused, and it should not change for a while to come. To be the premier AI-led, premier, which means #1, that is our mission, AI-led. That is the relevancy today and will change the way we function as humans. Technology-enabled, that's what drives the AI-led business process partner for government and commercial clients, helping them modernize daily their operations, enhance customer and constituent experiences, and achieve measurable and business outcomes.

When I, as CEO, meets another CEO, generally a client, I have to be very clear in the value add to each of our clients for it to be one a lasting impression and to drive more growth between us in our relationship. The key takeaways today are very simple. First, laying out that strong foundation that we have and the client relationships are in place. When I joined in May of last year as a Board member, as any individual would do, I did some research. I said, "Oh my, there's a lot of depth here in terms of foundation as well as a multi, multi-decade client relationship."

The second, the strategy is becoming clearer and clearer. And finally, it is time to execute and produce results. And when I say it is time, it is now, it is present, and you're going to start seeing as each quarterly result comes out. How we look at this journey today, and we have a moniker on this, Ascend 2026-2028 journey is underway. It's simple. We're going to look at it first, step 1, reset and stabilize; second, simplifying the operations; and finally, executing Ascend. Having been CEO 6 times prior to joining Conduent, I believe management and turnarounds are not an art. It is a science. It's proven. It's repeatable across sectors.

These are the 3 steps we will go through today in detail to tell you how we're climbing, why, which, when, et cetera. I'm going to go with the first piece, which is reset and stabilize. To begin with, let me just make sure there is no confusion who we are. 46, get ready for this, 46 out of the 50 states in the United States, we serve directly. It could be Medicaid claims, it could be Medicare. It could be eligibility. It could be enrollment. It could be EBT cards. I can go on and on. My dream a long time ago was to work for the government. I'm actually now finally living it. And guess what? I watch the dollars, and I see a lot of interesting things that I won't go too deep into.

Next, we have, if you look at the slew, 31 out of the Fortune 100 companies. The single example here, 1/3 of the Fortune 100, and guess what our ratio is in the next Fortune 400, almost 60%. We have 300-plus clients, and it's very interesting that I am now receiving calls. It took a few months, but the calls have begun where inbound CEO calls of other service companies are coming to me wanting to partner, wanting to jointly bid and make sure we land on the transaction.

Look at the other stats very quickly. 8 out of the top 15 U.S. health plans, 4 out of the top 10 U.S. banks. As part of our mission, I want to make sure there is total domination in our services. We are serving all of the sectors we only are focused on. 6 out of 10 pharma companies, 3 out of 5 automakers. It helps when my co-summer interns 40-plus years ago are today running some of the auto companies. It's perfect timing in life, I would say. Let me just jump on and also talk about elevating client outcomes on 3 dimensions: efficiency. That is a daily mantra for all CEOs, get there quick, get there fast, get there at the lowest cost.

Experience for our end customer. It could be somebody receiving a pension from a company. It could be somebody processing a Medicare claim. The experience has to be seamless. The experience has to be short. The experience needs to be resolved quickly. Latency needs to be at its lowest. And finally, true value delivery. Are we really providing value to enhance our clients' business? These are the dimensions we're going to look at constantly. Our KPIs will revolve around these measures, all the way down to the single call center agent. It could be an AI bot, but KPIs are KPIs, whether it's human or AI, I hate to break it to you.

Our expertise is wide. We have deeply entrenched 24/7, 365 days service. We have approximately 46,000 employees. When I began in January, we had about 60,000. Our efficiency continues to go up. We have large concentration of our delivery centers in India, Philippines, United States, Guatemala, and we have a number of other locations, whether it's in Europe or in South America, stretching in Europe from Western to Eastern Europe as an example. And I have had the pleasure at this point in my first 7 or 8 months to have visited far-off offices, spend time in different cultures, sat and listened to calls from call center agents and watching how things work. I have to say an interesting thing. The further we are from the headquarters of any company, the action is greater. This is just the principle of corporations.

Let me move on to the next. This is a very important slide. I joined the company to remind all of you as a Board member in May. I got elected as Chair of the Board. In January, the Board made a decision to have me become CEO, and I moved on to an operating role, while Ms. Palau-Hernandez took on the role of the Chair of the Board, and we're going to come back to that in a moment. What were the challenges observed in the past history? I had a brief glimpse in the 6 months I was not a dependent Board member. I was independent those days. Now I'm dependent.

I'll start with the first one, limited strategic focus and prioritization. When you're in battle, when you have a fight, or you're about to have a fight. Your priorities are the most important thing that you need lined up. You miss the priorities, you will miss the entire story. You might not even be in battle. The second, this was very important, inconsistent execution and implementation had to be much more decisive. When you have a meeting, you need to make decisions. You do not have a meeting for the sake of having a meeting. Next, a very complex operating system and elevated cost structure.

And then the last 2, underinvestment in targeted growth areas. For example, if it is sales, we need to invest more. If it is AI functionality, we need to invest more. My first customer internally is our employees. They need to feel better. And I'm going to give you an example a little later. And finally, a reactive culture as opposed to a proactive culture. The minute the government makes the decision and changes how a payment is made, even if it is Social Security, Medicare, Medicaid, I don't -- I should not be telling my Board, I text at 5:00 a.m. I tell them I'm asleep at that time. But Anna Sever will get a message immediately, how does this impact us and how do we get ahead of this before it really becomes a bigger issue.

Let's look at the strengths. Very strong foundation, solutions that remain highly relevant. The living proof is a $3 billion company that has been serving clients for many years proves relevancy, long-standing relationship with premier clients. Let me give you the definition of long. Our top 20 clients have, on an average, been our client for 20-plus years. That is a lot of depth. And finally, a dedicated team with deep expertise and commitment to customers.

This, I had to think through a little bit as I walked in, and my wife was actually quite funny one day. About a month into my tenure, she said, "Do you have a handle on this? Or you're just telling the world you have a handle on this." And spouses are sometimes painful and direct. So guess what? Standing here today in front of you, I have absolute full confidence in the tremendous opportunity ahead of Conduent. And our job as a leadership team, as a Board is to unleash full enterprise value creation, not just only to our investors, to our clients, to our other stakeholders, our employees as well as all of the folks who touch Conduent on a daily basis.

The biggest thing I would say is accountability and transparency. I did want to talk about leading successful turnarounds. I have been in oilfield services. I have been in restaurants. I've involved myself in high-end hotels. I have been in Software-as-a-Service, just to give you examples, including [ spawned, ] a business process outsourcing firm that competes against us today as the founder. When I go through all of these turnarounds, there are certain ingredients that have to be present. By the way, we're only human, but you need a starting holy grail of what is going to be used to make things successful. Strong assets, long-term client relationships, clear priorities, disciplined execution and a culture of maximum accountability.

Our leadership team, this is a very important slide near and dear to my heart. When you look at this, the majority are new. In fact, last night, when we had dinner, I pointed out to my 3 friends who have survived the change. And in fact, you'll see some of them in action. And I'll go very quickly on the business side. We have Kimberly Marshall, who talked to you a minute earlier, our Chief Commercial Officer; George Wehbe, our President for Commercial; Anna Sever, who actually runs the entire Government Solutions business.

Just so you know, Kimberly is in her position the last 1 year or less. George and I made a race to Conduent. I think he joined a couple of days before me. And Anna is in her role for the last 6 months. Giles Goodburn is our CFO, patient, cautious, almost never believes anything I say. So we have a real problem with this. Anna Novoseletsky joined us a couple of months ago, and I think she's put in a year's worth of work rapidly, unflappable.

And then I'll go to Narayanan, and he's been here a long time. 2 weeks, hit the ground running, and he will unveil the story on AI with his co-partner, Nitin Jain, Mark McGinn, focused. He knows how to land the plane, our President of Transformation and our Chief Transformation Officer; and Mani, who runs our global shared services. When I first talked to Mani, he was actually in shock that we don't have something called a global shared services at a maximum efficiency model. He gave me a sermon, it is impossible to compete against our competition if we don't have that setup.

When you look at all these names, 3 out of 9 or 10 there have existed in the company in other roles, including Giles, was not in his role 1.5 years ago. And today, we are all new to each other, seamless, and we're working together. I'll tell you how good we're working together. If we're having a leadership meeting, and I'm gone for an hour right in the middle of the meeting to a client call, the agenda keeps moving, the decisions keep getting made.

To remind you, in our quarterly calls, we talked about our strategic priorities. Let me go through that. This hasn't changed. Growth is at the top of the charts, converting pipeline to growth. Reducing cost structure is already happening and will continue to happen. Even after we do the cost structure reduction 2 years later, my team is getting used to this rapidly. We're going to go back and look at cost again and again. Cleansing the house is a very good thing.

Let me go to the next, enforcement of financial discipline, whether it is capital allocation, which, by the way, as CEO, that is one of my most important jobs. Every dollar we spend has a lot of choices. It could be merit increases. It could be towards AI transformation. It could be marketing. It could be a flight to a client. The result of that is daily financial discipline is key, increasing speed and accountability. Investors, you have reached me, you've tried to reach me. We typically make contact rapidly. You have my cell phone, you text me, I do respond. You're already experiencing it. And optimizing the portfolio. We're going to talk about that a lot more.

Let me now go through some decisive actions we did to reset and stabilize. One is, I'll start with the Board. Ms. Palau-Hernandez is working on reforming the Board with the right talent, and we're going through it very carefully, very diligently step by step. 4 out of the 5 have been here less than a year, 2 out of 5 have been here 6 months or less. So this is happening as we speak. While Ms. Palau-Hernandez is making those changes, I work simultaneously on the senior leadership team, and you can see the stats.

Next, we had to rethink our strategy and our growth approach and the going to market. I am sitting in sales meetings, not all of them because there's only one Harsha, as I remind the team. But I sit on a few, and I need to really witness how we sell and how we reposition it. And finally, simplifying and strengthening the business. You're going to know more about that as the slides go by in terms of what's happened with transit and tolling. And as you can see, with the simplification, we are going to have a fair amount of value realization. The cost reduction on the number of employees is obviously generating savings.

Let me go through the next slide, please. On the next, simplify and concentrate, the very first step. We identified almost -- or not almost, I'm sure before I got to being CEO, while I was Chair of the Board, that transit and tolling was not the perfect fit for this business. We announced both transactions. I have promised all my investors, one landing, just to remind you, end of October, one landing end of November. If I'm a good CEO and we're a good team, we will land it every day before those dates, which means we're hurdling towards it fairly quick.

The value realization is approximately $234 million. That's 7%. I had some heartening news. The value is now even higher. We are going to be a very concentrated portfolio focused on 3 things. This may be the most important slide you may see the entire day. We're going to focus on health care operations, financial operations, enterprise operations, does not matter if it is a government client, does not matter if it is a commercial client. We are very good at 3 sectors. We're going to be zoned in on our services. Our technology platforms will eventually start becoming common in many cases, so we can leverage dramatically in how we serve our clients.

That data is important. Investors tend to forget dates sometimes with all due respect. They say, "Hey, what did you do today?" This is Conduent 2027 starting point, January 1. Once we sell transit and tolling, our revenue stabilizes at $2.15 billion to $2.25 billion, and that's where our starting point is. In fact, as we're hiring individuals, I go through some very interesting negotiations. You're a $3 billion company and you're only going to pay me so much? I said, "No, no, no, no, no, no. We're a $2 billion company, and that is how we're going to behave." In fact, we might behave we're even smaller than that, so we're very efficient.

Look at some of the other stats, 95% of our revenue is recurring. It is sticky. I talked about the 20 years, 20 clients. We're in 22 countries, 40,000-plus employees. That means if I'm at 46 today, it's going to continue to come down at the beginning of the year, we're at a new base. And the last one, maybe we have too many delivery locations. I won't go deeper. That's being examined.

Our solutions catered. This is heartwarming. Whenever somebody takes on a new role or joins the Board, we all do our homework generally. And I said, how big is the total addressable market of where we play in the commercial space, in the government space. And it was very, very simple and shocking. It's a $200-plus billion industry, growing at a 4%. So as we're all watching, our revenues have declined a little bit for sure, and we will start climbing back. If I don't get to 4%, I'm below average to the sector. I need to be above 4% to give myself a good score.

And finally, the tailwinds of the market is making a difference, whether it is BPS adoption, rising demand for AI, customers continue to look for vendors. This is another important moment, end-to-end solutions as opposed to let me just get one solution. And then finally, if you look at some of the other issues, pricing is now shifting to an extent to outcome-based, which means we have to produce results rapidly. We have received many, many, many awards. The office has a lot of these awards all over the place. We haven't received the award for the highest EBITDA margin and the maximum sales growth yet.

So this is a good slide. It's very useful, very useful for us to gain traction and meet clients. The good news is the clients don't ask our financial numbers in most cases, but you guys do. So to me, that slide will eventually become the most important achievement. But we have a lot of achievements. The scale of our impact is very meaningful. 1 out of 3 Americans. We touch 1 out of 3 Americans. That's a staggering statistic. That means we serve more humans than any country in Europe just as a statistic, 111 million. We're processing $80 billion of benefit payments, half a billion right now in Medicaid claims.

You can back into the market share, and I want more market share there. 2 billion customer interactions. And finally, $14 billion of claims and documents processing. I do need to go back and examine that last stat. We may be the largest claims company despite some insurance claims companies claiming to be the largest. Finally, when you look at our capabilities, we have a slew. And as I said, we're zoning in and narrowing in a very focused manner, health care, financial solutions, enterprise solutions.

So I'm just going to give you just one example on this slide. And if you look at intelligent document processing, AI-driven hand recognition, my team is carefully watching me because I'm using AI almost every minute. I'm subscribed to every service to see how fast it can take me point A, point B. That AI-driven handwriting reporting is key, is key in claims, in documents that banks send in synthesizing and summarizing. And what it gives us is data. How do you monetize this data is the next chapter.

Let me finally go to the next slide. On the Execute on ASCEND, which is the third pillar here, we are focused on standardizing, specializing and scale. Again, think of it in 3 steps. You got to standardize, focus on specialization in the areas you play and then you got to scale that. On the standardized very quickly, very, very simply, efficiency, faster, similar, no silos. Silos is a bad word in our company today, a very bad word, and exploring constant operational synergies.

On specializing core solutions, we talked about the 3. We're going to double down on the 3, again, health care, financial, enterprise focused on government and commercial. And of course, the foundation of all of this will be AI. And then finally, scaling is very important. If I have 2 services for a client, I'd like to have 8 because I have 8 services I offer. If I have 4 out of 10 banks, I want to have 8 out of 10 banks, 10 out of 10. I'm focused on what we don't have and go after that in terms of the client base.

Let me now go to the next piece, which is the execute. Please keep moving. Let me stop right here for a moment. This -- please, if you take nothing away today, nothing. This is a new Conduent, ladies and gentlemen. We are here and the chapters are unveiling for enterprise value creation, my incentives as CEO, thanks to our Committee Chair and his friends. I have to drive share price up. I have to create value. The leadership is strengthened. We talk differently. We play differently.

This is a moment investors look for either as they're coming in or they're running out of patience saying, how long will this take? We have differentiated solutions and flawless execution. If you've read some of the books out of the former GE Capital leaders or GE, I should say, flawless execution with operations and growth form the fundamentals of a winning team. Finally, this is a team sport. We will only be as weak as our weakest member. I am confident today no pressure to my peers, my colleagues. You will do very well today, and I think you guys are going to hear some exciting stories. Thank you.

I do want to invite Giles Goodburn, cautious, careful and always circumspect the 3 Cs.

I have to follow Harsha. No pressure. Okay. Thanks, Harsha. So it's great to see so many familiar faces here today. Thanks for everyone for attending. A lot of good content that we've got to get through. Before I get into the numbers, I've got 2 points. So first, everything I show you today is on a continuing operations basis and excludes the Public Transit and Tolling businesses, which we're divesting, consistent with our most recent filings. Second, we have a refinancing of our revolving credit facility underway. What we've said about the divestitures is in our public filings, and I'm not really going to go any further than that today. We'll give you a more complete picture of our capital structure with or prior to the third quarter results that we distribute in early November.

Continuing with ASCEND 2026 to 2028 thing, I'll demonstrate how these 3 pillars enhance our financial outlook from stabilization to top line growth. Let's begin with the divestitures.

The Transportation divestitures are of particular importance to the strategic direction for a number of reasons. These divestitures have a headline price of $234 million of gross proceeds plus a retained stake in Quarterhill, the acquirer of Tolling. We'll receive almost $200 million of those proceeds at close prior to year-end, with the remaining proceeds over the time -- over time in the form of certain holdbacks primarily related to the transit divestiture. Tax leakage and transaction costs are estimated to be less than $10 million, and the proceeds will predominantly be used to delever the company.

There's also significant derisking of our off-balance sheet exposures, where approximately 80% of our instruments, surety bonds and letters of credits are tied to transportation contracts. Other benefits of the transaction include a reduction of our geographic footprint, a reduced capital intensity of RemainCo. And like Harsha mentioned, this provides the catalyst to operate a simplified portfolio, focusing on markets where we can win and grow. There remain a couple of smaller divestiture opportunities for us, but nothing that would move the needle from a revenue, a profitability or a proceeds perspective.

Cost initiatives are another important component of the near-term strategy, which we will discuss later in this presentation. Our 3-year outlook is centered on modest top line growth over the period with a sharp focus on profitability through cost actions and deliberate pricing strategies. 2026 is a reinforcement of our previously guided ranges with revenue between $2.15 billion and $2.25 billion and adjusted EBITDA margin range of 6.5% to 7.6%.

Revenue for the out years, we expect to be flat in 2027 with low to mid-single-digit growth in 2028 as we reap the benefits of a more focused go-to-market strategy and our strengthening qualified pipeline. This would bring us closer to current BPS industry growth rates. We expect adjusted EBITDA margin to expand approximately 150 basis points each year, resulting in a 2028 adjusted EBITDA margin of approximately 10%, driven by our cost initiatives and pricing strategies.

Longer term, we expect to progress towards 15% adjusted EBITDA margins, resulting from investments to streamline our technology platforms, benefits from our AI strategies and margin accretion from revenue growth. From a free cash flow perspective, we expect 2028 to be positive once we've realized the costs to achieve our cost efficiency initiatives and some incremental investments in our technology platforms. Longer term, we expect this business to convert at least 20% of adjusted EBITDA to free cash flow. These outlook numbers are developed on the assumption that we close both the transportation divestitures and execute the $120 million of cost reduction actions.

Let's double-click on the growth trajectory. The growth journey starts with the qualified pipeline, represented on this graph by the 2 lines. The total company pipeline is $3.2 billion, split $2.7 billion in government and about $0.5 billion in commercial. Now that the size differential is typical as there's more line of sight to published RFP activity in the government environment. The government pipeline increased 78% since Q1 2024 and is up 8% since the beginning of this year. The strength here comes from government health care, eligibility and federal areas, all key growth markets for us where we have market-leading capabilities and are positioned well to win.

The commercial pipeline is also rebuilding nicely and is up 48% since the beginning of the year, resulting from our reshaped go-to-market strategy. George will discuss the commercial offerings later in the presentation, but the punchline here is 80% of our core commercial offerings have shown pipeline growth since the beginning of 2026, demonstrating the early signs of the reshaped go-to-market strategy and the investments we are making in our core product offerings is working. What isn't visible in the pipeline is the majority of add-on opportunities from existing clients, which typically show up in the quarter that they are signed and are therefore accretive to these pipeline numbers.

Switching from pipeline to ACV achievement. New business ACV has increased from 2024 through 2026, and the continuation of that trend will be a result of the strength in the government segment with modest step-ups in commercial. Government increase is a result of the pipeline strength and referenceability of our new market-leading government health care Medicaid platform, which is live in New Mexico and is being implemented in Virginia. Once completed, we will see additional add-on opportunities as we help our states keep current with changing legislation and demographic trends.

The other area we're excited about is the federal space, where we currently have a few contracts but see considerable opportunity from a growth perspective. All of these opportunities, Anna will elaborate on later in this presentation. We expect commercial sales to be approximately flat to 2026. The revamp of the go-to-market strategy, which Kim is building and will discuss later, is rapidly increasing the pipeline of opportunities and is expected to drive ACV growth in the forecast years as we take a more deliberate approach to specific regulated industries with bundled solutions, leveraging our robust technology platforms and advancement of our AI capabilities.

Turning to how those ACV signings convert to revenue. Our revenue drivers can be categorized into 3 buckets. Firstly, new business wins, the ACV we discussed on the prior page. This new business ACV comes in 2 forms: recurring revenue, where we have the opportunity to renew the contract at a future date, which -- and then nonrecurring revenue, which is more project-like and short term in nature. Now as Harsha mentioned, our base business is almost 95% recurring revenue, providing meaningful visibility and client durability. We need to ensure that we maintain the right balance of recurring and nonrecurring new business wins each year to grow the recurring base as well as replenish the $100 million to $150 million of short-term project work we execute each year, which is critical to our client strategies.

Second is churn. Our churn levels have been elevated over the last 2 years for reasons we've discussed openly on prior earnings calls. We've made significant progress addressing the underlying causes through the following actions. In our Government segment, we've made investments to strengthen our leadership and governance around implementations to ensure we're delivering these implementations on time and on budget for our clients.

In commercial, the reshape go-to-market strategy covers both new and existing clients, including targeted investments in our client partner organization, ensuring our clients' contractual, operational and strategic needs are being met through regular formal and informal reviews with the appropriate leaders in their organizations. These actions, together with investments in AI and platform enhancements will drive the churn number down.

Lastly is volume and price, both of which can either be positive or negative to the growth story. We believe 2027 will be a stabilization year with both segments expected to be flat to 2026 as we work through previously disclosed revenue runoff. Once behind us, execution on the strategies we've embarked upon should deliver mid-single-digit revenue growth in 2028 as all 3 of these revenue drivers move in a positive direction.

One of the goals of the business is to achieve 10% adjusted EBITDA margins by 2028. Through disciplined cost actions and pricing strategies, we will have doubled the margin of the business since 2024 despite top line challenges. This trend is set to continue as we execute on our cost reduction initiatives, deploy AI internally, drive more shared service center operating models across the corporate environments and take specific strategic pricing actions across the portfolio.

You can see from the EBITDA growth drivers, the journey to get to double-digit EBITDA margins with some nonrepeating items in 2026 to grow over as well as $19 million of stranded cost that isn't offset by any transition services agreements for the 2 divestitures. These costs will begin to be addressed immediately the transactions close. Approximately $24 million of adjusted EBITDA accretion will be achieved through revenue growth and pricing actions. However, the majority of the step-up in adjusted EBITDA will be generated by our cost reduction programs, $30 million of which will be resident in 2026 and $90 million accreting through 2028.

This next slide shows the substance behind the cost reduction program. We've partnered with experienced external advisers to drive the execution of these strategies with a full governance model and rigorous routines to ensure the opportunities are identified, sized, planned, tracked and executed effectively to ensure the results are visible in our financials. We've set ourselves a target of $120 million with roughly 50% of that target coming from people actions.

As far as timing, the people actions will be the quickest to execute with procurement, real estate and technology actions being executed over a longer time frame dependent on contract and lease renewal time frames and investments required for technology standardization. Needless to say, we are committed to executing this program to ensure a full run rate of savings is resident in our 2028 financials. So with that, I'll leave you with 3 key takeaways.

Firstly, divestitures, including the recent sales of Public Transit and Tolling, are being executed at constructive multiples that reflect the quality of our assets and are allowing us to reduce debt and strengthen the balance sheet. Secondly, improvements to both our product and go-to-market motion are resulting in solid pipeline growth. After working through the expected runoff in 2027, we expect to deliver top line growth in 2028 and ultimately, growth that will be in line with the market as a whole.

And finally, we are executing cost reductions of at least $120 million and exiting lower quality, more capital-intensive markets, which will allow us to achieve around a 10% adjusted EBITDA margin in 2028. Longer term, we expect to progress towards 15% adjusted EBITDA margins, resulting from investments to streamline our technology platforms, along with benefits from our AI strategies and accretion from revenue growth.

So that concludes the financial component of the presentation. We'll take a quick break, and then Kimberly will resume with the Commercial segment growth plans. Thank you very much.

[Break]

All right. I'm back. Excited to be here, and I encourage you to buckle up because it's about to get exciting. Good morning. I'm Kimberly Marshall again, Chief Commercial Officer here at Conduent. Across a 30-year client-facing career spanning health care, consulting, consumer, retail and technology industries, I have built, restructured and turned around commercial teams.

I joined Conduent for this exact opportunity to help shape the transformation Harsha so eloquently described earlier. And I believe deeply in what we are positioned to deliver next. Today, I'll show you how we standardized our commercial growth engine, embedded greater specialization and built the foundation to scale significant growth through 2028. We've activated a more disciplined commercial engine that converts Conduent's capabilities into stronger commercial performance, greater return potential and a more predictable path to sustainable revenue growth, applying our strong client relationships that Harsha shared with you earlier, deep operating expertise, which my colleagues, George and Anna will walk through further and differentiated technology through greater focus and repeatable execution, words you will hear me intentionally say over and over again.

Today, I'll show you how the commercial operating model is now in place. All pipeline is governed through 3 disciplines: standardize how we identify, qualify and convert opportunities; specialize where Conduent creates distinctive value; and scale only the solutions that show durable market pull, clear client value, commercial traction and compelling unit economics. The commercial reset is already producing measurable momentum. Client and sales team coverage is up 60% over the last 10 months. New business pipeline is up 12% year-to-date and new logo pipeline, the foundation of the future has more than doubled, increasing 106% year-to-date.

The economic logic is clear. Better coverage and qualification strengthen pipeline. Disciplined pursuits improve conversion and proven solution patterns shorten design cycles and support more efficient revenue conversion. That is the path to our 2028 ambitions. Our strategy overall has 3 connected stages. First, standardize. We've taken steps to simplify cost structure, aligned the organization around one commercial operating model and installed a measurable operating cadence. It is all about the metrics. Second, specialize. We're concentrating resources behind priority markets, differentiated solution architecture and stronger pursuit stories. And then third, as Harsha highlighted as the future, we scale. We're extending proven motions with clear client pull, demonstrated performance and favorable returns.

This order matters. Standardization creates consistency, specialization creates differentiation and scale converts proven value into growth. That's why we began with standardization, the foundation for consistent execution. It establishes one commercial language, explicit qualification standards and a clear path from market signal to close business without centralizing every decision. Teams now have defined guidance on which markets matter, what qualifies as a real opportunity, when specialists enter and when to advance, reshape or stop a pursuit. That shared discipline is now applied across the commercial pipeline.

The commercial reset is operational. This is a very important point. We are in these motions. The operating model is in place. A pipeline is governed through it and measurable momentum, as I highlighted, is building. We've simplified the cost structure, defined how work moves and connected activity outcomes through one operating cadence. Because every opportunity now moves through one commercial motion, leadership has earlier visibility and can redirect resources quickly, add specialist support to priority deals, reshape or stop low value efforts and maintain a clear view of conversion and economics, leading to revenue growth.

The result is clear ownership and a consistent path from opportunity again to qualified pipeline, signed business and more revenue. The end-to-end motion connects market focus, opportunity generation, qualification, solutioning and again, disciplined pursuit execution. We're focusing on priority markets, as Harsha highlighted, white space, buying centers, account signals, generating interest through coordinated campaigns and lead generation and moving qualified, again, qualified opportunities into sales through consistent handoffs.

Qualified opportunities receive solution modeling, executive storytelling, pricing and risk review and disciplined bid decisions. Harsha highlighted that discipline earlier. Those activities are designed to improve conversion and design business, client insight, win-loss analysis, then strengthen the next cycle. Everything becomes repeatable. As signed deals move through implementation, today's pipeline and pursuit improvements again become future revenue.

Four enablers specifically reinforce the motion, practical AI training, additional lead generation capacity, stronger executive storytelling and proactive communications. Market expectations make this absolutely urgent. ISG's 2026 state of BPO research found that clients expect more work, innovation and better outcomes without proportional headcount growth. That favors providers combining domain expertise, AI and operational control. Our commercial operating model is now built to turn those capabilities into stronger opportunities and differentiated pursuits meeting that market demand.

Three connected growth engines now drive the commercial motion. The demand center combines market and competitive intelligence, new logo development, sales and buyer enablement and direct customer input. Its role is to improve win probability at the front of the funnel by targeting the right accounts and buying centers, qualifying real client need and ensuring cleaner handoffs into the sales engine. Our solution architect group then translates qualified client needs into differentiated scalable models with clear outcomes and favorable economics that raises win probability by reducing complexity, strengthening the reason to choose Conduent and enabling broader cross-selling.

And the deal desk brings it all together, governing opportunities from qualification to decision, integrating sales operations, pursuit management, proposals, pricing, risk review and strategic coaching. It improves our win probability by concentrating our resources on the winnable deals, sharpening the pursuit narrative, resolving risks earlier and using our win-loss evidence now to improve each subsequent bid. Together, these engines strengthen the 3 conditions required for better commercial outcomes, higher quality opportunities, more differentiated and economically sound solutions and disciplined pursuit execution.

The connected model gives our team stronger basis for converting priority opportunities into, again, signed business and future revenue growth. With these 3 growth engines connected, our resources are aligned to 3 priority segments as Harsha and Giles highlighted as well, health care operations, financial operations and enterprise operations, a very strategic direction for the organization. Clients increasingly buy solutions to end-to-end business problems, not isolated capabilities. This focus allows us to combine our process expertise, technology and delivery around outcomes clients value.

This focus is also where we build specialist talent, partner and compete, concentrating our capabilities where client access, domain expertise, delivery strength and economics give us the strongest competitive position. Focus determines where we compete as well. Our operating cadence is now consistent, it's time bound, and it's turning shared performance data into resource decisions, strengthening priority pursuits, correcting underperforming motions and stopping the work that does not meet our defined thresholds.

As Harsha walked through the 3 steps of a successful model, we talk about the commercial operating model already established and that the next advantage is specialization. We now focus on our best capabilities where domain knowledge, operating expertise and technology can produce those differentiated outcomes. The market is rewarding providers that move beyond generic labor models and combine industry expertise, data, AI and managed operations. Pause because it's important to know now that Conduent competes from its strengths, deep process knowledge, scaled operations and technology that connects intelligence with execution.

Our 3 portfolios, segments of the business convert specialization into a clear commercial structure. Health care operations addresses complex member, provider, payer and administrative workflows. Financial operations applies processing, analytics and automation to high-volume, high-consequence activity. Enterprise operations connects it all, employee, customer and back-office processes. The addressable market is extremely attractive. Grand View Research estimates the global Business Process as a Service market at approximately $106.9 billion in 2026, growing to $193.1 billion by 2033, an estimated 8.8% compound annual growth rate.

Industry results reinforce this market opportunity. Providers combining deep data expertise with data, AI and managed operations are capturing the client interest and growth, and that will now be Conduent. Our priority positions align market growth with Conduent's strongest advantages, deep domain expertise, technology-enabled delivery and the ability to produce differentiated client outcomes with compelling return.

Let me give you an example in the health care space. So this illustrates how our health care capabilities converts domain expertise into differentiated technology-enabled solutions across the health care value chain. These 5 capabilities support member and provider interactions end-to-end, turning documents and communications into usable information, automating claims, payments and administrative workflows and applying analytics and AI to identify risk bottlenecks and recommended actions.

Combined with our deep health care expertise, scaled execution and human judgment, these capabilities address individual points of need or connect them, as you will, across the end-to-end journey. Together, they reduce administrative costs while improving clarity, speed and consistency for the user. Now I'm going to give you another proof point. Conni is one way we connect these capabilities, the Conni AI platform. You may recall Conni as an AI -- you may recall Conni as an AI-powered conversational experience.

In partnership with Microsoft, we've evolved that technology now into a governed enterprise-grade platform, now delivering measurable results in client use cases. The Conni AI platform connects engagement, intelligence and execution across complex workflows. Her orchestration layer interprets the real need in real time and coordinates the right combination of AI agents, enterprise systems, business rules, automated workflows and human expertise, all in one interaction. Conni connects an interaction to an operational trigger to action processing a transaction, updating a system, initiating a workflow, recommending a next step or escalating an exception in real time.

Built on Microsoft Azure, the Conni AI platform provides the security, scalability, governance and integration required across modern and legacy environments. The results we are realizing demonstrate that we are moving as an organization beyond AI experimentation to measurable operational and economic outcomes. Again, intentional words you will hear me use over and over again. The Conni AI platform has already produced measurable results and received meaningful external validation. We were recently selected from 40 entrants as the winner of a leading health care organization's global innovation challenge for a personalized agentic AI Navigator built on the Conni AI platform.

The solution turned complex health care information, including explanation of benefits and prior authorization communications, that of which we've all probably struggled with over time into personalized 2-way conversations that clarify what happened, what it means and what to do next. The orchestration layer then connects the user to the appropriate workflow, system, automation or if deemed necessary, human experience. From explaining the multiple charges in an EOB to submitting an appeal for an erroneous charge, the Conni AI platform can turn multiple phone calls and frustrating manual escalations into a single coordinated resolution.

The solution has delivered already. 86% of inquiries resolved without a human agent needed, ninefold higher consumer engagement, 21% fewer live agent interactions and a 24% reduction in average handle time with an estimated 18% to 14% in reduction in total health care costs. Again, these are meaningful metrics that matter. These results demonstrate the platform's ability to improve the consumer experience and operating performance with the potential to generate meaningful health care cost savings to all involved. This use case demonstrates the platform's potential to extend across other complex high-volume workflows where engagement must connect directly to operational execution in other segments that we are focused on today.

The strategic value of proof, though, is the ability to identify what is repeatable and ready to scale. We're codifying what works and extending it with discipline, not expanding every initiative we see. We're applying a disciplined scale test, sustained market pull, clear client value, commercial traction, repeatability and compelling, again, unit economics. That selectivity reduces complexity, sharpens execution and strengthens the potential return of each scaled motion. We are scaling those motions that deliver strong conversion, delivery confidence, margin potential and reuse across clients or markets. Each proven solution strengthens the next pursuit as designed. It reduces the design effort and accelerates time to value.

We're entering the next phase as both Harsha and Giles walked you through with clear momentum and a defined path to scale. Again, client and sales team coverage has increased 60% over the last 10 months. By 2028, we intend to reach 3x our current pipeline coverage, measured by qualified opportunities per covered account, not activity alone. The new business pipeline is up 12% year-to-date, demonstrating that broader coverage is translating into qualified opportunities. Our 2028 ambition is an annual qualified pipeline of $1 billion, governed through the stage progression, conversion and revenue contribution metrics and measures that we've put in place.

New logo pipeline has more than doubled, again, increasing 106% year-to-date. That acceleration is broadening the growth base and indicates that the commercial model is generating meaningful traction beyond just our existing clients. By 2028, we intend for new logo clients to represent 30% of our total pipeline while maintaining this rigorous qualification and economic discipline now in place. We have the operating model. The market focus and the proof points are in place. We will measure execution through qualified pipeline growth, conversion, new logo mix, time from signing to revenue and the economics of scaled solutions and hold the organization accountable for delivering our 2028 ambitions.

So what should be the pieces you take away from today and understanding the new commercial growth engine that is operating. Our new operating model is building a stronger commercial engine and the results are already visible. If there's one thing you should take away, it's that momentum and traction already in place. Now it's about the results continuing to grow. The portfolio is focused, execution is disciplined and commercial momentum is evident. The actions we have taken are improving coverage and generating stronger qualified pipeline.

The leading indicators we expect to translate into signed business through implementation, future revenue and sustainable growth. We've established the model, installed the discipline and are delivering measurable progress. Our focus now is to translate that momentum into sustained performance against the defined 2028 ambitions. We will get there. We are doing it already. We are excited to see what the years ahead will hold.

With that, let me turn over to my esteemed colleague and I'll say much older brother, Mr. George, show me the profit. Wehbe?

As we position Conduent for a durable and profitable future. This morning, I will share with you an overview of the products and services we offer, the industries we support, market trends and key priorities for the next 12 months. Let me start with why I'm excited about this business. Conduent has real breadth. We support mission-critical operations across multiple industries, and we are one of the most diversified, AI-led technology-enabled providers in the market. We are not a single-line provider focused only on customer experience, document processing or finance, accounting and procurement. We bring clients a broad end-to-end value proposition across the industries we support.

The health care industry is a great example. We support payers across the entire claims life cycle from claims platform management itself to inbound and outbound communications, claims processing, adjudication, customer contact and payment integrity. Financial operations is another example. We support retail and consumer banking across account opening, lockbox, print and mail, document processing, contact center and much more. In addition, we have industry-agnostic offerings such as finance, accounting and procurement, including source to pay, order to cash, record to report.

We have human capital solutions such as HR, payroll and total benefits as well as legal, compliance and analytics that supports case management and eDiscovery. That breadth, depth and domain expertise is a real differentiator for Conduent. You can see that breadth and scale in the numbers, 500 million health care claims processed, 4 of the top 10 U.S. banks are clients, $245 billion in payables processed by our finance, accounting and procurement teams, 2 billion customer interactions.

Across health care, financial and enterprise operations, we are significant players with deep domain expertise in the processes that matter most to our clients. So the starting point is clear. Conduent is a major multiline BPS provider with the capabilities to compete and win. That foundation matters, but the markets continue to evolve. So our priorities reflect 3 inputs: market trends, client needs and where Conduent must sharpen its focus. So what is the market telling us? As Harsha mentioned, clients are increasingly outcome-focused. Costs will always matter, but clients also expect faster cycle times, less rework, better customer experiences, stronger revenue performance and more consistent results.

Second, clients expect work to be completed through digital channels and less through your traditional labor-based models. Historically, greater productivity has translated to fewer FTEs and lower provider revenue. Going forward, providers must increasingly monetize results, not labor. So the market is moving towards outcome-based pricing. Clients are increasingly wanting to pay for measurable results, such as transaction completion rates, first contact resolution or claims accuracy. Providers that deliver those outcomes both efficiently and consistently will be rewarded. Finally, clients want modular access to specific capabilities without committing to large multiyear transformations.

These shifts are shaping the market, and Conduent intends to help shape the response. With that background, let me share the business priorities we are focused on. Using the ASCEND framework, I'm going to demonstrate how we're building more standardization across our operations and technology infrastructure and how we are investing to further specialize our solution sets. Kim has already covered the scale opportunity for commercial. I'll build on that by focusing on 2 areas that are central to our next phase, standardization and specialization. Let me start with standardization. Since joining the company in January of this year, my primary focus has been to improve the economics of the commercial business.

That means addressing the cost base and strengthening our operating model. We have taken several actions. We have upgraded the leadership team with new talent, reduced management layers and improved management spans. We've simplified the organization by consolidating similar functions, including workforce management, quality, reporting, analytics and other common areas under single leaders to drive economies of scale. We've consolidated vendors, contractors and tools to better leverage our pricing power. And we are working through underperforming accounts, improving economics where we can and making disciplined decisions where we cannot.

The result is real progress. In the first half of 2026, commercial adjusted EBITDA margins improved by 120 basis points. And we believe we have an annualized expense reduction opportunity of $80 million in 2027, which we are pursuing with discipline and rigor. The next area of focus for standardization is our operations and technology functions, especially through the use of AI. We are approaching this through 3 lenses. First, AI deployment across our technology teams. We are helping our software engineers become more productive. We have rolled out a standard AI-enabled toolkit, completed formal training and are already seeing benefits.

Second, client operations. Much of our work includes high-volume rules-based workflows. The opportunity is to automate more of that to improve both the efficiencies and the outcomes. Third, our approach to technology-based investments. Historically, we've made many decisions around a single product or a single solution. Going forward, we are biased towards reusability, a build once, serve many approach that can lower cost and improve speed to market. As I mentioned, we are already seeing early results. Two brief examples. Code review. We deployed AI-assisted code review and have reduced peer review time by 70% while maintaining code quality.

Second, legacy code migration. When doing a system or a platform migration, legacy code needs to be analyzed and gaps in the Go-To system need to be identified, so we can create user documents to build from. That can typically take anywhere from 3 to 6 months, depending on the size of the effort. For one particular project, with the assistance of our AI toolkit, the team analyzed legacy code and converted 26 screens into 197 user story documents, work that would have normally taken 3 to 6 months was completed in less than 4 weeks. These are just 2 examples, but they demonstrate meaningful productivity gains. We expect more as adoption grows.

We're also building reusable Conduent IP. In our document processing service, we've created common orchestration and reusable components for classification, extraction, validation, workflow and integration. Each document is routed to the right OCR or AI engine while preserving one consistent end-to-end process. The result is less duplication, a simpler technology landscape and a scalable foundation across clients and workflows. Over the next 18 months, we plan to scale these early successes through a standardized AI operating model. Rather than fund isolated initiatives, we are building reusable capabilities for engineering, operations, product modernization and client migrations.

By the first quarter of 2028, our directional targets are a 30% to 40% improvement in AI-enabled software engineering throughput, 10% to 15% less effort in targeted operational workflows, twice the migration speed to current product platforms and more than 75% adoption of standardized deployment models in targeted areas. Together, these targets create repeatable operating leverage, helping us modernize faster, deploy more consistently and deliver greater value at scale. Standardization will provide us with the operating leverage to create increased capacity and resourcing so we can focus our investments on the high-value workflows and processes where Conduent is best positioned to win.

We are concentrating those targeted investments in 3 areas: first, building unstructured data processing capabilities; second, modernizing our platforms through AI and cloud; and third, bringing more advanced analytic capabilities to our clients. Let me give you a few examples of what that looks like in practice. Most of our solutions deal with data as a starting point, whether that is data from documents related to claims, purchase orders, checks, you name it. Our solutions convert large volumes of information into business decisions. Health care claims are a great example, where most forms and correspondents contain both structured and unstructured data. We already process structured data very, very well.

The opportunity is to automate the unstructured content and use it to improve decision accuracy and timeliness. We've been working with a large health care payer client on this exact thing. In support of their claims process, annually, we receive about 1.2 million explanation of benefits or EOBs. With the use of AI, we're now able to ingest and read multiple EOB formats, extract the required information and convert it into structured data that can be automated. We have automated approximately 60% of that client's EOB volume, greatly reducing their claim resolution time frame and generating approximately $800,000 in savings for Conduent.

The value extends beyond one client. We can reuse capability across other workflows, products and industries like purchase orders in finance, accounting and procurement, property damage forms in P&C for our P&C customers, mortgage document processing for our banking clients and many others, all bringing value to clients and bringing growth to Conduent. The second area is platform modernization. Many of our solutions run on proprietary platforms, creating a significant opportunity to add AI and cloud capabilities. We're building road maps with key partners to accelerate that work. Life@Work, our health and wellness benefits platform, shows the progress we can and have made.

Over the past few years, we've modernized Life@Work as an open architecture platform that integrates market-leading technologies such as Jellyvision and TALON and brings AI-enabled capabilities to the employee benefits experience. As Kim mentioned, we also built Conni, our generative AI chatbot on Microsoft Azure. Conni gives employees personalized benefit guidance in addition to acting as a hub for other services, such as live support through voice or chat. Life@Work is live across multiple clients and delivering value to their employees. As Kim mentioned, we're now advancing to the next phase, which includes Agentic workflow and outcome completion capability.

Life@Work demonstrates our disciplined approach to modernization, an approach we intend to replicate across other priority platforms. In fact, we're in the process of doing the same right now for our health care claims solution, Health Solutions Plus. The third area is analytics. As mentioned, we provide our clients with complex data-intense services in support of their critical business decisions. We believe we have a strong opportunity to embed more advanced analytics into our products and services. AI makes that opportunity even more powerful. Let me give you 2 examples. The first example is our Payment Integrity business.

For health care payer clients, we review their claim payments and work to recover dollars tied to inaccuracies, erroneous payments and other related issues. With generative AI, we're able to analyze years' worth of claim payment history, their circumstances and resolutions and apply those insights to their current claims. With this capability, we'll be able to identify genuine recovery opportunities faster and more effectively for our clients. We will have this live in production in Q1 of 2027, and we're estimating a 50% reduction in investigative workload and a 6% increase in recovery rates.

The second example is FastCap. FastCap combines advanced analytics and generative AI, coupled with our deep domain experience in finance, accounting and procurement to find, prevent or recover leakage across accounts payable, procurement, contracts and supplier management and fix the root cause so it does not reoccur. FastCap has delivered $900 million plus in client value since 2021, including $75 million through August year-to-date and has grown from a recovery tool into a broader finance analytics platform. Over time, we plan to extend similar analytic capabilities across more of our portfolio. Let me close with 3 takeaways.

We are a large, AI-led and technology-enabled player in the BPS market. We deliver end-to-end solutions that are critical to our customers' business operations and have significant -- I repeat, significant domain expertise in the products and services we offer. We have simplified our operating model and have taken actions to structurally reduce the cost base. We're using a portion of those savings to reinvest in platform modernization, generative AI, automation and analytics. Thank you for your time today.

With that, I will hand you over to our Chief Bureaucrat and President of Government Solutions, Anna Sever.

[Presentation]

Thank you very much. As George said, I am Anna Sever. I'm the President of Government Solutions, and I am a proud bureaucrat or a recovering bureaucrat, just to play in on that, George. I come to you with over 30 years of experience, either working directly in state government, including as a political appointee or working with some of the largest name brand contractors to state and federal governments. I appreciate you taking time to enjoy the video. I think it's important to anchor both for our employees as well as our clients and our investors why we do, what we do, within Conduent Government Solutions.

At Conduent, we help government agencies serve residents more effectively. Our portfolio is broad. It spans government health care enabled by technology, eligibility and enrollment solutions, payments, electronic benefits and child support. We primarily support state and regional agencies, but we do work as well in the federal market, and we will be growing in that market as well. Our solutions help agencies determine eligibility, streamline enrollment, adjudicate massive amounts of claims and meet the requirements of government-funded health care. We also help ensure that benefits reach vulnerable populations through secure proprietary software and deep operational expertise, all while reducing the risk of fraud.

One of the things we talk about in our government solutions is a no wrong door experience. The objective is straightforward. People should not have to understand government or government contractors in order to receive services for which they are eligible. A resident may begin with a simple question about health care or food assistance or child support. And that question should then guide them to the right programs without having to go through repeated applications, repeated call centers or repeated outreaches. For agencies, that means that same connected approach creates a more complete view of residents, their utilization, improving service coordination and reducing administrative effort.

For Conduent, it allows us to bring together technology, operations, payment analytics and customer service in a very specific way for that resident journey. Let me take you through the major components of our portfolio, beginning with health care. And I do want to pause here and provide some clarity. In our health care space, in particular, we actually function more as a system integrator, bringing leading-edge Software as a Service to pay claims, provide pharmacy benefits as well as case management services. Medicaid is a key offering for us, both in technology, but also in our services side, more of the BPS work through our eligibility and enrollment platform.

Many state programs still depend on legacy systems that are costly, difficult to upgrade and take years to modernize. These platforms limit efficiency, data visibility and compliance with both state and federal regulations. I am pleased to say that our Conduent Medicaid suite, which we refer to as CMdS, gives states a cloud-native, modular Software-as-a-Service path from a legacy Medicaid management platform to a digital, interoperable, customizable, scalable Medicaid enterprise system.

Because CMdS supports incremental upgrades, agencies can modernize in their own terms, in their own way while improving access, performance and alignment with both state and federal mandates. In New Mexico, we recently replaced a 24-year-old legacy system with our new modern CMdS platform, and it supports approximately 900,000 Medicaid enrollees. The result for New Mexico, faster claims, quicker speed to payment for providers, improved access to care and continuity of service. Key to this implementation is that it also embraced new initiatives that were specific for New Mexico, such as home and community-based services, the implementation of H.R. 1, which I will speak to in a moment, as well as Justice, Health.

We also announced a multiyear renewal in Virginia to continue operating and modernizing their Medicaid claim system. That work supports approximately 1.6 million Medicaid enrollees and will improve access, reduce fraud and strengthen their overall performance. This is the foundation for our growth in government. This is how we will improve. We currently have about 40% of our revenue coming through the Medicaid technology vertical. And with that, we are in double-digit margins. So we see this as our place to invest and have repeatable foundation adjacent model expansion across the states.

The significance of that foundation goes beyond a single Medicaid implementation. Medicaid programs are complex ecosystems and states do not all modernize in the same way or at the same pace. A modular platform gives an agency the ability to address its most urgent need first, and it will be different in New Mexico than it is in Virginia, whether that is provider enrollment and credentialing, claims and financial payments, analytics, federal reporting, whatever is their priority, we can meet them where they are. It lowers the risk of implementation. It makes investments more manageable and targetable, and it gives the client a practical path forward to modernizing these very old legacy systems.

It also allows us to broaden our relationships and make these long-tenure contracts, which, in some cases, are over 22 years old, stickier. New Mexico provides us an important proof point because it demonstrates that our technology can support scale, complexity and the mission-critical nature of Medicaid technology operations. We also provide integrated Medicaid technology reporting and analytics through enterprise data warehousing. And we do this through a variety of ways through partnerships as well as on our own. Our goal is to strengthen the operations for those states so they can identify fraud quicker and meet their federal reporting requirements.

In our pharmacy benefit management area, states are facing rising prescription drug costs. We all are. We know that, that is the state of the market right now. They're also facing incredibly constrained budgets and increasingly complex processes as retail pharmacies close and there is less and less access. Our Medicaid pharmacy management capabilities address these pressures by streamlining prescription cycles, controlling costs, identifying gaps in care and improving coordination. We do this through a platform we call FlexRx. This is a web-based platform, and it processes prescriptions claims and helps manage health care across the pharmacy portfolio.

Now let's turn to eligibility and enrollment. If I think about Medicaid, we started on the back end, the [indiscernible] bookend. Now let's turn to the front end, which is eligibility enrollment. Agencies currently are facing tremendous pressure as new requirements come along that require both eligibility application process, validation and responding to constituents to massive amounts of confusion. CXNow for government brings interactions, data and workflows together on one secure platform. It supports voice, chat, e-mail, SMS and uses AI-enabled automation. We currently are using AI-enabled automation and quality monitoring and analytics. All of this is based on the security requirements that are fundamental to government programs. The overall result, less friction, shorter call times, better response and first call resolution.

In payments and electronic benefits, Conduent is a leader in government disbursement. This is our financial operations, as was spoken to earlier. We support closed-loop benefit cards, which means that they are restricted by which retailer you can use them with and for what services for things such as SNAP or supplemental nutrition assistance program or electronic benefits or you might remember it as food stamps, depending on what general genre you're from as well as TANF, which is temporary assistance to needy families, also known as welfare; and WIC, which is women, infants and children.

We also offer open loop payment solutions, which don't carry those restrictions on them that are largely used for child support disbursements as well as unemployment insurance disbursements. All of these programs are supported by our VeriSight anti-fraud suite, which helps protect public benefits. This includes both AI-enabled predictive modeling around where fraud might be occurring as well as chip-enabled tap-to-pay EBT technologies and intelligent controls that can block out-of-state and online transactions and features that allow a resident to lock and unlock and control their card and receive real-time alerts.

We are working with Alabama, New Jersey, Oklahoma, Virginia, Pennsylvania, right at this moment to implement these chip cards for SNAP and to prevent fraud. Now why does this matter so much? This matters because in the payments portfolio, security is not an abstract technology issue. When benefits are stolen, that impact falls directly to a household that may already be living paycheck to paycheck on a good day. And that puts more and more financial pressure on those families. It also puts pressure on the agencies because of the fraudulent claims that they have to deal with from a legislative inquiry perspective.

So agencies need tools that prevent suspicious activity, such as our AI-enabled Veracite without making it difficult to get access to the fundamentally needed services. Our approach combines strong card technology, real-time controls, resident-facing controls and operational insights that helps to protect publicly funded services. It gives residents more control and the agencies more control. And it is a clear example of how we use technology to support both program integrity and individual resident experiences. Finally, in child support, we work in about half the states to support the state disbursement units that are federally mandated for states to collect, process and disburse court ordered child support. We also have a tool called ExpertPay, which is used by a lot of employers to garnish wages and redistribute those across the child support portfolio. That is available to any employer in any of the 50 states and territories.

Now let's go to the next slide. This slide illustrates our footprint. And hopefully, you can see the color coding by the portfolio. What I want to outline here is, as we discussed in the total addressable market review that comes further in my presentation, we really have only reached saturation in 2 to 3 states. This is key and fundamental because it means we have substantial white space for growth across the country. In fact, in Medicaid claims and Pharmacy Solutions, we are in just 17 states. While in eligibility and enrollment solutions, we're in 15. That gives us a limited but a starting footprint with meaningful, meaningful room for expansion that we will capitalize on.

Now let's talk a little bit about market trends. Over the past 2 years, I've met with numerous agency leaders, legislators, governors, policy stakeholders across the country. These conversations reinforce a consistent message that I hear from the government. Government agencies are operating through unprecedented change, heightened security concerns, evolving policy priorities, increasing cyber threats, incredible budgetary pressures and workforce constraints.

In comes Conduent. At the same time, agencies must modernize aging systems while meeting residents' expectations for immediate digital-first experiences. At a recent conference for Medicaid enterprise systems leaders, we were asked by no more than -- no less than 10 states to demonstrate the new CMdS technology that we deployed in New Mexico based on sheer interest and word-of-mouth marketing that had occurred. Agencies also need greater agility and policy to meet policy and regulatory requirements. The new eligibility and program administrations associated with the One Big Beautiful Bill or H.R. 1 are one example.

As we speak, today, CMS is still putting out guidance for a go-live date of January 1, 2027. This is for community engagement, and it is not a simple policy change. It represents a significant eligibility operations transformation. States must begin their implementation this week, October 1, 2026, or their January 1, 2027 start date. It's a compressed time frame. They've got to revamp eligibility systems, establish multiple verification processes, train workers, update notices to residents, testing, completion, all wise managing to keep the engines and the wheels on the bus going round and round on a day-to-day basis. The implementations are not just on the front end of Medicaid. They're also on the back end.

Systems are being challenged to provide data that identifies areas of individuals that may not be eligible or required to do community engagement. This includes medical frailty, individuals with functional limitations, disability determinations, caregiver hardships, et cetera. All of this has to be done and identified based on data sourcing. This is unprecedented folks. Medicaid claim systems have never been used in this way. So we are partnering with our state governments to help them to gain alignment as well as with our data, third-party data and TANF and SNAP and any other data that the state deems eligible so that we can ensure that member communications are crisp. There are no risk, unnecessary risk of disenrollment and that there is no audit risk for state customers.

SNAP is also changing. General work requirement exemptions for several populations went into effect in February. Beginning, again, October 1 this week, the administrative cost split changes. It previously was a 50-50 share between the federal government and state government. Beginning this week, that switches to a 75% share. 75% on state governments for the administrative costs. States want more efficient and effective systems. They now have a financial incentive to pursue those. In addition, states are under pressure that if their error rate exceeds a certain threshold, they may have to cover the cost of some of the benefits. Hence, why the Veracite tool that we've been offering to states is getting great reception, and we believe will be tremendously helpful in states not hitting that critical level for where they have to pay for benefits.

For agency leaders, the challenge is not simply interpreting policy. They must translate the policy as it's being written into their systems, as they're being developed, develop workforce plans, all while being constrained budgetarily. Each decision across this landscape affects another set of the organization. For example, as eligibility front-end processes and redeterminations change, so do appeals, so new notices change. So everything has to be integrated and aligned to ensure accuracy, experience, access to care. That is why agencies need partners like Conduent, and we, our role is to help them move from requirement to implementation to convert mandates into practical applications and scalable operating models. These changes are likely to increase state interest in automation. They're not likely, they have increased interest in state automation and integrated eligibility, in workload management, in operational efficiency. And guess what? Those needs align with Conduent's core capabilities perfectly.

Now let's turn to our pipeline and where we see the greatest opportunities ahead. As you can see, our pipeline is well distributed across our service area, and that mix aligns closely with where government agencies are investing. As was mentioned before, for 2027, we have approximately $2.7 billion in the pipeline. Looking ahead to 2028, that goes to $2.6 billion. These figures demonstrate the strength of the opportunity in front of us, but the timing matters. Government procurement is highly regulated and requires patience, discipline and tenacity. From the release of an RFP to an executed contract, the process can take as long as 300 days. So we have to have multiple aggressive pursuits going at the same time. That long cycle shapes how we manage our business.

We have to identify opportunities early, understand the agency priorities, align the right solution and partners and stay engaged throughout the procurement evaluation, award and implementation. It also means that pipeline quality matters as much as pipeline size. We are applying greater rigor to our qualification process so that our teams focus their time and their investment on opportunities where we have a differentiated solution like CMdS, relevant experience, credible references and a clear path to value for clients. The discipline improves our probability of winning and helps ensure that we -- what we sell, we can successfully deliver. So while this is a substantial pipeline, converting it to revenue is a deliberate, multistep methodical team score to use Kimberly's analogy. Our focus is on pursuing the right opportunities, executing consistently and positioning Conduent to win.

Now let's talk a little bit about where we are from a growth efficiency standpoint. We have a strong financial position to start with. Our margins are good, always have the opportunity to get better, right, Giles? And we have a solid foundation for growth. We have a durable revenue base with not a lot of leakage at the moment. And we have tremendous, tremendous potential in front of us. In addition to the approximately $2.7 billion in the 2027 pipeline, our 5-year pipeline, and that's what we like to keep for government is a 5-year pipeline exceeds $17 billion. And that is with us not having really focused on 2029 through 2031. So that number will continue to grow.

Historically, you might say, why haven't you grown? Well, historically, our growth was constrained by how we invested, but that has changed. In 2026, with the CMdS going live and investments in provider module and new partnerships, we are now positioned for sustained growth, greater efficiency and stronger momentum forward. Now successful growth depends on successful implementation. And as Harsha said, this is an area where we have opportunities for improvement and improvement we have. We have launched several initiatives to accelerate execution and create a more consistent, repeatable delivery model for implementations. It is grounded in scope management, time line, budget with the use of AI to expedite the processes, particularly in our large systems. Our goal is to move implementation from a reactive delivery function to a disciplined capability that protects growth, strengthens client confidence and reduces execution risk or revenue risk.

During 2026, we focused on getting back to the basics and aligning implementations more closely with the business. Overall, the implementation portfolio is healthy, although we continue to work through some legacy effects from older implementations, but our work has paid off. We are seeing real progress in the ways we address implementations, particularly in our current Virginia implementation, our Pennsylvania EMV implementation and our Maryland and U.S. Virgin Islands WIC implementation. It demonstrates what is possible with new leadership alignment, stronger processes and management from the start.

We are moving away from a project-by-project heroics approach towards a common operating model for implementations with clear accountability, repeatable governance, and this is key, repeatable governance based on solutions and products and early visibility into risk for remediation. Today, we have 87 active implementations of a varying size, all from the very large CMdS implementations to smaller project implementations. These implementations are in good health as we have applied the repeatable data-driven client focus process. The changes we are making are practical.

We are creating clear ownership at each stage of the implementation, establishing the common measures of health, identifying issues early and escalating decisions before they affect key milestones. We are also strengthening our connection between the front-end sales and solutions and implementations so that the same processes are carried throughout, and there's a strong handoff. The team delivering the work must understand the commitments that were made during the sales strategy and the Pursuit team must incorporate lessons learned from other implementations into new pursuits. This closed-loop approach helps us manage more tightly the scope, manage and improve the client experience and increase steady-state operations speed.

Technology is advancing almost daily. So our strategy must be deliberate. And as I said before, keep in mind that for a good part of my portfolio in the Government Solutions, we really do function more as a system integrator. And for the other part of the portfolio, we are a BPS company. First and foremost, our technology must enable our clients' missions, make government services seamless for eligible residents. It must also fuel growth in our existing markets and adjacencies. We deliver mission-critical solutions for federally matched and statutorily regulated programs. These solutions must be accurate, secure, efficient and responsive to agency expectations.

Our strategy rests on several core pillars, and I will condense it down to 4. The first is customer centricity and experience, providing timely, accurate answers through the channels each customer prefers. The second is trusted, interoperable data. Government contractors or government systems often rely on multiple contractors and multiple systems for their data. Our technology must provide seamless access to systems of records wherever they reside. So agencies can deliver high-quality enterprise reporting.

The third for government is compliance and security by design. Clear guardrails and alignment with mandated government security requirements are nonnegotiable. The fourth is hyperautomation rules-driven processes. Just as George spoke about using AI to bring legacy code into new systems, we, too, are doing the same thing across our portfolio. Our systems manage complex rules or functions such as eligibility determination, claims and financial payments. A configurable framework allows agencies to remain nimble as policies such as H.R. 1 evolve.

Taken together, these pillars allow us to modernize without losing sight of the mission. The goal is not technology for technology's sake. The goal is to help an agency make a decision faster in an easier manner, detect risk earlier, answer residents' questions more clearly or adapt to a policy change with less disruption. When technology is modular, interoperable, secure, configurable, agencies gain flexibility and reduce administrative costs. This is a standard against which we evaluate our road map and our investments.

For our technology platforms, we are looking to use AI to increase the speed to deployment and reduce cost by well over 10%. We will create repeatable, modular GHS, government health services and eligibility and enrollment services offerings with a standardized core, reusable implementation assets, all while targeting adjacencies, such as we've done with provider enrollment, pharmacy capabilities and now as we're looking at home and community-based services for Medicaid. All offerings are on a stable platforms with common APIs, configurable policy and workflows, layers with shared reporting, audit and governance frameworks. We've also embedded security and fraud controls across these platforms that allow us to continuously monitor and detect and prevent misuse. And we rely on resilient, modular architecture so that modernization and upgrades can be delivered continuously rather than through disruptive big bang approaches to legacy modernization.

Now let's talk about AI. I'm going to leave the full talk about AI to 2 esteemed colleagues, but I want to reference it a little bit first. AI is now a frequent topic when I talk to government agencies. They are concerned, they're fearful and they're also excited all at the same time. Agencies are not looking for experimentation for its own sake. They want practical secure outcomes. We see AI as a way to enhance people and improve productivity, freeing employees to focus on really complex situations and where they need to have judgment, listening and human understanding. Across Conduent, we are applying AI to create high-quality, repeatable, secure and standard-driven solutions while reducing time to delivery. Because we are the custodians of client data, being responsible of this client data and founding this integrity and security of this client data is foundational.

We are also being intentional about where AI belongs and where human judgment remains central. In government programs, accuracy, transparency, privacy and accountability are essential. That means establishing clear controls, validating outputs, monitoring performance and keeping people responsible for consequential decisions. The most valuable applications are those that can define a problem and produce a measurable result with fewer manual steps, faster response, stronger quality and better fraud detection. That practical orientation allows us to scale what works while maintaining the trust of our clients and the people that we serve.

Our solutions center on 4 purposes: First, protect people by identifying and reducing fraud. Second, anticipating benefit fallout by identifying individuals at risk of leaving the process and streamlining reverification. Third, enabling proactive engagement through conversational AI, virtual assistance and domain-specific chatbots. Fourth, empowering employees to make better first call resolution responses through the use of agent-assisted tools.

Next slide, please. Our investment process has been incredibly focused, and we are grateful that we've had the opportunity to invest in market-leading activities going forward. We are focused on stabilizing the core and investing in agencies and expansion areas, all while using AI to lower costs and shorten time to delivery. Our planned investment in 2027 spends about 71% of the dollars on Medicaid technology and functionality. We see this as the strongest combination of client need, market opportunity and strategic fit across the Government Solutions portfolio. Before we expand, we have to make sure the core is stable, secure and referenceable, and we have done that with CMdS.

We will then leverage it to address adjacent client needs and open new markets. We will continue to evaluate investment against clear criteria, the size and timing of opportunities, alignment with our existing strengths, client demand, implementation readiness and the potential to create reusable intellectual property. This discipline helps us concentrate capital where it can have the greatest strategic and financial impact rather than just spreading investment too broadly.

The view of the total addressable market reinforces just how much white space remains and explains why I'm so excited and full threaded belief that Conduent Government Solutions can grow significantly. The TAM for government is about $18.4 billion. Currently, we are at about a 5% penetration. We have much space to go and many, many more clients to serve. The TAM for federal, if you just look at health and civilian agencies, is $41 billion, and our existence in the federal space is only in the millions. We have great opportunity for growth across federal government as well as state and local government. At the same time, we are stabilizing our payments platform, so that business can move from defense to offense and grow aggressively.

We are also leveraging partnerships as a better way to provide the best of breed to our clients. We partnered with Deloitte, Navitus and SAS, just to name a few. Our growth opportunities come from an understanding of the market, anticipating client needs and delivering outcomes that reduce cost, improve efficiency and elevate the citizen experience. The white space is meaningful. I know I've said that before, but I keep reiterating, the white space is meaningful, but we will approach it selectively. We are not trying to pursue every opportunity in every market. We are prioritizing states and programs where client needs align with our platforms and where our implementation experience is relevant and where we have sustainably attractive economics across the full deal cycle.

This focus gives our sales and delivery teams clear priorities and allows us to build stronger relationships before procurement begins with state agencies. It also helps us bring the organization to the opportunity, product, technology, operations, government affairs, capture delivery, all coming together as a team rather than working as individual, what was the word Harsha didn't like, silos in the organization.

Next, let's look a little bit more about the 2027 pipeline. As I've said now several times, claims and financial is where we're putting our big bets going into 2027, and it represents 47% of our pipeline with double-digit margins consistently. The federal market, as Giles has said, too, is a huge focus for us because our penetration there is almost nonexistent, and we've got great opportunity to grow. The challenge being the federal market, if you can believe it, moves slower than the state market in some cases. But over the past year, what we've done is we've laid the foundational groundwork for growth to reestablish our presence in the federal market. That means doing things like getting on contracting vehicles, establishing federal sales leadership, becoming a thought leader in the federal market.

And the reason this is so important to me is federal and state revenues are typically countercyclical. So having a good strong footprint in both protects the revenue of the Government Solutions division. Our strategy is to build federal qualifications and references through subcontracting and partner-led delivery, all while shaping priority opportunities 18 months out that allow us to prime deals in the federal market and have a 5-year sustainable pipeline. As we strengthen our qualifications and agency relationships and contract access and delivery readiness, we will be positioned to convert that federal pipeline into repeatable wins, both as a prime contractor as well as a sub.

So let's get down to brass tacks. How do we win? You'll see the big star on New Mexico. We build on the successful implementation of CMdS in New Mexico, and we focus our 2027 resources on the states where we have the strongest opportunities. And I'll be bullish enough to call them out. Those states including California, New York, Indiana, Maryland, Michigan, Louisiana, North Carolina, Illinois, Massachusetts and Florida. A lot of these are you'll notice are our big states. Some of them are smaller states. Again, you want to have a good pipeline mix across the investment area.

This targeted approach includes focused investment, dedicated teams, utilization of government affairs for business development and support. These markets generally include only 3 to 4 competitors. Historically, our ability to win new revenue was constrained by underinvestment in our products. That problem has been solved. We have modern solutions and referenceable delivery and with a sharper capture strategy and a new focus on winning new logos. No longer will we be satisfied with just add-ons. We will aggressively pursue and win our fair share of new logos, particularly in the market where we only have 3 to 4 competitors.

Now let's talk a little bit about our growth execution plan. First is a mindset. We have repeatedly said to all of our leaders and our employees, everyone sales. I do not care if you are on a phone call with a citizen. It is a sales job because your ability to manage that individual interaction comes back to the state and they hear it. They hear the good, the bad and the ugly, and that then becomes a reference for us. We are balancing shared accountability for growth and client impact with our contractual responsibilities. We have streamlined the organization and condensed our P&L ownership into 2 strong tranches. That increases our speed to execution on things such as AI, and it also allows us to align shared services to more directly align with business priorities.

We are also positioning consultants as extensions of the sales team and also advancing automation and upgrading some of our critical talent. Let me give you a real-life example. Nebraska, if you'll recall on the state chart, was a state where we had absolutely no presence until recently. We were able to secure a new logo win in the state of Nebraska. And let me be fully transparent.

In the past, across criteria that include technical approach, referenceability, price, quality and implementations, we would have scored highest probably on price for having the most competitive price. That dynamic shifted with Nebraska. We scored highest across all the categories. This gives me the confidence that we have fixed some of the internal challenges we had to growth, and we are now poised to grow like gangbusters. This outcome reflects the operating behavior we want to repeat again and again and again. Winning is not the function of one person. It is a team sport. It required the solution team to demonstrate value, the pricing team to be incredibly competitive and the implementation to align with the RFP at the beginning. When these elements are all in line, we are unstoppable, and that is where we plan to be moving into 2027. As I said before, we've simplified our operating model, and we've taken out a significant amount of cost.

Next slide, please. The third is market expansion. In existing states, we are moving beyond a renewal-only defensive posture and pursuing deeper cross lines of business penetration and targeted adjacencies in government healthcare, eligibility, enrollment and HCBS waiver services. This means expansion of government relations resources to open key influencers' doors in the 10 states that I outlined for 2027. We are also pursuing existing expansions where we can for adjacent services. For example, call center. We don't just focus on Medicaid eligibility for call centers. There are many other call center or citizen engagement centers that are available that we are also pursuing.

In federals, we are building the contracting partners and delivery capabilities as well as the compliance capability required to scale, leaning on our existing offerings such as our back-office digitization, administration and health IT. We are also considering targeted key marketing leading industry events to strengthen the brand and the presence and the awareness of Conduent. When Harsha said, "It's the new Conduent," that's the message we are sending to government agencies. It is the new Conduent, and we are here to help you.

Fourth is embedding AI. We are applying AI both internally and client-facing solutions across call centers and technology. This accelerates as well our speed to response on bids and improves our overall quality by using AI to do quality monitoring.

Next slide, please. Fifth is targeted growth. We are aligning investment with portfolio strategies, stability needs and market gaps and the opportunities with the greatest potential, as I have said. These priorities are supported by changes already in flight. We resized the organization to fit the business. We brought technology into the business. We have sales focused on Medicaid in a territory model. All of this helps us operate as one government solutions team. We will continue to look at things such as payments and child support as potentially a specialty seller model. But for the Medicaid resources, it will be a territory model that we maintain that greater industry intimacy with Medicaid leaders.

I've already spoken about how we've strengthened our presence in government in conferences as well as our proposal solution and capture design processes. And we are continuing to refine that process on a day-to-day basis, not unlike what Kimberly is doing with the deal desk in the commercial world. One of the other places we're looking is to bring in Medicaid consultants who have left and been out of the government for a year, who then can provide good technical insight to us to help us craft the right solutions that resonate with Medicaid directors. Within sales, we are strengthening the engine through better talent, new leadership, consultation support, as I said, moving to a territory model for sales and a specialized model for EBT and payments. In parallel, we continue our partnership strategy so that we can bring the best of breed to clients.

Now key takeaways. If you can't tell, I'm very excited about government opportunities. And having led some of the largest government contractors and watched them double and triple during my tenure with them, I'm confident that Conduent has all the ingredients to do that. First and foremost, we have a stable foundation that we will continue to build on. We believe the most -- our cloud-native, modular Medicaid platform is the most recent platform on the market. So it is our time to seize the day.

Second, I could not do this without my team's commitment to serving our clients for the trust that government agencies put in us. Every day, our people work tirelessly to deliver the critical benefits and services that millions of Americans rely on to maintain functionality in their communities. So the opportunity is significant and so is the responsibility. The programs we support are not optional services. They are part of the infrastructure that allows families to function. That gives us clear purpose and that high standard for performance. We must be dependable in today's operations, disciplined in every implementation, thoughtful in how we apply technology and focused in where we invest for growth. If we do those things consistently, we will deepen client trust. We will create more value for residents and translate that into market opportunity and durable results.

And third, I am confident about our future. Conduent is honored to support government programs and resources that help families across America remain healthy, secure and active in their communities. With stronger solutions, disciplined execution and an aggressive, very aggressive growth trajectory, we are positioned to serve more states and more Medicaid members in the years to come.

And with that, we will take a short break before I will turn it over to Narayanan and Nitin, a.k.a. the AI twins. Thank you.

[Break]

All right. Good morning, all of you. I'm the newest member to the fraternity here. I wish I can say I'm the youngest member, but it's not. But anyway, I joined Conduent exactly 12 days into the job, right? And when I joined, Harsha gave me 2 specific mandates, tall mandates, right? He said, "Hey, we need to scale AI across the enterprise. And we need to create an AI-centered culture in the organization." And guess what? He found the shortest person on the planet to do that. But I am up for it.

This is Narayanan Sundaresan, the Chief Information and Technology Officer at Conduent now. If you see my previous life, I spent a good 30-plus years in technology, hands-on keyboard to technology leadership and strategy. The last 21 years, predominantly building and scaling a fully online education enterprise across the globe, serving hundreds of thousands of students. Specifically, in the last 7 years, if you see, I was focused on a cloud AI-centered transformation journey. That really taught me a lot of lessons on how we should think about working and how we redesign work at the beginning.

I am really excited to be part of this journey at Conduent. And this journey, though it's called ASCEND 2026 to 2028, I'm going to add an AI to it, and we are going to ascend with AI. That's the focus. Why do I feel strongly about it? At Conduent, what I feel as the foundation is precisely present. We have a very strong footprint of data. We have working use cases that have been tested already across the platforms. And we have proprietary platforms that enable us to harvest the large digital information that will become the foundation for anything that we want to do with AI. If data is the new oil that propels the AI spacecraft, Conduent is the new Saudi Arabia. We have so much oil that we can extract and do meaningful automation on top of it.

Not only that, the very fact that we have proprietary platform empowers us with end-to-end view of many of the process life cycles that we own. Years of experience dealing with how our customer journey goes through, collecting all those information, organizing it in a methodical way has given us a lot of power to see how we can turn that into AI orchestration layer. On top of it, we also have ability to execute at scale. What I mean by that is you saw many of the cases wherein both George and Anna talked about different government agency as well as commercial enterprises that we deal with. Many of the problems we solve are not unique. There are a lot of commonalities. How do we take that common problem and solve using a platform at scale is the problem that we need to solve. And I'm confident we are positioned to do that in a very expedited manner.

How are we going to do it? We are going to center our strategy across 4 pillars. The top 2 are going to focus on bringing Conduent back to profitable growth. I use the word deliberately, profitable growth, because we need to see both sides of the coin. We need to embed AI in many of our products that interface with our customers and clients that can create adjacent capabilities that can go to market, and we can start generating revenue using those capabilities, while we simultaneously hyperactivate AI-centered work redesign. The name of the game in BPS is not about selling person hours. It's about selling outcomes that George and Anna mentioned and how do we redesign workflows, how do we redesign how work gets done needs to be started and ended with AI as the centerpiece.

I envision a Conduent 2, 3 years from now, wherein we have a huge AI agentic catalog that can be used by many of our associates and customers to create an interplay of different workflows on the fly. The architecture will be so composable, think of it as LEGO blocks that we build that can be put together to scale. While we do that, we need to make sure that we have our infrastructure that's scalable, secured, reliable. That's where the focus is going to be. We will be activating a hyper move to hyperscalers' cloud infrastructure. We will be building a data lake. We will increase our security ring-fence. We are working with the best of breed in these areas.

Simultaneously, we have already started rolling out AI-powered toolkits to our staff. Our developers have started using GitHub Copilot. We have a healthy tribe of people using Cursor for development. You already saw proof with George's use cases around developer productivity in some cases, which is upwards of 60%, 70%. I bet as we roll these tools out, we can create velocity to outcome by 5 to 10x in creating these capabilities and reduce cycle time by more than 60% to 80%. And we will be laser-focused on those initiatives on the bottom side of the strategy.

Now we are not going to do it alone. We have the best-in-breed market partners that we are going to work with. We already have strategic partnership with Microsoft. We have thousands of Copilots that we have rolled out across the enterprise. We are actively working with Google. We have a strategic partnership with them. We are convinced these market leaders are going to help us in innovation and bringing capabilities to realization faster than what we do today. While we do that, we are also working on the many best-in-breed frontier models, Claude Enterprise, to name a few, Grok and other things. We will accelerate the adoption of those tools, starting with the technology tribe first, but with the enterprise tribe sooner and then start building AI with the fit to purpose and fit to outcome.

I want now to transition to Mr. Nitin, who will walk you through some working use cases and will show exactly where we are in the journey and then reiterate how we are going to proceed through the AI journey in the organization. Nitin?

Thank you very much, Narayanan. Good morning to you all. My name is Nitin Jain. I head Corporate Strategy at Conduent. And as part of my role, I work with our businesses to look for opportunities to embed AI across our operations and our solutions. I'm here to talk to you about how we are taking our implementation approach in a very methodical way, taking certain use cases to production and now in the new Conduent that Harsha referenced, we are now scaling them to even more extensive solutions in the marketplace.

There's a lot of buzz in the market, and it has been for a while, about large language models. And it's exciting, the advancements that are being made. But when we speak with our clients, both in the commercial space as well as in the government space, their first question is not about which large language model should I use. In fact, it's not even their last question. What they want to know is, "How do I implement AI successfully in the business processes? How do I go beyond ideation? How do I go beyond pilots?" And why is that? Because no technology, even AI, works in a vacuum. It has to integrate with existing setup. And guess what? This existing setup for many clients is a mishmash of legacy technologies and not to mention the complexity that comes with data sources that are really, really disparate in nature.

You also have to think about the right scope for AI, especially in a scenario like ours where we are operating in regulated industries, like healthcare, like government. And we are processing millions and millions of transactions. You heard from some of the earlier speakers how we are processing 2 billion transactions in customer interactions. We are processing 14 billion documents and healthcare claims. This is a huge volume, which means the AI has to work consistently, reliably with clear methods established for exception handling. And our AI approach takes all of this into consideration. We have created a very methodical approach right from identifying a use case, developing AI solution on it, taking it to production, creating the results, and the work doesn't stop there because you cannot expect AI adoption just like that. You have to do a lot of process reengineering work to make sure that it becomes part and parcel of daily operations.

So in order to show our implementation approach, I want to talk to you about 2 use cases, one in the government space and one in the commercial space. And both have one thing in common. In both cases, we identified a high-priority AI opportunity. We took it to production. And now in the new Conduent, we are attempting to scale those to create more extensive solutions. Our first implementation of GenAI was actually in the fraud space in government, where we try to address account takeover fraud, which is one of the primary ways fraud happens in that area. We at Conduent take fraud very seriously. And you saw the passion in Anna's voice when she was talking about fraud. Over the years, we have used a lot of analytics, a lot of other mechanisms with a lot of success.

But one area in particular, where a lot of manual effort was spent when we were triangulating data sources that contain unstructured information, enters GenAI, which is very good at processing unstructured information. Working collaboratively with Microsoft, we developed a solution, which combines GenAI with traditional AI technologies. Through a very robust technology governance process, we took that solution all the way into production. We did all the process reengineering work around it so that it becomes part of the operations. And then finally, we made sure that we had human-in-the-loop concept that Anna talked about so that we are reviewing the results and adjudicating the results.

And the results have been tremendous. We have been able to increase the volume of fraud detection by 150%. We are now able to take the same resources, apply them to more complicated fraud use cases. We are getting better at detecting fraud as well. So this speaks to how we are creating value for our clients through smart application of GenAI. Now with the success of this particular solution and fraud in general becoming a very important topic across government programs, we are now looking to -- and we have started to do this work already and have created a lot of good pilots and solutions around it, is how do we leverage this capability, apply it to the other steps of the government programs. The solution that I talked to you about works in the disbursement phase.

Now we are applying the same capability, combining with other technologies in the eligibility phase, which is the step 1 of any government program. So now we can offer to our clients an end-to-end solution to manage the fraud across the full life cycle of benefit, right? This is how we are scaling solutions from a proven GenAI solution to a more extensive solution. Similarly, in the commercial space, we saw an opportunity, which George also referenced a little bit, to embed GenAI in Life@Work. So Life@Work, just to remind you again, is a solution that we offer in our HR space to clients to help them manage health, wealth and wellness benefits for employees. And one of the demands in this space is how do you improve the experience of employees when they are navigating benefits. So we launched Conni, which is our GenAI virtual assistant based in Microsoft Azure technology, to solve for that. Now you may wonder, there's nothing novel about creating GenAI assistant, right? There's nothing novel. But where our approach differentiates is how we went about implementing it.

Usually, chatbots or virtual assistants are throwaways without much thought applied to how do you want the user to interact with it, what KPIs do you want to measure, et cetera. From very beginning, we developed Conni with an intention that it has to be part of the intelligent experience for the employees. We created it as a hub, as an entry point in Life@Work, where all the features and functionalities would come and integrate. George talked about TALON, Jellyvision, their capabilities. We integrated that in Conni. Live Chat, we integrated that in Conni. And what that allows is that a user, when they come to Life@Work, they can go to Conni and then go through their whole experience through a single interface. We worked with our clients to create education and awareness when we launched it, and the results have been tremendous. In the recently concluded open enrollment period, we saw 9x usage, higher usage than legacy chats. 86% queries got resolved without a human agent. This is the way we are going about implementing AI in a very, very thoughtful and methodical way.

The GenAI fraud solution that I talked to you about, they're more than a successful use case for us. They are actually a window into the blueprint of the AI opportunity that stands in front of us. We are now in the new Conduent, focused on creating scalable, repeatable AI capabilities that we can apply across multiple solutions, multiple industries and multiple client workflows. So what you see on the page is a vision that we are marching towards. We are basically trying to bring all the components together like data, platforms, our solution under a common foundation. There is an AI orchestration layer on the top that allows these components to connect seamlessly. It will be based in a very secured governance process that will allow us to deploy AI at scale in highly regulated industries. So this is the vision that we are marching towards, because we believe in the future, AI is not about how many number of tools you have, it is about do you have a holistic AI operating model. And that's the vision we are on.

If I have to recap our AI presentation today, I would say 3 things. Narayanan talked about this. We, at Conduent, are positioned to leverage AI because we have structural advantages in the marketplace. We are focused on scalable execution by creating repeatable capabilities. And finally, I would say we are committed to use AI to increase competitiveness of Conduent solutions.

With that, I come to the end of my presentation. Thank you so much for listening, and I'm going to hand it over to Remy Kaul, our Head of Communications, to start the Q&A session. Thank you.

If I could get the full senior leadership team up on stage, please? Great. Well, good morning, everyone. We can do better than that. This is the new Conduent. Come on. Good morning, everyone.

Good morning.

Thank you. Thank you. Well, I am Remy Kaul, the Head of Corporate Communications, and I'm going to moderate the Q&A session today. We have a great group of investors and analysts here, and we would like to make sure as many of you as possible get the opportunity to participate. Therefore, we do ask that you be concise. And if you could please limit yourself to 1 question and 1 follow-up question. Certainly, we hope everyone is joining us for lunch, which would be a great opportunity to mingle with Harsha, the senior leadership team and members of the Board and continue the conversation there.

Asking a question is really pretty simple. Raise your hand. We'll get the mic over to you. Please state your name and your organization, and that's all there is to it. I would like to kick things off with one individual in particular, and that is David Nierenberg from D3 Family Funds. And David, since you're doing our opening act, you have a special privilege. You get to ask an extra question and an extra follow-on question at the end if time permits.

I have sold the D3 Family Fund. So I'm here as a personal investor with a large stake that I will call a faith-based investment, and I don't mean that in the religious context. I mean that having worked with Harsha in 3 other companies in the last decade, I have a lot of faith in him. And so that's why I got engaged in it. I will just ask one question. Thank you, though.

I have little doubt about your ability to reduce cost and to virtually double EBITDA over 2 years and to use proceeds from the sale of the transportation businesses to deleverage the balance sheet and by the time we get out to 2028, to deploy some free cash flow the same way. I think my question, therefore, is to ask you collectively to help illuminate and make tangible the organic growth opportunities that you think may be most attractive for the company so that instead of being a company that grows at the rate of its peers, which has been said to be 4.5%, how can we grow at a rate, say, triple that, into double digits, so that we can be rewarded with a much more attractive valuation multiple for those of us who have more than a day-by-day holding period?

Harsha, would you like to start?

David, I think I'll have Kimberly respond first and Anna, and then I will come right behind them on the question. Go ahead, Kimberly.

Wow, no pressure.

Just throw that one over. No, I love the question because it gives us an opportunity to really double down on the confidence, hopefully, that we exuded in the opportunity to speak to you all today. The market will set a tone. Our job is to exceed, right, that tone. Getting to be on trend is, of course, the immediate goal. But the investments that we're making, and of course, I can speak to the growth side of the house. I talked about the 60% increased footprint. We're not done. We are continuing to double down in coverage of capabilities, spaces, et cetera, in those highly regulated industries. So that's step one.

But we bring on incredible talent and we scale and invest accordingly, the things that George and Anna spoke to are -- it makes it so easy because we have the capabilities to take to the industries and say, over and over again, "Conduent is who you want to work with. Conduent can get you there." You saw the technology footprint. There is just -- the ceiling is not there for us right now. That's truly how we feel.

Well, and I would just echo, particularly for '27 and '28, our growth engines are on the Medicaid eligibility and enrollment front and the claims and financial CMdS and provider front, both of which are the kind of the 2 bookends of Medicaid that we've invested in very strategically because of all the changes that have occurred. Now the challenge that we face this year is this is a huge gubernatorial cycle. 34 governors are up. So we have seen a slowing in procurement. That will unclog once those elections happen. So we feel very confident going into '27 and '28 that not only are the opportunities there, but because we now have the market-leading technology, they're ours for the taking.

In addition to this, David, we have an aging population increasing in the United States. That's an obvious fact for all of us, which should help Anna's business in the healthcare. But whenever you're looking at a turnaround, my first role is that of a physician doing basic diagnosis. I've gone through that stage. Now I'm in the middle of surgery. And when I'm looking at this and when I see, for example, if there are more bean counters than sales folks, we're inverted. And as I push all of these fine folks sitting behind me on these high-end stools, where I push them on reduce cost, reduce cost, with Kimberly and Anna, I go the reverse, "how many salespeople do we have? Do we have enough people? What is it with the mathematics that if you need to hit X sales, how many hands on deck do you need? How many meetings do you need? What is our success rate? How do you increase the success rate?"

So we've done the math required that if we do industry average, our stock will be industry average. So you're triple digits. I was hoping the Board did not hear this question, but the Board is fully listening, and they will set their goals accordingly, but we are being pushed to grow as priority #1.

Have you told all of them how when you were running Crawford, when you landed Allstate and other small clients by virtue of getting out of the executive suite and talking to people that you have access to?

I haven't. But in another life, I was running a claims insurance company. When I looked at the top 10 list, this is now over a dozen years ago, and I saw just 3 clients missing, and we were the largest. The 3 were not big: State Farm, Allstate, Berkshire Hathaway. So I said, maybe I need to call these 3 CEOs. And my executive assistant then, who's still my executive assistant, Lori, said, "Don't worry, I know how to reach these folks." I'm like, "You can reach these folks?" And she did.

So the point is we need to look at our array and mix of clients, which we are. And without naming more clients that were in live discussions, I have gone and met some of the top 10 bank CEOs head on wanting to give them all our services with our team, and they brought their top team to the table. So the dialogue, the engagement, the end-to-end solutions is all transforming. So this is happening now. Thank you for reminding me, David. As you get older, you start forgetting 10 years ago.

Can I add 2 points?

Please.

So I think 2 important key components here is, on the commercial side of the business, through what Harsha is doing, I think we've got more connection points now into C-suites of existing clients and potential clients than we've ever had before, which is going to drive a lot of that organic growth. And then secondly, on the government side, Anna alluded to this in her presentation, when we were out at the -- and I had the pleasure of accompanying the team to the government Medicaid conference out in Portland. We had more states lining up to get demos of our healthcare Medicaid solution than we've ever had before. And that is a key component of the growth opportunity that we've got as an organization. So I think there are probably 2 real key tangible components of how we're going to drive this forward.

And just to foot stomp, if I could. We've had follow-up demonstrations with those states as well. So it was not just a show me your shiny toy at a conference. It was show me the toy, wait now, I want to have my team see it, and I want us to go deeper and deeper.

Great. Thank you for that. Who's next?

Amit Solomon with Neuberger. Thank you for doing this.

We practiced in your building yesterday without your knowledge.

Okay. I appreciate that there's no lack of energy or urgency expressed today. With that, when looking at the plan that Giles presented for the 3 years, there's not -- there shouldn't be a lot of excitement about top line yet, right? It's more about the margin expansion. And the goals there seem to be a little tame in my opinion. This is a company that became public with double-digit margins. We still have more than $200 million of unallocated costs here. I heard some of the headcounts in the business as I was talking to people here today. I think I would have liked to have seen more. Am I wrong about that?

I'll wait for our CFO first to respond, and I will come right behind. Giles?

Thanks, Amit. I've put targets out there that I believe are credible and achievable. Is there more that we can do in the long term? Yes, I believe there is. But I certainly want us to achieve what we've put out there and get to those double-digit EBITDA margins and get to those growth targets in 2028. And if we overachieve, then the better for everyone.

So I think a couple of things. One is we are communicating at this moment, it's an open feed. So everybody is watching this, including our competition. So the reason I say that is we want to give you goals that are attainable with a high probability. Should we do only as good as those goals? Absolutely not. We will strive much beyond that. Coming to your unallocated G&A, it has come down significantly, will continue to come down. The other thing is the word unallocated, in my opinion, is a bad word, meaning not accountable. So to me, if it cannot fit in the business, we better justify why we need that. And that exercise is going on daily as we're reducing the unallocated overhead dramatically.

Having run different sectors, different businesses, there are certain standards in almost all sectors. Gross margin needs to be X, your margin before unallocated overhead needs to be Y, EBITDA needs to be a certain percent. There is an ideal state. And that's what we're moving towards. Now growth might surprise us more than what we're stating, but we also have churn at times that can come in, and we anticipate that. Hence, now the churn is going to start slowing down, which is good news because our interaction, our relationship management and delivery is getting better and better.

I'll give you an example. Last night, I was talking to one of the clients. And this is a client that really was giving a hard time that my Board knows and former Board members. They were livid. And yesterday, they said, "We're actually going to miss you." And I said, "I can't believe I'm hearing this." They said it has gotten so good in the last 6 months that we might actually miss you because they're part of the transportation business. But we are making impact that should become more and more sticky in our revenue and eventually growth. We will get more aggressive, but not even how we publicly state, once you got some tailwind in results, our demeanor will change even more aggressive, that I assure you.

Thank you. Who's next? Do we have any hands?

Please.

Matt Rothfleisch from Blue Owl. You had mentioned with the sale of the transportation assets that you'd be cleaning up some off-balance sheet liabilities. Can you give me a sense of the magnitude of that? What it actually means from a cash perspective, what it means from a credit rating perspective? Have you spoken with the agencies? How should we think holistically about that?

Why don't -- Giles and Anna, our General Counsel, going to answer. The reason Anna sits right behind me, I don't do anything wrong. Her vision is right on me. Go ahead.

Yes. So Matt, we've got just over $0.5 billion of off-balance sheet instruments, 80% of those predominantly surety bonds that support some of the large implementations that we have going on in the transportation environment. They -- so what's that $350-plus million of surety bonds and then some LCs that also support some of the transportation business as well? They'll all transition with the divestitures at points that the consents are given by the clients to transmit the contract across to the 2 new buyers. The rating agencies, we maintain good relationships with the rating agencies and regular conversations. And as we progress through the closing of these things, we will continue to have those conversations as well.

Are you freeing up any cash at all? Or -- what would be the net benefit for the...

You may want to take the mic and just repeat.

Is there going to be any free up of cash back to the balance sheet at all? Or is it all just being released at that point?

So none of these are cash collateralized at all. So there's no cash that we get back from moving these instruments across to Modaxo and Quarterhill. We will get a working capital benefit. The transportation business is certainly more working capital intensive than the commercial and government businesses. So there'll be less capital intensity of the organization as we move forward. I think that's probably...

Yes. And I think, Anna, from a legal perspective, would you allow those bonds to remain behind?

No.

So we are definitely going to push that with that. Now if there are small pieces that are struggling, we're going to have to have those firms make sure they back us up without question. The other advantage is, you mentioned working capital. The second is capital expenditure because there's a small piece in our entire CapEx that goes to transportation. CapEx itself is going to start changing go forward, which will eventually propel to free cash flow. Thank you.

Anyone else? We have a couple this side.

Yes, go ahead, please.

Matt Swope from Baird. Giles, I didn't hear much talk today about leverage and goals. I think in the past, you've said pro forma will be in the low 2s. After the transaction, I think you've talked about maybe getting towards 1x. Could you just -- I know you said you gave us some updated pro forma cap structure with Q3 or in that time frame. But could you just comment on how you and the Board think about leverage going forward?

Yes. So clearly, one of the objectives of the organization is to delever the company. It's what we're using the proceeds for the transportation divestitures to achieve. I think I'm going to wait until Q3 to give a more holistic answer as to what our leverage targets are after we've got through certainly the divestitures and the refinancing of the credit facility. And at that point, Matt, we will come back out with a more holistic view of what our targets are.

Could I just add into that? I know you drew the revolver post quarter end. How those conversations are going with the banks and where that process stands?

Yes. The conversations are going well. We're in negotiations with the bank and certainly hope to have more to update everyone within a few weeks' time, in early November when we have our Q3 earnings.

My blood pressure is very normal at the moment is the indication of how good we feel about the question you asked.

It's Jeff Hutz with JPMorgan Asset Management. A lot of good presentation material. And I understand the government business, it seems like it has a lot of opportunity on the commercial side, I mean, that business has declined reliably for a number of years. So I just -- maybe you could add some more meat on the bone as to why that business can all of a sudden stabilize and potentially grow. It's just not as apparent to me.

Go ahead.

I think, George, all you.

George? Yes.

Thank you. Good question. I'd say a couple of things. We talked about the way we're looking at the business, right, health care operations, financial operations, enterprise operations. We have not historically approached that business in that specific domain set. We have deep expertise in those areas. We plan on leveraging those areas. The other thing that I would say is that over the past couple of years, we've been more inwardly focused in the commercial organization, right, stripping out costs, addressing some redundancies, but not really looking to grow. What Kimberly has set up in terms of scale and go-to-market around those domain expertise, around our ability to deploy AI to make better decisions for clients, to automate workflows, to manage the more complex interactions, we feel very confident about.

The other piece is when you look at our array or mix of businesses in commercial, we have now identified with another lens where is our margin concentration, where is the maximum potential to grow? When you combine the 2, it becomes very clear, we need to play hard in the regulated industries, specifically in health care solutions, enterprise and financial solutions. And that is going to make a very meaningful difference go forward. That kind of focus is very critical to jump the numbers. Now one other thing on this entire team, if there's one person who goes into double -- single and double-digit margin discussion, that's George. Every time I call them, I say, how is the month going to look? Are we moving? Are we, and every single month, the needle keeps moving in the right direction. He intends to catch Anna. So it's kind of getting...

Pass Anna.

We had another hand up. I think right there.

So you mentioned that you'll be focusing on some of the regulated industries, health care, financials and enterprise, and you'll be possibly walking away from some more capital-intensive business. Can you quantify that? Is that reflected in kind of in the guidance for next year and the year after...

The capital-intensive comment was certainly directed around the transportation business, which is already included in the guide, the $2.15 million to $2.25 million of revenue is excluding the transportation business and just continuing operations only. There are a couple of additional divestiture opportunities that we've got, but nothing that's really going to move the needle at all from a revenue standpoint or a proceeds standpoint. So it's now really the focus on the continuing operations and everything that the team has talked about today to drive towards growth and increase the profitability of the organization.

So there is no additional revenue churn remaining kind of going into next year? Intentional churn.

Yes. So no intentional churn, that's right. That's right.

Next?

You should be pleased to know that we are actually having conversations with clients face-to-face if the margins are not adequate for us. Even that discussion is on. And now they're realizing accountability on both sides.

Do we have another hand?

Kellen D'Alleva from Jefferies. I know pricing strategy was mentioned a few times in terms of a lever, specifically in commercial, and I'm sure in government as well. So can you just walk us through how you're thinking about that and how the customer reception has been as well?

I think George and Anna can both respond to this.

Sure. I mentioned in my presentation, right, that we're looking at unprofitable relationships, right? And we're making decisions where we can and decisions where we can't, very difficult ones. So we've been looking at pricing across the board to ensure that we're getting the right value for the service that we're putting together. We are not as interested in chasing revenue any longer as much as we are interested in pursuing durable profitable relationships. So that's probably been the single biggest influence over how we look at new opportunities, new deals, add-on business, how is the -- the existing relationship performing? How will this add-on piece of work, work with the existing relationship and the financials? And as we go out and pursue new logos, we're not going to chase margin after the fact. We're going to expect that margin upfront and then work our way through it.

And I would say from a government perspective, we have had healthier margins historically, but those can always get better. And so a couple of initiatives we have undergoing is one is we've done a profit analysis across all the portfolios. So we know exactly where each portfolio stands from a margin perspective as well as looking at the process we use for our pricing on new bids and new deals, making sure that we are aligning industry best practice and aligning against competition so that we're not an outlier on either end of the bell curve. It's great sometimes if we come in as the most aggressive on the pricing, but then it also leaves a question of are you leaving money on the table? So finding that middle sweet spot.

We have another question in the audience. I think we have a couple more.

Kirk Ludtke, Raymond James. You mentioned that you've gone through and you've assessed each contract and your technology versus your price and where you -- where you want. And can you maybe elaborate on where you think you have a superior product on both commercial and government?

Yes. I will say hands down right now, our [ CMdS ] product. It's superior. It's latest to the market. Even our competitors are now worried because ours is truly cloud native, whereas our competitors took legacy mainframes and ported them to the cloud. That's again, the indication that we saw at the conference that Giles mentioned is the market is reacting to that as well. And so we're seeing lots of outreaches from the market from Medicaid directors directly. Using that [ CMdS ] as the basis for our technology, the adjacencies that it opens up as well in terms of provider enrollment and credentialing, that becomes a whole new market for us, too.

Can you give the full form of the acronym?

[ CMdS, ] it's the Conduent Medicaid Enterprise System.

And it is fully executed, implemented with rave reviews in one state.

In New Mexico.

Which means this can be 50-fold and could go even beyond the U.S. eventually.

And the other thing just to say is our main competitor in that market is also struggling right now and has had some implementations that have not gone well. So that provides another window for us to kind of break through it.

Sure. And I'd say on the commercial side, our clear strength lies in the health care space, right, whether it's the claims platform itself, right, which we are in the process right now of modernizing the front end to that and the back end should be ready late next year. It will probably differentiate us as having the best claims platform, what I'll call mid-market in the space. The other area that often doesn't get a lot of attention is our finance, accounting and procurement business.

We support 3 of the top 5 automakers, right, for their procurement processes. And we have deep expertise in what we do for those clients. And it's applicable not just to auto. You could take that to a number of other industries as well that are large volume purchasers. So I'd say health care and then some of our enterprise space, banking, we're strong. I think we can get a lot stronger. We got 4 out of the top 10. I'd like to see us make more penetration in the mid-market segment, right, in the banking.

And how many years with Citibank?

Yes, I say that because I'm biased because I've spent 30 years working for banks, so, domestically and abroad.

I think we had one question in the back.

Marc Riddick with Sidoti. First of all, I want to thank you for putting all of this together and certainly laying out all the goals and everything that goes into that certainly an undertaking to go there. So we really do appreciate that. One of the things I sort of want to touch on first as part of the prepared remarks on the government side. I was wondering if you could sort of elaborate a little bit more on some of the opportunities that you see, particularly with the gubernatorial races and that lag, I think, that you kind of talked about where I was sort of wondering if you could talk a little bit about that opportunity set that might present itself in the kind of time frame that you can sort of take advantage of...

Sure. So typically, what happens when we're in an election cycle like that, things will slow down prior to the election because you see the key leadership among the governor's team start to jockey for positions or to depart. So we're in that phase right now.

With the new approach coming in and the new governors and basically, what we're trying to do is within those top states that I identified, do the prework with both sides of who the potential administration can be so that we're prepared to jump in and capitalize day 1. So I think that's really where we see that. And it's not a blue or red state issue. There are blue and red states that both need modern claims and financial, and they need help with their Medicaid eligibility and enrollment, particularly in light of the pressure that H.R. 1 brings.

As well as the opportunity to reduce fraud.

Opportunity to reduce fraud is a constant thing across the Government Solutions portfolio.

And we'll do one last question. If no one has one, I have a closing question for Harsha. Any more? All right. So Harsha, what is fundamentally different about the new Conduent and what gives you confidence that we can achieve not just growth, but profitable sustainable growth?

The first step is actually the belief in what you do on a daily basis. If you have it from here that you're going to get something done, you got to believe it first. So walking into a new place, a new sector, I had to first believe in it myself. Second, you got to have the team believe in the journey. It is a team sport. Last time I checked the magnificent [indiscernible]. We got, I think, the magnificent [ ten ] here with the most attractive ladies around me, if you see the way we're sitting. So my point is that we got to believe in that. Third, in today's world, AI is so critical. It unleashes capacity. So if I had 20,000 people in a particular sleeve, doing X amount of work. Tomorrow with AI, it could be 2,000 people doing X square. That's the amount of capacity it unleashes or X to 100. I mean the speed that coding is changing rapidly using AI is very dramatic. So to me, all of these things are coming together, added to that, very good governance that is important.

You asked the question about the surety bonds. If I go in and do this sale, before I do the sale, trust me, these Board members, and if these Board members don't ask one of our former Board members here, he will pick up the phone and ask as well, "Hey, are the surety bonds moving? Just making sure." So we have checks and balances that are fairly tight, and we're in a growing market. The TAM is large. It's growing, and that 4% is U.S. market-based.

What we are doing here can be done in Australia, can be done in England, can be done in Canada. Large benefits government run systems, large corporations accumulated will need the same services. This is the new Conduent, trust me. And our approach, the way we walk, the way we talk, the way we present, the way we interact with clients is very different and clients are recognizing that this is not how we used to dialogue. It's completely revamped.

On that note, to everyone who asked the question, thank you. To the senior leadership team, thanks as well. I'm going to let Harsha close us out and then...

I think I just closed.

That's great. You still have to come up here and officially close us out. And then we will meet you all for lunch over in that room.

Ladies and gentlemen, thank you very much patiently for listening. I just hope our next Investor Day is not in a room of this size. It needs to be much larger with a broader investor base that always comes with predictable forward-moving results. And here is the other thing. We do have lunch. There is free seating for all of the folks who are not Conduent related. Please sit anywhere you want to ask any question you want, and we want to make sure we have this interaction during lunch and appreciate the number of hours, one, that you've spent here, but more importantly, today, I met folks who have invested for 7 years, 8 years and are still having the patience or Martin Hale, who just bought a bunch of stock or David Nerenberg, who bought a bunch of stock for a variety of positive reasons in having faith that we will move forward with meaningful results. Thank you again and looking forward to more interactions with all of you.

Greetings, and welcome to the Conduent Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Nick Goyal, Vice President, Investor Relations. Thank you. You may begin.

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 Gales 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 competitive purposes, please see our press release.

And now I would like to turn the call over to Harsha.

Good morning, everyone, and thank you for joining us. 6 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've 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 5 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 2 divestitures we announced during the quarter, we are updating our full year guidance to reflect the impact of those transactions.

Now let me start with our first priority, increasing speed and accountability. Over the past several months, we're 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 conduit, 1 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, rightsizing 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 Midaxo and the sale of our tolling business to [indiscernible]. 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 quarter 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 and the remaining businesses where we believe we can create the greatest value for our clients and shareholders. Portfolio optimization is not a onetime 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 continue to build the 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 2 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 health care platform and reinforcing our ability to deliver integrated solutions for health care 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. health care 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 2 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 multiyear 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 enhanced program performance for approximately 1.6 million enrolled Viginians.

And we continue 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 profession 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. Clients recognize that AI is not about deploying stand-alone tools or running disconnected pilots. The real opportunity lies in embedded AI into the workflows and business processes that power their operations because we manage those processes on behalf of our clients. We bring the domain expertise, operational knowledge and technology capabilities needed to implement AI in ways that deliver measurable business outcomes.

We are methodically embedding AI across the full cycle of our solutions from customers and constituent interactions to core business operations and enterprise productivity, and we're already seeing tangible results. One sterling example is Conni, our AI-powered digital assistant now embedded within our life at work health and wellness platform. Today, Conni resolves approximately 86% of employee inquiries without human intervention, while reducing live agent interaction by more than 20%. We're now taking the next step up by infusing Conni into agentic AI capabilities and expanding those capabilities into new use cases. One example is our personalized agentic AI-powered navigator the next evolution of Conni, which helps simplify complex health care interactions by transforming confusing health care information into personalized guidance for members and providers. That innovation is already being recognized in the marketplace.

Recently, Conduent was selected as a winner of United Healthcare's 2026 global innovation challenge for its personalized agentic AI-powered navigator. Collected from 40 participating companies, this recognition clearly validates our superior ability to apply AI to solve the real customer problems while improving business outcomes for our clients. Internally, we're also deploying Microsoft Copilot and AI-assisted software development tools to help our engineering teams accelerate development improve productivity and bring new capabilities to market more quickly. Together, these investments demonstrate how we're combining deep domain expertise with practical AI innovation to help clients modernize operations, improve outcomes and create sustainable long-term value.

The bottom line is this. We are executing with greater discipline, and we're beginning to see the results. redefining what clients and investors should expect from Conduent, a simpler, more focused company with stronger execution, greater financial discipline and a clear path to sustainable, profitable growth. While there is always more work ahead. I am extremely optimistic about where we're headed and confident we're building a stronger, high-performing company with significant opportunities.

With that, I'll turn the call over to our Chief Financial Officer, Giles Goodburn.

Thanks, Harsha. As we have done in the past, we're reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation.

Firstly, let me start by stating the results we are reporting today reinforce our conviction around our transformation journey Harsha laid out at the beginning of the year. However, when interpreting our second quarter GAAP and non-GAAP financial statements, you will see they are influenced by a number of factors related to this transformation. Specifically, discontinued operations and anticipated stranded costs from divestiture activity and the early consulting costs incurred to achieve the cost efficiency targets the benefits of which will become resident in future quarters. All of these factors are important steps towards our transformation destination.

During the quarter, as Harsha mentioned, we announced the sale of both our transit and tolling solutions, which will complete our exit from the transportation business. Transactions collectively represent a strategic shift that will have a major effect on the company's operations and financial results and hence meet the criteria for discontinued operations presentation. Unless otherwise indicated, the financial disclosures and related information and commentary provided herein relate to the company's continuing operations, which exclude the transportation segment. All prior periods have been restated to reflect discontinued operations.

These transactions are a key milestone in our strategic journey, that once closed, will generate gross proceeds of $234 million, plus a 7% equity stake in Quarterhill, the acquirer of our tolling business. 2025 revenue and EBITDA for the Transportation segment was $609 million and $18 million, respectively, thus transacting at an adjusted EBITDA multiple in the mid-teens significantly higher than where Conduent currently trades. The transactions will also provide other strategic financial benefits. Our off-balance sheet financial instruments, surety bonds and letters of credit will be reduced by approximately 80%, leaving roughly $125 million, predominantly supporting the government segment. The working capital intensity of the company will also be reduced as well the capital expenditure requirements. And importantly, the proceeds will allow us flexibility to address the capital structure with an emphasis on delevering the organization.

Turning to the quarter. Let's discuss our key sales metrics on Slides 5 and 6. We signed $99 million of new business ACV in the quarter compared to $111 million in Q2 2025, but a sequential improvement versus Q1 2026. This quarter, the ACV one will drive a larger proportion of recurring revenue than we have seen in recent quarters. And our commercial segment new capability ACV and expanding our relationships with existing clients is the highest it's been for several years. The trailing 4-quarter ACV metric is up versus this time last year. and we expect to resume a sequential increase next quarter.

At the midpoint of the year, we have signed $188 million of new business ACV, equal to the first 6 months in 2025. However, this year, we have closed 12% more annual recurring revenue signings and 7% more nonrecurring revenue signings than we did in the prior year. With the changes to our go-to-market strategy taking shape and driving a stronger pipeline, our expectation is that we have a stronger finish to 2026 than in 2025. Our qualified ACV pipeline remains strong at $3 billion, which is up 11% year-over-year. Both commercial and government segments are up year-over-year with our Commercial segment pipeline growing 48% since the beginning of 2026. Q2 was a strong quarter for renewal activity with $617 million of TCV, including several large health care clients in both our government and commercial segments.

Let's turn to Slide 7 and 8 and review our Q2 P&L metrics. Revenue for the quarter was $531 million compared to $603 million in Q2 2025, down 11.9%. Adjusted EBITDA for Q2 2026 was $16 million as compared to $23 million in Q2 2025, and our adjusted EBITDA margin of 3% is down 80 basis points year-over-year. Included in these adjusted EBITDA numbers is approximately $4 million in 2026 and $6 million in 2025 of stranded costs related to the former Transportation segment, which we will address once the transactions have closed. Turning the page. Q2 2026 Commercial segment revenue was $316 million, down 13% as compared to Q2 2025. The decline here is driven by contract losses and volume declines, predominantly in our customer experience management offering, including our largest commercial client whose contract with us will end in the third quarter and is already incorporated in our outlook. Commercial adjusted EBITDA was $24 million, a decrease of $3 million year-over-year, and the adjusted EBITDA margin of 7.6% was up 20 basis points year-over-year.

While we incurred a couple of negative discrete items in the quarter, the results from our cost efficiency programs drove a stronger margin performance. Government segment revenue for the quarter was $215 million versus $238 million in Q2 2025. The drivers here were lost business and the timing of implementation activity of our state-of-the-art Medicaid platform in the government health care portfolio, creating a temporary dip in revenue. As Harsha mentioned, we finalized the New Mexico implementation early in the quarter, which completed the revenue recognition for this project, and we are now focused on ramping up the implementation of our new Virginia contract, which will drive new revenue in the second half of this year. Adjusted EBITDA was $51 million and adjusted EBITDA margin of 23.7%, down 150 basis points year-over-year. The revenue impacts as well as favorable reserve releases in the prior year were the drivers. Unallocated costs were $59 million for Q2 2026, a reduction of almost 10% versus Q2 2025, reflecting the continued progress with our cost efficiency programs in the corporate functions.

Let's turn to Slide 7 and discuss the balance sheet and cash flow. We ended Q2 2026 with approximately $240 million in cash on the balance sheet and negative adjusted free cash flow of $8 million for the quarter. Although adjusted free cash flow remained negative for the first half of the year, it improved by $81 million compared to the same period last year, primarily due to achieving payment milestones in our Government and former Transportation segments. Our adjusted net leverage ratio of 2.1 turns this quarter excludes EBITDA from discontinued operations, but includes the proportion of cash proceeds we expect to receive from the divestitures at closing. And our capital expenditure for the quarter was 2.6% of revenue, in line with our expectations.

Turning to Slide 11. You will see we have recalibrated our guide for 2026 to exclude our discontinued operations. Our revenue guide for 2026 is now a range of $2.15 billion to $2.25 billion, and our adjusted EBITDA guide is between $140 million and $170 million, which at the midpoint is a 7% adjusted EBITDA margin. That concludes the financial review of Q2 2026, and I'll now hand it back to Harsha. Harsha?

Thanks, Giles. Before we open the line for questions, I'd like to leave you with one final thought. Transforming a company of Conduent's scale takes time, but it's very predictable. While our financial performance this quarter does not yet fully reflect the full impact of the actions we have taken, we're making steady progress on the priorities that will create long-term value. This quarter marked an important milestone in that journey. The 2 portfolio transactions we announced further reshape Conduent, strengthen our strategic focus and demonstrate our commitment to disciplined execution and thoughtful capital allocation. At Investor Day later this year, we'll share the next phase of that journey, including a more comprehensive view of our long-term strategy, portfolio priorities, capital allocation framework and growth opportunities we see across our markets. We look forward to sharing more with you then.

Operator, we're now ready to take questions.

[Operator Instructions] Our first question comes from the line of Michael Kupinski with NOBLE Capital Markets.

Congratulations on executing on your initiatives. A couple of quick questions here regarding margins. Government segment margins improved meaningfully. How much of that improvement is structural because of the health care platform scalability versus maybe some temporary efficiencies or onetime items? And then excluding transportation, what is the realistic medium-term adjusted EBITDA margins for the remaining business? And I was just wondering if your previous goal of achieving 10% margins is still the appropriate framework? Or has the portfolio simplification changed that outlook?

So my reaction to your questions are the following. in this space, commercial and government, we really need to be -- and I'm looking at the segments individually, and I'm keeping transportation aside just for discussion purposes. We need to be in the mid- to higher double-digit margins. Then we minus the SG&A, that's the central SG&A, bringing us to a greater than 10% margin. So that goal remains unchanged. When you look at our benchmarking, our peers, they're able to do this. We need to do this. We need to do even better, even quicker, in my opinion. On the government side, there are 2 things happening. Anna Server, our leader for the government business is rapidly implementing AI in multiple areas. We don't go around talking too much about it and maybe we should. So I'm just going to give you one small example. We have a new fraud tool designed and owned by us called Verisite, assisted by Microsoft in the food stamp eligibility program that incorporates significant AI capabilities to identify patterns of potential fraudulent activity. The issue we face in the U.S. today is a tremendous amount of fraud.

So our focus and investment in AI is to help the governments of the United States, whether it's state local or federal, using AI to trap fraud and save money for the various stakeholders. So I'm actually now receiving calls from State Attorney General, Secretary of State, the governors of the state, thanking us for starting to implement some of this code. The other thing that Anna is doing for the margins to start changing quite rapidly in the government is a change in the headcount in how she's organized. And if you remember, 6 months ago when I came in, we had a different leader, and Anna Server has been now in this job about 4 months, and she's taking very rapid actions to change the business. So that would be my answer. So the outlook remains unchanged in terms of 10-plus percentage across the entire business.

Got you. And just a follow-up on your AI comments. Do you expect AI to become more of a measurable contributor to revenue growth? Obviously, you've concentrated on the cost efficiency initiatives, but I was just wondering if that is a prospect as well factored into your outlook?

Yes. I think it's going to be a very big difference in terms of how we are executing. So I'm going to just give you some examples, again, in the government side, and I can also go on the commercial side. Where AI is being used today is internally, porting, taking old code and porting it to new code. Second, -- we have a lot of requirements that governments ask us to fulfill. The validation of these requirements we're using AI tools. Third, testing scenarios. fourth, quality code checks. The biggest issue I saw as I walked into Conduent is the speed to implementation. Sometimes when you sign up new business, it was taking 9 months, 10 months, we're compressing the time to go live, which then -- and we're using AI to do that, which then means revenue accretion will be faster, accuracy in terms of our operations increases. And I'd say the clients' happiness space increases because they're having true added value. Now what this might result in is reduction of some of our cost structure because of this automation, which might ripple through the entire company. If you look at our number of employees that I began with, we have definitely dropped the number of employees in the company as each month has gone by more rapidly as time is going.

Our next question comes from the line of Gowshi Suri with Singular Research.

Can you all hear me?

We can hear you.

Okay. With the largest commercial client kind of rolling off, what does the client concentration on the remaining book look like? I know you mentioned this $100 million commercial wins. What does the client accounts look like? And is that improving with the next biggest clients?

Yes. So first of all, this client rolling off -- and if you remember, I was Chairman of the Board before I became CEO. So the previous CEO had mentioned it to the Board about a year ago that this large client had announced that they were wanting to roll off, and they have been rolling off. So that continues. Having said that, we have a reasonably diversified portfolio, but we do have depth, particularly in certain areas like banking and lending, health care, so on and so forth. So we don't have the exposure that we've had with this one client. So I think I feel pretty good going forward. Meanwhile, Kimberly Marshall, who runs our commercial sales side and George Webb, who runs commercial operations, they are making sure that they continue to bulk up step-by-step on the number of services we're offering existing clients. Going back a couple of calls, the number of services we offer clients today is somewhere between 12 and 15. But guess what, a client buys from us, 1.4 services. Our service density to clients is low, and we are intending to increase it. That's one side of it.

The other side is we're also going to go beyond the U.S. to increase our geography in where we start selling, whether it's Canada, whether it's Western Europe, whether it's Australia, it makes sense. There is a cost differential that we can take advantage of our large back offices in India, Philippines and Guatemala. So to me, going forward, I don't see the risk that we're experiencing with the one large client.

And just my follow-up. On the CapEx side, as you build out this next-generation Medicaid provider enrollment. Does that require a CapEx step-up in 2027? Or is there anything you're deferring to protect this year's cash?

Yes, it's Giles. So no significant step-up. That's right. It's just part of the normal course and speed of the CapEx that we've allocated to the business and the continued investments that we're making in what we believe is a market-leading technology stacks in the government space. If anything, I think, overall, as you look at the CapEx in -- across the company, we should see a tick down from both the transportation segment divesting as well as just more prudent allocation of capital across the business. .

And if I could sneak in one last question for Harsha. Now that you've had 6 months to review, what are the buckets that are still in the fixed was sell? Any color on how you're thinking about that?

Sure. So to begin with, as we've announced the sale of the Transportation business, transit and tolling. And just to remind everybody, we had committed to at least $200 million. And it looks like we're going to come out at about $234 million plus 7% in quarter. Meanwhile -- and one more thing. -- the amount of cash we're going to release out of the transportation sale is close to our market cap I think people need to really understand there is so much value inside Conduent. It's not reflecting in the stock price yet. Now on top of that, we have continuous inbounds on various parts of our business. As CEO, my job is to never say no and look at optionality and take a look at businesses for sale.

The good news is George and Ana our leaders in commercial and government want to give no excuses for me to sell. So they're moving ahead with changing the margin structure as rapidly as they can. But having said that, if somebody came to me and said, here's 20x EBITDA, 15x EBITDA, I think my CFO is going to press very hard for me to be not wanting to look at the deal. So there are a couple of small pockets of businesses we might look at. One additional thing for investors to know as an executive team, we're going through a detailed review of our strategy, and that includes front-end center where AI fits into our strategy we're going to be including our entire Board in the exercise, and it will be presented at the end of September at our Investor Day.

So to me, on the fixed cell growth, maybe there's another business or two, but I will tell you this, Giles, our CFO has an arm that is focused on looking at every inbound call. We get inbound calls on a regular basis. So we will continue to look at optionality. But what it just shows me is 2 small businesses, not very large, selling them the value realization is close to the market cap of the company. So to me, there's more that we might be able to do to unlever the company.

Our next question comes from the line of Marc Riddick with Sidoti & Company. .

I wanted to piggyback on the leverage conversation. And maybe you could sort of discuss what your general views are as far as comfort levels of leverage or potential ranges that you might be targeting. So with the prepared commentary and remarks, the post -- with the proceeds or getting down to about a little over 2x. Maybe you could talk a little bit about how you see or where you want to be longer term on leverage levels? And then I have a follow-up after that.

Yes, Marc. So I think once we've got the transactions done, the leverage comes down to that kind of 2% range, I think as well, once we start to see the benefits of some of the activities, the transformation activities we've got going on, reducing the cost growth in the top line, reduce CapEx. -- enable us a little bit more flexibility to drive that leverage down further. So I think I think, certainly from my perspective, I'd like to be, as you look out in the next sort of 18 months to 2 years, I'd like to be in the sort of onetime levered range. But we've got work to do to get there, but we're on the right path to addressing that. .

Okay. And then that actually leads to sort of where I was starting with the next. Maybe you could talk a little bit about some the areas you may be targeting as far as the $100 million of cost savings. I mean I know the you've already made commentary around a lower employee count that you're already seeing, but maybe you can sort of talk maybe as to sort of at least sort of generalities as to where you're looking for those savings to come from?

Yes. I think 60% to 70% is headcount. 30% to 40% is relooking at our tech stack -- so the combination of the 2 is going to give us that of that, we have already identified a little more than half. We've already executed a small chunk and there's more to execute. So to me, and this is all clear in our heads, as a team. The biggest move that's happening, if you ask me, is in the commercial segment. So you should see margins change in the commercial segment. probably faster than anywhere because commercial has a lower margin and a much higher potential and a much larger business.

So we're seeing that the other area that we're looking at is right shoring. So again, the centralized SG&A has to be reduced and people are working through that as well. We have 2 firms professional firms working with us. One, on the cost side as well as how we approach sales. And then the second firm is focused purely on the technology. And between the 2, we're working aggressively. I told my team at the end of this year, my intention is to not have any consultants inside Conduent. This is my goal that after this year, we're done. We've rightsized margins are in the right step and the business starts growing the way we need it to grow.

Okay. Great. And then last one for me. I was wondering if you could -- you -- in your prepared remarks, you discussed meeting with clients and some of the takeaways there. Maybe you could just sort of give us sort of general views and thoughts as to some of the potential upside or maybe some of the things that were maybe new learnings or what have you or anything of those along those lines that you would be most optimistic about from those meetings?

Sure. The first, I would say major change that has happened in how we dialogue. And by the way, I did not know this. until my team started recognizing it and telling me this is different. I dialogue with many of our CEOs of our clients directly. One, it's not hard to reach them. Two, they actually want to hear from me. Three, they actually, at times, don't know, we have 15 services. So I'm going to give you small examples. I have spoken to more than 1 bank CEO in the top 10 banks in the United States. And they're like, "Oh, you have lockbox services you do document digitization, et cetera, et cetera. So they are excited.

The second is they're now inviting us to meetings, and this is not an RFP methodology. So they will invite us to a meeting where IS CEO, our Head of Commercial Sales, Kimberly Marshall, our CFO might be present or our Treasurer, including there will be a number of other folks in line management, meeting a bank starting with the CEO as well as a number on the other side. So we're staying across from each other, trying to figure out how we can partner together. The bank I'm referring to, I will not take the name. One of the things we're looking at is how do we work together when we have a few hundred billion dollars of payments going on in the government space.

How can we get more efficient for us and more efficient for the client. So there's a fair amount of dialogue. The other is Conduent Elevate, which is the mini convention we had in Chicago, we had huge client attendance, what did surprise me, we hadn't had 1 in a while. And guess what, we have a lot of interaction now as we're going through the RFP process, I directly participate with the Head of Procurement. I'll give you an example. There was a call with the -- I will not name the client, but you can figure it out. The largest health insurer in the country. And they had 60 CEOs. I was the only CEO asking questions. And guess what? Hence, we connected, and we're going further and further into the RFP process. This is the kind of dialogue. I don't shy I connect and my team jokingly said, let's not underestimate who or knows. It's better to go ask him and see if we can get it out. So we are being very aggressive in the marketplace. We're not sitting back because we're determined until I have revenue growing positive and double-digit margins, job is not done.

Thank you. Ladies and gentlemen, that concludes our time allowed for questions and we'll conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.

Hello, and welcome to the Annual Meeting of Shareholders of Conduent Incorporated. Please note that today's meeting is being recorded. Please note that this presentation may contain forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995.

Please see important disclosures related to forward-looking statements on the meeting website by clicking on the Forward-Looking Statements icon in the Documents tab.

During the meeting, we'll have a question-and-answer session, you can submit questions or comments and at anytime by Message icon. It is now my pleasure to turn today's meeting over to Ms. Paláu-Hernández, Chair of the Board. Ms. Paláu-Hernández, the floor is yours.

Thank you, Amanda. Welcome to Conduent's Annual Meeting of Shareholders. I am Margarita Paláu-Hernández, the Chair of the Board, and I will chair today's meeting. I want to thank everyone for joining our annual meeting. And on behalf of the Board, we hope that you're all doing well. Conduent has come a long way, and we, as a Board, are proud of the progress and look forward to the path ahead as 48,000 Conduent associates work hard every day on behalf of our clients. Thank you again for joining us today.

I'd now like to introduce the other members of the Board of Directors and nominees. Harsha V. Agadi, Conduent's President and Chief Executive Officer; Michael Fucci, Chair of our Corporate Governance Committee and a member of our Audit and Compensation Committee; Kathy Higgins Victor, Chair of our Compensation Committee and a member of our Risk Oversight Committee; Scott Letier, Chair of our Audit Committee and a member of our Corporate Governance and Risk Oversight Committee; and Greta Van, Chair of our Risk Oversight Committee and a member of our Audit Committee.

I'd also like to take a moment to thank Kathy Higgins Victor for her years of dedicated service to our Board and to Conduent as a whole. Ms. Higgins Victor is not standing for election at this year's annual meeting, and we wish her the best of luck in her future endeavors. Also participating from PricewaterhouseCoopers, the company's independent auditor; Mary Davis, the lead PwC engagement partner. In addition, several members of the company's management team are with us today, including our President, Chief Executive Officer and Board member, Harsha Agadi, who I just introduced; Giles Goodburn, our Chief Financial Officer; and Michael Krawitz, our General Counsel and Secretary.

Finally, please note that we are recording today's meeting so that shareholders who cannot attend the meeting can listen to a replay and also to make sure we have an accurate record of the meeting. Before we turn to the business of the meeting, I'd like to ask Harsha to say a few words. Harsha?

Thank you, Ms. Paláu-Hernández, and thank you, everyone, for joining today. Our company is off to a great start in 2026. And while we are less than 120 days into my tenure as CEO, we are progressing towards our goal of positive free cash flow in 2027 and accelerating revenue. In the first quarter, under my leadership, we generated EBITDA margins of 6.8%, exceeding Street expectations and had a year-over-year improvement in operating cash flow of over $50 million. During the quarter, we also restructured my senior leadership team. The goal of these changes are to increase the pace of decision-making and improve accountability. In addition to the leadership changes in the quarter, we embarked on a cost initiative that we believe will take at least $100 million out of our cost structure, not only driven by headcount reductions, but also structural changes in how we deploy technology and how we run the business.

These will be sustainable changes that we will improve our cost structure and also should improve our competitive positioning over the coming years. We continue to invest in technology, in AI and other productivity-enhancing solutions. But one shift you may hear from me is that we don't always need to build our own technology that we deploy. We look for partners where it is prudent to drive improvements and deploy solutions as quickly as we can. We are seeing positive sales momentum and pipeline strength with new and existing clients in both the commercial and public sector space, driven by our focus on our client success, operational excellence and new go-to-market.

We are confident that we have the right strategy and are executing to achieve top line growth, EBITDA north of 8% and positive free cash flow. We know that our clients, associates and you, our shareholders, are counting on us, and we're right on track. Thanks for being part of this journey with us.

Finally, I'd like to also extend my sincere thanks to departing Director, Kathy Higgins Victor, for her contributions, insights and dedication to the company. We wish her well in the future.

And now I'll turn it back over to Ms. Paláu-Hernández.

Thank you, Harsha. Let's turn to the items being considered by shareholders. Michael Krawitz will help us with this section of the meeting. Michael?

Good morning, Maggie, and welcome, everyone. Greg Veliotis of Computershare has been appointed to act as Inspector of Election at this meeting. Greg has subscribed the oath of office and has submitted the following report. There were outstanding on March 23, 2026, the record date for the meeting, 155,096,814 shares of common stock. The holders of approximately 127.8 million shares are present at the meeting or by proxy or approximately 82.4% 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 and guidelines have been posted on the website for the meeting, and the meeting will take place as described in that agenda. Shareholders will have the opportunity to ask questions 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 or comment. Please keep your questions or statements brief and limited to the specific item up for discussion. At the relevant time, I will read the questions submitted that pertain to the specific proposal being presented as we go through the formal business noted on the agenda. We will take as many questions for each item as we reasonably can.

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. Please note, our annual meeting guidelines set forth requirements related to the meeting. For those shareholders who wish to vote online during the meeting, there is a vote icon available on the screen that is available to shareholders who properly registered and provided a control number. Shareholders may vote until the polls close, which will occur shortly after the final agenda item, which is the advisory vote on 2025 compensation. If you have voted your shares prior to the start of the meeting, your vote has been received by the company's 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 will now ask you to present the matters to be voted on during this meeting.

First, to the election of directors and 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 until their successors have been elected and qualified. Harsha V. Agadi, Michael Fucci, Scott Letier, Margarita Paláu-Hernández and Greta Van.

Are there any comments or questions on this proposal?

There are no questions.

Since there are no questions, we will proceed.

Second item for voting is the ratification of independent auditors, and I move for the adoption of the following resolution; resolved, that the selection of PricewaterhouseCoopers to act as the company's independent registered public accounting firm for the year 2026 be and hereby is ratified.

Are there any comments or questions?

There are no questions.

Since there are no questions, we will proceed.

The third item for voting is the proposal regarding approval on an advisory basis of the 2025 compensation of our named executive officers. I move for the adoption of the following nonbinding advisory resolution; resolved, that the compensation paid to the company's executive officers as disclosed in the company's proxy statement for the 2026 Annual Meeting of Shareholders pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, compensation tables and narrative discussion is hereby approved.

Are there any questions or comments?

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 is any shareholder who would like to vote before the polls close, please do so now by clicking on the Vote button on the 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 is no need to vote those shares again during the meeting unless you wish to revoke or change your vote. Does it appear that all the votes are in, Michael?

[Voting]

It does. Yes.

I now declare the vote -- the polls closed. Michael, will you please present the report of the Inspector of Election?

The Inspector of Election has presented a preliminary report to me and has determined that, first, for the election of directors, each of the director nominees received at least 94.8% of the votes cast at this meeting for such directors' election. This satisfies the majority vote requirement for the election of each of these directors.

Second, for ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm for the year 2026, 99.4% of the votes have been cast for this proposal.

And third, for approval on an advisory basis of the 2025 compensation of our named executive officers, 91.5% of the votes have been cast for this proposal.

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 2026 has been ratified and that the 2025 compensation of our named executive officers has been approved. This concludes the business of our meeting today. There being no further business to come before the meeting, the formal portion of the meeting is adjourned.

Harsha and team would be happy to answer any questions of a more general nature. As a reminder, our annual meeting guidelines list certain topics that we will not address at this Q&A. Michael, are there any more questions that have not been addressed?

No. Thank you. There are no questions.

Thank you, Michael. And again, thank you all for joining today. We hope you stay well. Back to you, Amanda.

This concludes the meeting. You may now disconnect.

Greetings, and welcome to the Conduent First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Joshua Overholt, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today to discuss Conduent's first quarter 2026 earnings. I am joined today by Harsha Agadi, our CEO; and Giles Goodburn, our CFO. We hope you've had a chance to review our press release issued earlier today.

This call is being webcast and a copy of the slides used during this call as well as the press release were filed with the SEC this afternoon on Form 8-K. This information as well as the detailed financial metrics package are available on the Investor Relations section of the Conduent website. During this call, we may make statements that are forward-looking. These forward-looking statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements.

Information concerning these factors is included in Conduent's annual report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law. This information presented today includes non-GAAP financial results -- financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results.

For more information regarding definitions of our non-GAAP measures and how we use them as well as the limitations to their usefulness for comparative purposes, please see our press release.

And now I'd like to turn the call over to Harsha.

Thank you, Josh. I want to welcome all our investors, analysts and colleagues around the world to the call. I am confident you will be encouraged by what you will hear as we discuss Conduent's first quarter results and the steps we've taken to improve the pace and discipline of our execution. I want to say good morning, good afternoon and good evening to our 48,000 Conduent colleagues across the globe. I have now been CEO for 115 days and continue to hear from our clients about all your efforts on their behalf.

Thank you, and we will keep working to enhance our client operations. As I speak, with our clients, they value a combination of our technological capabilities and the human connection our employees demonstrate to make services seamless and predictable, each and every time. Again, thank you and keep driving innovation for our clients.

My commentary today will focus on 3 areas: First, I will give you an update on the priorities I laid out on the Q4 call. To be clear, the priorities remain unchanged. The 5 priorities are: reduce our cost structure, convert pipeline to growth, optimize the portfolio, increase speed and accountability, and enforce financial discipline.

Second, I will provide an update on our AI initiatives in both public sector and commercial. Finally, I will share some details on deals won in the quarter that, in aggregate, exceed $100 million.

In the Q4 earnings call, I had highlighted 5 priorities for Conduent. In Q1, we executed well on reducing our cost structure. We reported adjusted EBITDA margins of 6.8%, a marked improvement to last year. In addition, we have initiated a detailed review of our cost structure, engaging 2 external advisers, and through this work, identified significant potential opportunities.

Our initial assessment is that we can reduce $100 million of cost in the next 18 months. This, ladies and gentlemen, is just the beginning. As I highlighted in the Q4 earnings call, I believe that Conduent should have EBITDA margins north of 10%. Our pipeline continues to grow at a robust pace, and with the changes we have made in commercial leadership and improvements we have made in our go-to-market strategy, we should see an improvement in pipeline conversion in the back half of the year.

Our go-to-market strategy now across the company is focused on five approaches. The first is cross-selling to our existing clients. Second is the restructuring of our sales incentives. Third is larger defense. Fourth is winning new logos and fifth is the establishment of a deal desk. As it relates to commercial, the go-to-market changes include a much narrower focus on the health care and financial services sectors.

Meaningful relationships with CEOs across the commercial landscape and an increased focus on innovative solutions, solving client pain points. In public sector, we have reengaged in the federal space to focus on health and human services as well as other target agencies. This aligns with the current administration's focus on greater efficiencies as they deliver cost-effective services for the citizens of the United States.

We believe we are well positioned to compete for these opportunities. For portfolio optimization, I continue to be confident that we can achieve improvements in margins and efficiency of our business as we focus our business and prioritize investment in growth segments. As you will see in a later slide, we believe proceeds from identified divestitures in 2026 should be north of $200 million.

Regarding speed and accountability. First, we simplified our leadership team. Second, we have developed new processes to make quicker decisions, resulting in speed of implementation post contract timing. This should allow us to reduce working capital and generate revenues and ultimately, cash flow from more quickly. And my final priority is to enforce financial discipline, which is evidenced by not only the 6.8% adjusted EBITDA margins in Q1 and but also increased rigor on capital expenditures and cash management, which helped deliver a $50 million improvement in operating cash flows year-over-year. I want to give a little more color today on our AI initiatives, past, present and future.

At Conduent, we deliver end-to-end business process solutions using technology with our deep domain expertise, which positions us to use AI as a differentiator. On this slide, we have laid out 3 use cases we have developed AI against -- as we look at the examples here across the top, it shows problems we've sold with AI. First is fraud and risk management. Initially, we deployed machine learning models for payment fraud detection. We currently have deployed GenAI plus rules-based AI to improve account takeover detection, and we're also expanding into other fraud vectors to manage risk.

In the future, we believe we can take these AI solutions and scale them into other forms of fraud prevention. In customer and citizen interaction we initially implemented IVR for routing and cell service as well as chat bots and analytics to drive improvements in cost and service. We have now added Gen AI assistant agent assist to reduce handle time.

We have also expanded Kane, our very own branded Gen AI chatbot to power a personalized benefits experience in the human capital solutions space. In the future, we're working to deploy other Agentic AI solutions driving more autonomous conversational experiences. As we move to the third column, we see a combination of workforce and productivity-enhancing solutions, including AI, assisted coding and further scaling of these tools in the future.

I want to be clear, Conduent has not been standing still as it relates to AI. -- we are implementing AI as appropriate in solutions, and we are using AI to improve our own cost structure. In conclusion, I want to highlight our sales wins for Q1. As a company, we had $114 million in sales wins. These wins highlight our capabilities and our deep client relationships.

Commercial segment signed more than $48 million of new business in Q1, including significant contracts with 3 long-standing health care clients, demonstrating Conduent's continued strength in this sector. In the Public Sector segment, we signed more than $66 million in new business in Q1. This was driven by a large deal in the government Medicaid claims for $23 million in new business.

Now I will hand it over to Giles for the detailed financial review.

Thanks, Harsha. As we've done in the past, we're reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation.

Let's discuss our key sales metrics on Slide 6 and 7. We signed $114 million of new business ACV in the quarter, up 5% versus Q1 2025 and the sixth consecutive quarter of year-over-year growth, driven by our commercial and government segments, both of which increased year-over-year.

Our trailing 4-quarter ACV metric is up almost 5% versus this time last year, with the government segment up 60% in this metric versus Q1 2025 and and our commercial segment reversing a declining trend, which we anticipate will continue in Q2, where we continue to see strong demand from our existing client base.

Q1 ARR, annual recurring revenue, for the quarter was softer than we would have liked. However, commercial posted a strong year-over-year increase, while the government segment, which is influenced by mix and timing of deals, was heavily weighted towards nonrecurring revenue this quarter.

Importantly, in the quarter, we renewed a government health care client for up to 14 years, inclusive of additional NRR revenue to implement our market-leading SaaS and cloud-based Medicaid claims and financial management solutions.

While this is a multiyear implementation, we classify implementations as nonrecurring revenue. Notably in the quarter, we completed the implementation and went live with the same fully integrated market-leading solution with another of our large government state health care clients.

Other key notable wins in the quarter included new capability and add-on work for existing health care clients in our commercial segment and add-on work related to the HR1 working families tax credit legislation for existing clients in the government segment. Within the quarter, we signed 3 new logos and 14 new capabilities.

Our qualified ACV pipeline remains strong at $3.5 billion, which is up 10% year-over-year. The strength here is driven by our government segment, which is up 27% year-over-year and we are making progress with our commercial segment pipeline, which is 25% stronger than it was last quarter.

Let's turn to Slide 8 and review our Q1 2026 P&L metrics. Revenue for the quarter was $723 million compared to $751 million in Q1 2025, down 3.7%. Consistent with last quarter, revenue grew in 2 of our 3 segments. Our Government segment grew 4.6% and our Transportation segment grew 2.3%, both are sequentially higher than Q4 2025.

Adjusted EBITDA for Q1 2026 was $49 million as compared to $37 million in Q1 2025, and our adjusted EBITDA margin of 6.8%, is up 190 basis points year-over-year, and up 30 basis points sequentially.

The quarter benefited from a few discrete items, which contributed approximately 64 basis points for the quarter.

Let's turn to Slide 9 and review the segment results. Q1 2026 Commercial segment revenue was $361 million, down 10.2% as compared to Q1 2025. The continuation of volume declines in one of our largest commercial clients drove approximately 36% of this revenue decline. The remainder was attributed to lost business, partially offset with new business wins.

Commercial adjusted EBITDA was $43 million, an increase of $3 million year-over-year, and the adjusted EBITDA margin of 11.9% was up 190 basis points year-over-year. Our cost efficiency programs and stronger operational performance in our BPaaS and integrated digital solutions offerings drove the year-over-year increase. Government segment revenue for the quarter was up 4.6% at $226 million. The drivers here were new business and higher volumes in our Government Healthcare segment and price increases across several clients in the government portfolio.

Adjusted EBITDA was $59 million, with adjusted EBITDA margin of 26.1%, up 850 basis points year-over-year. The revenue drivers as well as our AI initiatives and efficiency programs drove the significant improvement here. This includes one of the discrete items I mentioned earlier which contributed 150 basis points to the government quarter. Transportation segment revenue was $136 million for the quarter, an increase of 2.3%, while adjusted EBITDA was negative $4 million for the quarter. New business, higher volumes and FX drove the stronger revenue versus Q1 2025. Year-over-year adjusted EBITDA decline was driven by additional post-implementation expense isolated to one of our transportation contracts. Unallocated costs of $49 million for Q1 2026, an increase of 4.3% versus Q1 2025. The continued progress with our cost efficiency programs in the corporate functions and a reduction in 2025 variable compensation, one of the discrete items I mentioned earlier, partially offset the recovery of legal costs benefiting the prior year period.

Let's turn to Slide 10 and discuss the balance sheet and cash flow. We ended Q1 2026 with approximately $251 million of cash on the balance sheet and negative adjusted free cash flow of $15 million, a significant improvement versus Q1 2025. our net leverage ratio remained at 2.8 turns this quarter and our capital expenditure for the quarter was 2.2% of revenue, with Q1 typically the low point of the year.

Turning to Slide 11. You will see our guide for 2026 and initial expectations for 2027. Our revenue guide for 2026 is a range of $2.8 billion to $2.9 billion. We anticipate both our government and transportation segments will post positive revenue growth in 2026 with the deterioration isolated to the commercial segment.

Our adjusted EBITDA guide is between $160 million and $190 million. The drivers here are the continuation of AI and our cost efficiency programs, price increases and stronger operational performance across the portfolio. The quarterly cadence of adjusted EBITDA for 2026 begins with a strong start to Q1, followed by a softer Q2 and then similar margins to Q1 in the second half of the year.

Looking out to 2027, we anticipate flat to positive revenue growth, adjusted EBITDA of between $190 million and $220 million with positive cash generation. That concludes the financial review of Q1 2026, and I'll now hand it back to Harsha. Harsha?

Ashia

Thank you, Giles. As you have heard today, Conduent is well on its way to improving margins, rightsizing the portfolio and increasing the growth rate. we are repositioning the company to be a growth company with double-digit EBITDA margins and sustainable free cash flow. We will do this through disciplined management and prudent investment in AI and other tools to enhance productivity and customer experience.

I want to let you know that our Investor Day will be on September 23, 2026 in New York City. I look forward to seeing you there. I am looking forward to a strong finish to 2026 and a strong start in 2027 with all our initiatives in place.

Thank you Operator, please open the call for questions. .

[Operator Instructions] Our first question is from Michael Kupinski with Noble Capital Markets.

On the last call, you mentioned a competitive mode. On the last call, you mentioned a competitive moat and high growth as important elements for deciding fixed sell or grow businesses. And how are you weighing the impact of AI on the moat around software compared to the growth of the rate of the growth rate of the industry?

Sure. So the answer might vary between commercial versus government versus transportation. On the government side, just so you're aware, the contracts are generally longer and much more lasting and sticky. And so to me, as technology changes, as long as we are adept and using state-of-the-art technology, which, by the way, some of the state governments are appreciating it. Our recent implementation in some states have been -- we've gotten kudos. I think we will continue to see a lot of sticky business on the government side.

On the transportation side, the growth may not be at the same pace, but as urban development increases and urban density, I think there is ample opportunity there. On the commercial side, if you don't innovate, you will not survive. And therefore, we are focused on our internal AI experiments we are no longer building things. We are either borrowing or partnering with AI-driven companies to do experiments quickly where we increase reliability of the answer, consistency of the service and not to mention it lowers our own cost.

So to us, we've started to take a very innovative approach. Another way to look at this is small firms that have high great technology may not have a blue chip customer list. If we partner with them, they might help us to further our own implementation. At the same time, we can share in the customer, therefore, bringing a total solution for that customer. So to me, I think on the government side, there is a fair amount of a moat. On the commercial side, technology is what's going to kind of really protect us.

You highlighted a sizable qualified pipeline. What are you seeing in terms of conversion rates and sales cycle duration, particularly in the government and transportation side, and additionally, could you talk about the average lead time of getting services online? .

Yes. Mike, it's Charles here. So from a government and transportation standpoint, I wouldn't say there's any real change in our win rates. It does vary as far as RFPs coming on and when some of those RFPs actually get signed due to, I would say, some uncertainty at the federal administration level. which does cause some contracts that we're engaged on pushing out to the right, but not necessarily going away. We're still winning our fair share, which is important.

And similar goes for the Transportation segment. As far as cycles to actually sign in to or sales cycles to revenue, clearly, it's a lot quicker in a lot of the commercial spaces to ramp from sign to revenue. We see a little bit of that in the government space on some of the more traditional BPO type activities. But generally, I'd say there's a longer cycle from signed to revenue generation as we think about the process that the state and federal clients have to go through to get to sign -- from a signed contract to revenue on our books.

Yes. There is an additional piece. I think today's senior leadership team in the company is directly interfacing with a lot of CEOs as opposed to just the Chief Procurement Officer or the Head of HR. And what is happening with that is instead of us actually responding to an RFP, which we are, but now we're getting inbound calls. So recently, I got a request from a CEO of a $5 billion company wanting an urgent project done using our data analytics capabilities, and our digital capabilities.

So what is happening is that conversations are now going at a much higher decimal and at a much higher level. So the whole chemistry is changing. One other thing if implementation is taking 7 months, 6 months, 8 months, we have now KPIs coming in place. I as CEO, I'm actually going to track, how can we reduce implementation time by 30 days, 60 days and therefore, start having revenue traction even earlier than estimated. So this is an organization that needs to move fast. If you look at my priorities, I think pace of play is very, very important to us right now.

Our next question is from Gowshihan Sri with Singular Research.

Can you hear me?

Yes.

On your FY '26 revenue guidance, it implies $150 to $250 step down. Can you help us understand how much of that step down is driven by as of the underlying organic volume, particularly in commercial. So just give a revenue base that actually looks like.

I'm sorry, we lost you there for a second. Can you repeat that, please?

So the revenue for 26 is around -- a step down of around $150 million to 250. Can you understand -- help us understand much of that is due to portfolio disbursals versus softness in the organic volume? .

Yes. So I think, firstly, Gowshi, it's important to reiterate that we're going to see -- we anticipate to see revenue growth in both the Government segment and the Transportation segment. So this -- the deterioration in revenue, the reduced guide is really confined to the commercial space where it's a combination of softer volumes in some of our clients and then clients that we've lost over the last, I would say, 12 to 18 months. .

Okay. And then when are you -- with the portfolio optimization, would you be -- and you said you're actively marketing business in the cell bucket without getting into specifics, can you give us a sense of how many of the processes are still active right now? And whether the scale of those proceeds have changed from the original framework that we discussed in the prior years? SP27915630 Okay. James will answer it, and then I'll add a little -- go ahead. .

Yes. So we've got a couple that we're working on. I'd say proceeds for those 2 roughly what we thought we would get when we look back sort of 6 to 9 months. So no real change there, just some complexity around some of the things that we've got to get through with the buying entities. And then that's certainly as how we think about it for 2026. And then beyond that, there are other things that we're considering in the portfolio as well. .

Yes. So what I would say is where we stand today, we are reasonably confident with our numbers and where we are in the process. So I'm pleased to say that I can say today, our goal is to exceed $200 million in proceeds -- in addition to that, we have received some inbounds on some other businesses. The interesting dilemma I face as CEO is some of these businesses are changing performance as we speak.

It's getting better. So we're kind of rethinking carefully is business for sale or not. I have to give credit to our broad team. They're moving quickly on changing the numbers. We have strong internal discipline on managing margins and managing revenue of individual businesses, and it's starting to make a difference. But having said that, we clearly have 2 businesses identified, marketed as well as we are estimating the proceeds to be such as we have discussed earlier in the call.

Our next question is from Marc Riddick with Sidoti & Company.

I wanted to touch a little bit on the -- well, maybe we start with the potential of $200 million in divestitures. Can you talk a little bit as far as prioritization of proceeds from that? And then we can sort of branch off into a couple of other things there.

Yes. Here's what I would say. My focus at the moment is obtaining the $200 million plus -- so that is my singular focus. Now what that does, as you know, is gives us optionality and optionality could be the following. It could be buying some of our debt down. It could be buying some of our stock. It could be reinvesting some of it in our businesses. And I am very metric-oriented and numbers oriented. So we're examining that.

And frankly, we are discussing with some bondholders just to get their expert advice as to how to approach all of this once we get the money. So we are still thinking it through, but it's a nice problem to have once we get the money.

Okay. I appreciate the commentary there. So maybe we can shift gears on. As far as AI, I think you mentioned in the prior call sort of ballpark where you felt you were as far as percentage of revenue? And maybe you could talk sort of a little bit about what you're seeing there and what your goals may be as to what's directly connected to AI or AI related, I suppose?

Yes. I don't think I will look at it as a percent of revenue yet. But here, I will give you, first of all, when I look at AI, there are actually 5 layers that make up AI that most of us know. You start with the chip, the data center, the cloud, large language modules and eventually on top of that is app development.

Three examples I can give you right away that we're using AI for. The first one is fraud detection, particularly in the government space because we're making a lot of payments, and we need to ensure we're not making the wrong payments. Now interestingly, we have it working rather well. And now we're going to actually start shifting that use case to our financial institutions as well. The second on the call centers or what you would also say multichannel contact centers.

We have one real-time translation. You can speak any language, it translates back and forth. Second is auto quality assurance. Third is training simulation where somebody who's answered the call, they're given a training lesson how to do better. And then finally, we talked about Kani, our own Gen AI persona, our own brand that is actually involved in dealing with our human capital solutions. So look, AI is a solution to reducing cost, increasing accuracy. But one of the things I'm running into rightly so with a lot of the clients, and I'm talking to CEOs of large health care companies as well as large service companies, and they keep emphasizing for us, the human connection of what you offer is as important as AI.

So for us, balancing the 2, you're only as good to the client as the last call you received. So executing well consistently is very, very important. But I think as time goes by, we will start assigning specifically use case and examples and savings because for us to get to double-digit margins and sustain, it's not just rightsizing or right shoring the cost, but also implementing AI very carefully in certain areas of our business that's very meaningful to the client as well as to us.

Mark, just to give you some tangible impacts that AI has had over the last, I would say, 6 months for us in a couple of situations. One, I talked a little bit about this last quarter, is the fraud detection where some of that fraud in our P&L. We've seen significant cost savings with the deployment of that AI capability, which has really helped out in the government segment.

Secondly is the Gen AI agent assistant, KONE, which we've deployed in our Human Capital Solutions business, which essentially helps clients, employees make better health choices as you go through the benefit enrollment program. We saw a considerably higher interaction rate between employees and KONE than we've ever had without KONE in prior years as we've been through that enrollment process. So 2 examples there where our AI investments are having significant impacts not only on our P&L, but for our clients as well.

Great. And maybe last one for me. You touched on a couple of client verticals in prepared remarks and a couple of the questions already around federal as well as health care a little bit. Are there any other client verticals as far as in your -- I guess, was it 115 days in the chair that you've seen thus far that you either maybe have been surprised by or encouraged by? Are there any particular client verticals that you think that stand out a little bit to you in the time that you've been there?

Yes. Here's what I would say. I have dealt with some of the government clients and transportation. And actually, they've been very constructive and transparent of how we work together. So I'm very pleasantly surprised. What is also very interesting to me is the number of CEOs of our commercial clients who've made direct outreach to me looking for solutions.

So this is what gives me the confidence that our sales pipeline is growing and is turning. We have new leadership in commercial. We have George, who is running the operations. We have Kimberly, who is running the entire sales side for commercial, both reporting to me directly. we have an internal rigor of a revenue call every week with all hands on deck. So we're actually starting to see the needle move.

So to me, I expected maybe more roadblocks on the revenue side, and it's starting to look more and more positive. And I think we need to move at a very fast pace to embrace the opportunities in front of us. Here's the other thing. We're doing a lot of work in the United States. We should be looking at other English-speaking democracies, just to keep it simple, like a Canada, England or in Australia to start increasing the same levels of service we provide U.S. federal and U.S. state governments.

This concludes today's conference call. We thank you again for your participation. You may now disconnect your lines.

Thank you.

Greetings, and welcome to the Conduent Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Joshua Overholt, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and thank you, everyone, for joining us today to discuss Conduent's Fourth Quarter 2025 Earnings. I am joined today by Harsha Agadi, our CEO; and Giles Goodburn, our CFO.

We hope you've had a chance to review our press release issued earlier this morning. This call is being webcast, and a copy of the slides used during this call as well as the press release were filed with the SEC this morning on Form 8-K. This information as well as the detailed financial metrics package are available on the Investor Relations section of the Conduent website.

During this call, we may make forward-looking statements. These forward-looking statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements. Information concerning these factors is included in Conduent's annual report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law.

The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP measures and how we use them as well as the limitations to their usefulness for comparative purposes, please see our press release.

And now, I would like to turn the call over to Harsha.

Thank you, Josh. I want to welcome our investors, analysts and clients as well as colleagues around the world to this call. I am confident you will be encouraged by what you hear, as we discuss where Conduent is headed and how we intend to get there. I also want to say good morning, good afternoon and good evening to my 51,000 Conduent colleagues across the globe.

Over the past few weeks, I've been energized by the stories I have heard, stories of teams serving clients with commitment, resilience and professionalism every single day. Thank you for what you do and for the pride you take in representing Conduent.

Over the past 3 decades, I've had the opportunity to lead more than half a dozen companies across multiple sectors, both private and public. Most relevant to Conduent, I have founded in the past and led a BPO that scaled globally and eventually listed on the NYSE. Through those experiences, I have learned what it takes to build organizations that move with deliberate speed and purpose, deliver measurable outcomes for clients, generate sustainable growth and free cash flow for investors and create meaningful development opportunities for all our employees on a global scale. I'm here because I believe Conduent can deliver those same outcomes.

My expectations are simple and my objectives are clear. It is to lead Conduent to consistent year-over-year revenue and EBITDA growth, supported by very strong and durable free cash flow generation. In the BPO industry, these are not aspirational results. They are the natural results of a healthy business with clear strategy, disciplined execution and a relentless focus on serving clients on a daily basis.

As clients focus on their business, our focus is to provide seamless BPO and KPO services to enable their daily services smoothly to their clients. Having been in the role for less than 30 days at Conduent, it would be premature for me to present a fully detailed long-term plan for Conduent's return to sustained growth, improved earnings and free cash flow.

Ladies and gentlemen, this is a turnaround story. The work is underway, and we will share with you. What I can commit to today is full transparency and cadence. In addition to our normal earnings reports, we intend to host an Analyst Day in New York City, where you will have the opportunity to meet our Board and other members of the Conduent executive team and hear directly about our strategy, priorities and execution plan. While the full plan is still being finalized, this is not my first turnaround.

Having led multiple transformations in various sectors, I know there are decisive actions that must happen early, actions that set direction, change momentum and create the conditions for sustainable results. Those actions are already underway, and they inform the priorities I am here to outline. First and foremost, we will move faster. That means faster decision-making, faster execution and faster improvement. The senior leadership team has already felt this increased pace, and we will only continue to accelerate it. The tone has to be set from the top. Opportunities do not wait and neither will we. Our leaders are being empowered to act, and empowerment comes with clear accountability. We must move with speed to capitalize on the opportunities before us.

Second, we will apply maximum financial discipline across every major decision, especially capital allocation. We will evaluate decisions through multiple lenses, revenue growth, margin expansion and free cash flow generation. This framework will guide how we allocate capital, rationalize parts of the portfolio, manage working capital and prioritize investments.

Third, we will lower our cost structure. This includes reducing corporate overhead, particularly within SG&A and taking a hard look at our entire technology spend and stack. However, we will not compromise quality or client outcomes, but we must be more efficient in how we deliver our solutions. At current levels, corporate overhead and technology expense as a percentage of revenue must come down.

Fourth, we will continue to rationalize our portfolio. My goal for Conduent is clear. Organic revenue growth resulting in strong free cash flow. To get there, we are reviewing every business, categorizing each as either fix, sell or grow. Businesses that are categorized as fixed will operate under formal improvement plans with clear metrics, time lines, leadership accountability goes hand-in-hand with that. Businesses that are in the category of sale will be actively marketed with a focus on executing transactions efficiently and at fair value. Proceeds will be first used to reduce debt, followed by multiple other priorities.

The third is growing the businesses that are identified to grow will receive the required investments as well as be unconstrained so that they can grow. Fifth, our qualified ACV plant today stands at $3.2 billion. Our priority is better conversion rates. Going forward, our priority is not just building pipelines, but consistently converting it. Across each of our businesses, pipeline development and execution will improve in a way that supports sustainable revenue growth.

Finally, we will simplify and strengthen our organization. To deliver on these priorities, we will become a nimbler company with fewer layers, lower cost and clear accountability. We will reduce organizational complexity that slows decision-making and empowers our leaders with full P&L ownership.

I would now like to hand over to Giles to continue the update on the earnings calls, as he will be giving you a very clear update on Q4, which was not under my CEO leadership. Thank you, Giles.

Thanks, Harsha. As we've done in the past, we're reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let's discuss our key sales metrics on Slides 5 and 6. We signed $152 million of new business ACV in the quarter, 1 of our highest quarters in recent years, up 11% versus Q4 2024. Our full year 2025 new business ACV was $517 million, up 6% versus 2024. Each quarter can be influenced by the timing of large deals, especially in the public sector segments. However, if you aggregate the ACV on a trailing 4-quarter basis, you can see we're trending in the right direction.

On a full year basis, our government segment new business ACV is up 50%, and our Transportation segment is up 14% versus 2024. While our commercial segment is down 15% versus prior year, the encouraging signs are that our new capability ACV, selling new products to our existing clients is up again this year by 60%. This is a cornerstone of our commercial go-to-market strategy, which we are optimistic will continue to reap rewards.

Within the quarter, we signed 14 new logos and 20 new capabilities. And on a full year basis, signed 41 new logos and 87 new capabilities. New business TCV for full year 2025 was up 16% versus 2024, driven by our government and transportation segments. As Harsha mentioned, our qualified ACV pipeline remains strong at $3.2 billion, which is up 4% year-over-year. The strength here is driven by our government segment, which is up 29% year-over-year, with an in-year 2026 qualified pipeline, almost double where it was at the beginning of 2025.

Let's turn to Slide 7 and review our Q4 and full year 2025 P&L metrics. Adjusted revenue for full year 2025 was $3.04 billion, compared to $3.18 billion in 2024, down 4.2%. We ended the year with Q4 adjusted revenue growth in 2 of our 3 segments. Our Government segment grew 1.8%, and our Transportation segment grew 1.9%. Both segments showed positive momentum and positioned well for growth in 2026. Adjusted EBITDA for the year was $164 million, as compared to $124 million in 2024. And our adjusted EBITDA margin of 5.4% is up 150 basis points year-over-year and towards the top end of our guided range. We finished the year with a Q4 adjusted EBITDA margin of 6.5%, up 250 basis points versus Q4 2024 and a sequential improvement of 130 basis points versus Q3.

Let's turn to Slide 8 and review the segment results. Full year 2025 Commercial segment adjusted revenue was $1.5 billion, down 5.9% as compared to 2024. The volume declines in our largest commercial clients drove approximately 40% of this revenue decline. The remaining top 10 commercial clients grew on an aggregate basis in 2025 versus 2024. Commercial adjusted EBITDA was $154 million, adjusted EBITDA margin of 10.2% was down 30 basis points year-over-year. While we made good progress with our cost efficiency program in this segment, it wasn't enough to offset the impact of lower revenue.

The 5 priorities Harsha outlined earlier will significantly accelerate the desired improvement in this segment. Government segment adjusted revenue for the year was down 6.3% at $922 million. Our new business revenue outpaced lost business revenue with the primary driver of decline being the completion or winding down of large implementation projects, which we expect to replace in 2026.

As I mentioned earlier, in the fourth quarter, our Government segment grew 1.8% year-over-year. We are confident this will continue, and the team is positioned to deliver full year 2026 revenue growth. Adjusted EBITDA was $221 million, with adjusted EBITDA margin of 24%, up 270 basis points versus 2024. The drivers here resulted from our AI initiatives and efficiency programs, resulting in lower fraud, labor and telecom expenses, offsetting the implementation runoffs.

Transportation segment adjusted revenue was $609 million for the year, an increase of 3.9% while adjusted EBITDA was $18 million and adjusted EBITDA margin was 3% for the year. up 300 basis points versus 2024. Both revenue and EBITDA improvements were driven by strong equipment sales and a contract amendment in our international transit business. Unallocated costs were $229 million for the year, a decrease of 10.2% versus 2024. The improvement here is driven by the cost efficiency programs and our corporate functions and a recovery of legal costs, which more than offset significantly higher U.S. employee healthcare claims activity we continue to experience.

Let's turn to Slide 9 and discuss the balance sheet and cash flow. We ended the year with approximately $243 million of total cash on balance sheet and adjusted free cash flow was negative $130 million. Adjusted free cash flow in the quarter was positive $28 million, a little less than we had anticipated due to the timing factors I mentioned last quarter. The updates on these timing factors are we signed the contract amendments that were delayed by the government shutdown in Q4 and build the client for the work already performed. However, we now expect to receive this cash later in Q1 or early in Q2, which accounts for the reduction in contract assets and the increase in accounts receivable on our year-end balance sheet.

Our net leverage ratio decreased to 2.8 turns this quarter, which was a result of the higher EBITDA, and our capital expenditure for the year was 3.4% of revenue, in line with our expectations. We continue to make progress with our portfolio rationalization plans and relating to our full year 2026 guidance, as Harsha mentioned earlier, given his short tenure in the CEO role and the 5 priorities he has outlined, you can expect a more wholesome update on both these items with our Q1 financial results in early May.

That concludes the financial review of 2025, and I'll now hand it back to Harsha. Harsha?

Thank you, Giles. I look forward to coming back on our Q1 call to revisit these priorities and give you a very detailed update. Just so you're clear, the initiatives would have already starting to take momentum well before our call -- next call. We will also be prepared to outline their expected impact on Conduent's financial performance.

As I continue forward, I would say Conduent has a strong foundation, meaningful client relationships and a global team that knows how to deliver to our thousands of clients across the globe. What we are focused on now is execution. Moving faster, simplifying the business, allocating capital with discipline and holding ourselves accountable for results. Our direction is clear, our execution plan is now in motion. The actions we're taking are designed to return Conduent to sustainable revenue growth, expanded margins and generate strong free cash flow that is sustainable.

As we execute, we will continue to communicate transparently, measure progress rigorously and earn your confidence quarter-by-quarter. I am truly energized by the opportunity given by the Board and the support to lead from the front confidently. We do have a good leadership team in place, deeply committed to building a stronger, more focused and more valuable Conduent for our clients, all our employees, and without any doubt, our shareholders.

Ladies and gentlemen, that is the message for the day. And I think if we can get the operator to open it up for questions. Thank you.

[Operator Instructions] The first question is from Pat McCann from NOBLE Capital.

Harsha, it's great to hear about your vision for the future of the company. I was curious when it comes to the framework that you outlined of looking at business units and deciding whether to fix, sell or grow them. I was just wondering about would you -- could you give any more color into what metrics you would be looking at the various business units with to kind of make that decision in terms of whether that's margin profile or the capital intensity of a business unit. Anything like that, that -- any more color you could give there in terms of how you will evaluate?

Thank you very much again for the question and actually a very thoughtful question. So there will be multi variables at play. And I'll just name a few, which you named a few, but I'll start with the CEO's very important job is capital allocation. We have a lot of capital going in. Are we getting the right rate to return? And where should we place our bets? So what we have today is an accumulation of somewhere between 15 and 20 small businesses, covering not just the commercial side, but also the government and the transportation segment. So what happens is, I'm looking for, does the sector have unbelievable growth metrics. As an example, healthcare will continue to grow. Second, can we have decent predictable EBITDA margins? Sometimes, when EBITDA margins are high, we can be taken thinking it's a great business. But anything that's not sustainable, you run out of steam. So we also need to think through how much capital needs to be allocated and what is the free cash flow that's coming in.

Finally, is there a moat around the business? Can somebody come in and replace us easily or not? And can the moat be breached with, the #1 question of the day, technology that is extremely dynamic at this time, and obviously driven by AI, GenAI and all of the other variations? So to me, these are some of the factors. So I intend to as quickly as our next Board meeting to actually surround with a matrix and say, here's how we're looking at the world. And by the way, a lot of the -- I've talked to the top 10 investors, and I have to tell you, all of you have given me wonderful ideas to make sure I'm covering all bases. So those will be the factors.

And I'll just ask 1 more question, and I'll hop in the queue because I know there are others. When it comes to -- the company obviously has a number of different business units, some of them are more closely related to each other, some, not as much. I was wondering what your general philosophy is on a go-forward basis, on which business you would keep if you look at it from the perspective of certain businesses are -- have overlap or had their efficiencies because of the similarities of where certain business units operate and that sort of thing versus the more disparate portfolio of businesses that are completely separate? I don't know if the question is clear, but I am trying to keep it all kind of going in 1 direction.

Yes. No, no. It's actually -- not only is the question clear. It's a good dilemma. And so I'll tell you what has been the case to some extent in the past, and I'll move away from the past quickly, and I've seen this in other businesses that are going through a term is let us be everything to everybody or let us be anything to anybody. We need to walk away from that. And 1 of the things we as a team are doing, is listing out things we will just not do. It is actually not just important to what you do. You have to make a list of what you really will not do and refrain from it. It may look good. And I am of the mindset when I go to a client, I will say this is what we can do and we're the best at it. If you need this additional service, maybe we can do this, but maybe we'll find you somebody that we might partner with. We have 1 big element within our company, and that is a very deep client relationships.

We have a long list that, to me, is worth a huge royalty. So if I'm going to bring a partner to execute with me on a third or fourth service with the client, I may be charging for that relationship because I bring to bear the relationship management. So to me, I hopefully have answered the question, but it will be case by case. But even in the case by case, we have to be very disciplined about it. We have 20, 30 different services, but we're offering maybe 1.5, 2 services here, completely different services elsewhere. That does not generate scale or efficiency.

I'll go back to my previous days in another BPO, we were doing tax returns only for partnerships, and we got a request to do it for corporations. I actually declined the business saying, we're experts at doing back-office work for the next 4 big firms just for partnerships and not corporations that are public. So you have to start having a little bit of silo mentality and actually viciously support your value proposition and how you deliver it.

The next question is from Gowshi Sri from Singular Research.

My question is on the commercial side. You laid out in the last call that top 24 to 25 accounts, we're growing and the new leadership would necessarily affect the 2026 performance. As you sit here in Q4, any evidence you're seeing that revamped go-to-market feeding into the top of the funnel help you out from that 1 client that was kind of lagging your behind?

Yes, Gowshi, good question. So the top 25 and the top 10 that I talked about specifically related to the Commercial segment. As you think about 2026, as I said in the remarks, we've got some really good momentum in both our public sector businesses. Government group for the first time in Q4, 1.8%. And it's got an extremely strong pipeline across all components of their product offerings and a lot of that pipeline relating to 2026 opportunities. So we feel really good about the government segment.

From a transportation is somewhat in the same boat, some good relationships there, a good, strong pipeline and work that we've got that we can achieve and continue to drive year-over-year revenue growth in that segment.

Commercial is where we've got a little bit of work to do. We've reshaped the go-to-market strategy and brought the teams closer to the clients so that we can better serve those client bases, especially those top 10, top 25 clients, where a lot of them we are growing revenue, and we are expanding our capabilities with that client base. So we know we've got work to do in there. I wouldn't anticipate growth necessarily in 2026, but I'll certainly make the right trajectory as we look forward out into 2027.

So here is, I'd call it, good news. We are right now examining the leadership for commercial. When you look at midsized companies, $3 billion to $5 billion range, many of the times, the CEO may not be as close to the client as they should be. I have this rare opportunity to have 3 of the leaders reporting into me directly right now. It's an easy answer to go find somebody to run commercial, and I have some candidates outside as well as some candidates inside the company.

It will end up having a single leader. But at this time, I am actually getting close to the processes. I'm getting close to the clients. I have now at least 1 phone call a day with a client, some not happy, some extremely thrilled, some wanting more services. I have been active for many years in the CEO ranks. I've been very careful in cultivating relationships across the board, across sectors. And I will bring it to bear for my commercial friends and colleagues so we can generate more.

The other good news is that the discipline around sales force, the discipline around how we're approaching sales. By the way, there is now -- and I will not comment on the past because we'll run out of time. But there is now a weekly regimen with me sitting in at the meeting where we only focus on revenue generation, as it relates to commercial, transportation and government has nobody from the administration side. They're welcome to come in if they have time, but this is purely the sales guys and gals and the line management of the company focus. And even within commercial, we may choose to focus on a few sectors. We may not just go here and there, but where we are strong, where we have name recognition, where we have strong references, we're definitely going to piggyback on that.

Okay. And like you said, the commercial segment, healthcare has been a particularly successful side of the business. Are you deliberately choosing to go deeper with a smaller set of payers and health plans, especially with your AI offering? Or do you still think you need more logos here? I'm trying to understand whether the and other platforms scale better via depth or breadth from here?

Yes. I would say it's not as much as more logos. We have a lot of logos. I think it's going to be getting deeper into certain sectors, where we already have a fair amount of market share. And so to me, if you look at healthcare today, and you just look at Medicare spending, I'll just give you round numbers, it's probably $1 trillion -- no, no, maybe even $4 billion or $5 trillion. It's a large number. In fact, healthcare spending in the U.S., this I know for a fact, is now the third largest economy in the world after United States and China. So to me, focusing on that heavily and participating in it, helping make a difference to our commercial clients and our government clients simultaneously.

If you look at even the big beautiful bill, it has brought in a lot of stringency on reclassifying, changing eligibility states are a little lost, and we are their solution to simplify how the big beautiful bill applies, whether it's Medicaid, whether it's Medicare, whether it's social security eligibility. So I think we're going to be more focused than less focused.

And on the government side, you talked about margin expansion from AI-driven fraud cost reduction, and as we said, direct expense in Medicaid early showcases. As you scale those solutions, are you leaning more towards a gain share economics with clients or fixed bid movements? What does that mean in terms of margin improvement and revenue in 2026?

Sure. So I think, first of all, 1 risk we do have is in the world of AI, some clients may want to take it in-house, but it may not be that simple. So I'm going to talk about a few things as it relates to let us say an AI company versus Conduent. And I'm going to say this is a small $25 million revenue AI disruptor. What we have is a strong distribution network, deep client relationships, operations know-how, proprietary data, and there are large switching costs. But the disruptor may bring a solution that might lower cost and increase accuracy. So one of the mantras we have in the company is let us not behave like a large company, let us not have a big ego. Let us partner with small disruptors who might bring the solution to increase accuracy, lower cost.

And yes, we might share some of the savings with the client, in this case, the government, or it could be commercial. But in addition, we may not use the same AI disruptor, let us say, on a healthcare client that we might use in transportation. The gentleman who runs transportation will have the leeway to partner with a different AI disruptor. What these AI companies are thirsting for is a bank of clients. They don't have that, but they have the technology. I'm not going to sit and innovate these things from scratch. We don't have that much time and leeway because they're going to be nimbler and faster, how do you partner with them commercially and share in the economics will be the way to go.

Excellent. And I'll just make this. I'll be a cheekier. As you walk us through the '25 ACV and you expect that to -- expect that you've alluded to convert that into revenue with speed, where are you most confident by segment? And your exit EBITDA margin was 6.5% for Q4, full year. As you look into 2026, what should we think of it as a realistic sustainable margin once all the cost actions and portfolio moves have been embedded?

Okay. So here's how I would say. Clearly, we haven't given you guidance, which we will in Q1. But having not given guidance, I'll give you a sense first on how the businesses are growing. Second, what I believe should be steady state margins. And when I say steady state, it could be in 3 years, it could be in 2 or we might be faster, it depends. So the government sector for us is growing smartly and doing well and has come out of the gates quite strong.

The Transportation sector has potential and actually is also strong and positive. Commercial needs a turnaround job, and the 3 individuals running it are on it like a rash. Let me a assure you. Now coming to margins, in a business, in our sector, which is BPO, KPO, I think at a minimum, we need to start really clipping at between an 8% and 10% margin in the medium term, maybe even higher and that potential exists.

Today, I can see, and I'll use a colloquial phrase, low-hanging fruit that I can see maybe 1 of the few people because I'm new. Whenever you're new, it looks clearer. As you get older into the company, the complexity in your mind increases. So when I don't have past memory, I'm actually at the edge of saying, "Oh, we can do A, B, C". So I think there is a fair amount of cost takeout that -- and by the way, it's not just me to the credit of the senior leadership team. They have come to me without me challenging. They have come to me and said, there's cost here, there's cost here, there's duplication of efforts. So I think the margin should increase. And it's not just the margins. We have to convert our EBITDA, and I'm not talking adjusted EBITDA, convert EBITDA to free cash flow, which means, how do you collect, how fast do you collect, are you tracking DSO, are you tracking DPO and are you converting that into eventually positive free cash flow. At $3 billion, you have scale, you should be able to.

The next question is from Matt Swope from Baird.

Harsha, you mentioned a couple of times the sort of moat around the business. Can that moat be breached by technology, AI, the impact that these AI disruptors are having. Obviously, that's been the talk of 2026 so far. Can you give us some comfort how much of your existing revenue stream do you think is exposed to AI disruptors or other sort of technology threats?

Having been here less than 30 days inside the company, I would humbly say I cannot answer that question right now. But here's what I can tell you that I would say safely, rough guess, 15% to 20% of our business may be exposed to it. But here is the problem. It is a moving target. Technology, particularly AI is dynamic. And therefore, I think we're going to need to get ahead or partner with people who keep us ahead in the arms race, if you will, of AI. So to me, is the risk today? No. Can the risk keep increasing? Yes. Therefore, we're going to need to move quickly is what I would say or else, our clients will move quickly.

Now, the positive is I would say the commercial segment will get disrupted maybe a little faster than transportation or government. So I'm just going to give you a tip of the iceberg. In transportation, we have a new product, it's called Fairgate. It's automated. It's precise, and it is safe and that is now being installed across the entire New York subway system that tests are on, and we're going to start rolling this out. And when we roll it out and we get this right, this will also move into other geographies. So this will make a big difference as an example.

I think as well, Matt, to add to that, clearly, Harsha is right is probably about 15% that's at risk in the commercial space. But I think we're securing that moat a lot tighter with some of our own AI capabilities as well right across the platforms that we have, whether it's in commercial, using AI to streamline our benefit enrollment environment for our clients and their employees. Harsha touched on some of the things that we're doing for tolling as well as some of the capabilities we've got license plate recognition and occupancy detection. And then we've talked about all the fraud components that we've got in our government space as well. So we're shoring up the moat of some of the areas that we've got around the company as well. .

I appreciate that, guys. That's helpful. Charles, maybe 1 for you. As you sort of bridge the gap and CEOs, we've heard a lot about these 2025 exit rates. We've heard a lot about the portfolio divestiture plan. Can you help us with where that stands now? The -- for example, the 2025 exit rate free cash flow was going to be $60 million to $80 million. Obviously, we're well, well into the negatives on free cash flow. How should we think about modeling going forward? I know you're not giving full guidance given that Harsha has just started, but vis-a-vis the 2025 exit rates that we've heard about for a while, how do we think about 2026?

Yes. So I think clearly, we set those targets about 3 years ago, and they were aspirational targets. We are making progress towards some of those targets. You look at government and transportation. And we've done well and got there from a revenue growth standpoint. We've still got work to do in some of the areas. We would -- I'd say we still target a sub onetime levered business, as we look out into the future. And that's going to come from some of the divestiture activity that Harsha has alluded to.

I think you'll see us accelerate with speed that some of the cost initiatives that we've got going on right across the organization, whether it's in the corporate functions, technology or improving margins in the business. And just better discipline around our working capital. We did have a couple of large implementations out there that we didn't quite get to the place where we wanted to get to by the end of 2025 that had a fairly significant impact on our cash generation. And given where we landed at the negative numbers that we posted for the year. Now, that cash hasn't gone away. We're going to receive it in Q1 or early Q2. But we've got to have better discipline on how we're executing on some of these larger projects.

So I guess my answer is the destination hasn't changed. We're still striving towards improving EBITDA margins on a sequential basis. We're still striving to get to profitability and free cash flow generation. I think Harsha coming in is really going to push us to accelerate that as quickly as possible. And that's the journey that we continue to be on.

Do you think free cash flow can be positive for 2026?

That's a...

I can answer it. Here's how I would answer it. We are obviously -- we ended '25, as Giles said, negative 130. There's a fair amount of work, but I'm going to give it a shot, but again, I'm not giving guidance. And I will have guidance. I will have very precise free cash flow goals. And if you noticed in my script, in my messaging, in my dialogue, I have mentioned the word free cash flow at least 10 times. I am fixated on it. So we're going to try really hard, but definitely, the turn is coming.

Okay. And how about -- you guys have always historically had this portfolio rationalization slide in the deck. That's obviously out for the moment. The Phase II proceeds that were targeted before were up to $350 million. Is -- I know you -- I think you had that as prior #4, Harsha. Where does portfolio rationalization timing set and maybe magnitude versus what you -- what we've heard in the past?

Okay. So first of all, I have to thank you very much for a statement you made. You called it priority 4. I should have said those 6 priorities do not have a sequence. You have to run and chew gum at the same time, and we have a very good leadership team that's capable of doing it. So having said that, portfolio rationalization is a very high priority. There are some things in motion that were put in motion before I took over as CEO. I was the Chairman for a very short while. So I was familiar with it. If anything, as Giles alluded to, he has hit the acceleration on the rationalization. But what I'm also seeing is a thorough review of the entire portfolio and looks like we may have some other opportunities that we're going to work on simultaneously.

We have bankers in place. We may have maybe more bankers so that we can kind of swiftly go through this so that I'm not waiting a year from now saying, "Oh, by the way, we're still on portfolio rationalization". The faster we get it done, the more we focus on our base business. So the folks who are in line management, they're not in the middle of portfolio rationalization exercise. They're focused. Every day, I have said to them, assume you own the business until that last day of transfer. We don't know if we will 100% for sure sell.

Meanwhile, the group that's focused inside M&A and finance are fixated on portfolio rationalization. So we need to do this simultaneously. And to me, it's not #4 priority. That's why I was appreciating you to pointing that out.

That is helpful. And just 1 last quick one, if I could squeeze it in. With your bonds trading down into the low 70s, would bond buybacks in the open market fit within your capital allocation?

Well, that's another good question. So to me, I think making sure we delever first a little bit and get our debt lined correctly. And I think the trading of the bond has opened up, in my opinion, an opportunity that may be more lucrative than buying our shares back. So to me, it's a touch and go, but again, bankers are reasonably smart. So I'm going to have them run across mathematics to give me an option each time as to each dollar of allocation. Right now, where it's trading, the yield is rather attractive and saying that we will go into open window fairly soon here as a typical public company, so I, as an investor, I'm also in my head saying, do I buy more shares, do I buy more bonds. So that excitement is actually percolating in my little brain right now.

Next question is from David Nierenberg from Nierenberg Investment Management Company.

Harsha, it's wonderful to be working with you again.

Nice to hear your voice, David. You're definitely surprised me sitting in the West Coast.

It's our third time together in 10 years. I imagine that most people on the call don't have the depth of experience that I've had with you, but I've already bought 1 million shares in confidence because you are a great leader, a great businessman, a great salesman, a diplomat, a tough guy and you have a global network across multiple industries to access for the benefit of this company. I am very excited to be back with you here and looking forward to you're making shareholders a great deal of wealth just as you have done since you succeeded me as Chairman of the Board of Flotek Industries. Looking forward to working with you. Grateful that you were here. Wishing you all the best.

Thank you very much David. And I appreciate 1 of your support, not just verbally, but through your pocket of backing our shares and buying. I'm actually taking it in as you're saying 1 million shares. So I need to have more shares than you. That's pretty clear. The good news is that the Board has structured my compensation heavily on share price that dictates vesting, but doesn't stop me from buying the shares as soon as open window opens up. But I appreciate your support immensely. Thank you.

This concludes the question-and-answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Conduent Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, [indiscernible], Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and thank you for everyone joining us today to discuss Conduent's Third quarter 2025 earnings. I'm joined today by Cliff Skelton, our President and CEO; and Giles Goodburn, our CFO. We hope you had a chance to review our press release issued earlier this morning. This call is being webcast and a copy of the slides used during this call as well as the press release were filed with the SEC this morning on Form 8-K. This information as well as the detailed financial metric package are available on the Investor Relations section of the Conduent website.

During this call, we may make statements that are forward-looking. These forward-looking statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to vary materially from these statements. Information concerning these factors is included in Conduent's annual report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information or future events or developments, except as required by law. The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP measures and how we use them as well as the limitations to their usefulness for comparative purposes, please see our press release.

And now I would like to turn the call over to Cliff.

Thank you, Josh, and thank you, everyone, for joining Conduent's Q3 2025 earnings presentation. As you can tell, [ Josh Overholt ] is now our new Head of Investor Relations. We've been waiting for Josh to arrive from the other side, if you will, where Josh was part of an investment team we periodically communicated. It's great to know have Josh's advice as our new Head of FP&A and Investor Relations.

Let me start by saying, wow, it's been kind of an uncertain ride in our federal government lately, as you all know, with the shutdown. I've often said that the bulk of our business in the public sector is at the state and local level, even though some of the funds, the states distribute come from the federal government, obviously. We're lucky enough that most of these funds are entitlements unaffected by shutdowns, although snap, for example, can come with some concern. We told us recently as yesterday that the emergency fund allotment is now at 65% and includes our administrative fees. So that's good.

So far, we haven't seen an impact due to unfunded programs, but we have seen an occasional wait-and-see perspective from time to time on new deals and milestones. Regarding the quarter from a financial perspective, it was a good quarter as it relates to adjusted revenue, EBITDA and margin. We're proud of our performance given the current environment, and we're equally proud to see consistent sales performance and an expanding sales pipeline. Revenue was in line with guidance, slightly up sequentially to $767 million and directly in line with our pursuit of positive year-over-year growth objectives. Giles will talk about the puts and takes in revenue in a few minutes.

EBITDA also came in as per guidance with both year-over-year and sequential improvement at $40 million and a margin of 5.2% and up from 4.9% last quarter and 4.1% in Q3 of 2024 and exactly where we said it would land in our Q2 narrative. Regarding sales, performance was consistent and steady year-over-year amidst some reticent buyers who were a bit preoccupied with the government shutdown in the public space specifically. Meanwhile, commercial sales is a bit behind performance expectations as we focus on changes to our go-to-market approach and look to upgrade business development leadership. Still, there is pent-up demand in the commercial space, and the pipeline has expanded and will expand further.

As mentioned previously, the opportunities and momentum in our transportation business specifically, remains strong, and the government pipeline indicates some very strong buying signals and go-forward opportunities. Once the shutdown concerns are behind us, cash and milestone achievement hurdles will also open up an manifest. In previous earnings, I stated that our portfolio rationalization efforts were underway and those efforts continue in a manner that we hope to discuss no later than Q4 earnings as we continue our strategy work. Meanwhile, as you know, we've refinanced our revolving credit facility, allowing us to pay off our Term Loan A balance, further simplifying the balance sheet, again, the timing of milestone payments and the shutdown influenced environment should soon free up cash payments and improve the free cash flow metrics and cash on the balance sheet.

As we look to rightsize our Board and further populate it with folks that have been in our industry, we added a new board member the last week of October who is a former Chair of Deloitte U.S., Mike Fuji. We're confident that Mike will add a new perspective and new support across both the commercial and government businesses based on his background and leadership experience.

Now I'll talk in my closing remarks about our AI initiatives and some of our recent wins. This will be important because one of the topics we need to focus on is our technology strength versus our operational peers. We need to showcase our significant capabilities in the resident AI initiatives more forcefully. A recent proof point is that we're now beginning to actually license some of our software with built-in AI to our clients. proving that we aren't strictly a services company, but a service technology integrated business that has proprietary intellectual property far and away more impressive than our BPaaS competition.

One example of how we're showcasing our capabilities is our recently developed AI experience center in New Jersey, which we're beginning to socialize with some of our biggest clients in the health care and auto manufacturing businesses. Meanwhile, Giles will take you through the detailed financials. We are still directly on course despite some of that lumpiness that happens especially in the government space. Finally, with patients, you'll soon see that our portfolio rationalization plan is clearly underway and working.

With that, let me turn it over to Giles. Giles?

Thanks, Cliff. As we've done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let me discuss the key sales metrics on Slides 5 and 6. We signed $111 million of new business ACV in the quarter, consistent with prior year. Year-to-date 2025, new business ACV is up 5% versus the same period in 2024. While we have line of sight to achieve stronger sales this year than in 2024 the uncertainty surrounding the speed to execute agreements within the government agencies could push some deals into 2026. Within the quarter, we signed 10 new logos and 25 new capabilities. Both sequentially up versus Q2. And on a combined basis, up 7% year-to-date versus the prior year, with the strength coming from supporting our existing client base with new capabilities. New business TCV was up 5% versus the prior year at $246 million. This was another strong quarter of sales execution in our transportation business which includes the Richmond Metropolitan Authority, new logo win and puts that segment up 320% year-to-date versus 2024.

Our qualified ACV pipeline remains strong at $3.4 billion, which is up 9% year-over-year. The strength here is driven by our government segment as we pursue opportunities in the federal space.

Let's turn to Slide 7 and review the Q3 2025 P&L metrics. Adjusted revenue for Q3 2025 was $767 million compared to $781 million in Q3 2024, down 1.8% year-over-year, but within the range that I guided last quarter. Transportation generated another quarter of strong growth. However, the decline was driven by our commercial and government segments, which I'll discuss in more detail in a moment. While still down year-over-year, we continue to narrow the gap towards positive revenue growth. Adjusted EBITDA for the quarter was $40 million as compared to $32 million in Q3 2024 and our adjusted EBITDA margin of 5.2% and is up 110 basis points year-over-year, again, right in line with where we guided and a sequential step up versus last quarter.

Let's turn to Slide 8 and review the segment results. For Q3 2025, Commercial segment adjusted revenue was $367 million, down 4.7% as compared to Q3 2024. We continue to experience volume declines in our largest commercial clients, which is a significant contributor to the lower revenues. Excluding this largest client, our top 25 commercial accounts grew year-over-year, most notably from within our health care vertical. We also signed another software license agreement in the quarter to a large public health plan but these positives only partially offset the lost business. Commercial adjusted EBITDA was $37 million, and the adjusted EBITDA margin of 10.1% was up 100 basis points year-over-year. The drivers here with the software license agreement I just mentioned and cost efficiency programs more than offsetting margin from lost business.

Government segment adjusted revenue for the quarter was down 6.7% at $238 million. This decline is attributed to the impacts associated with completing several implementations in the prior periods and extending several implementations in the current period as well as a client canceling and implementation to perform the work in-house. Adjusted EBITDA was $61 million, slightly higher than prior year, with adjusted EBITDA margin of 25.6%, up 210 basis points versus Q3 2024.

The drivers here resulted from our AI initiatives and efficiency programs. resulting in lower fraud, labor and telecom expenses, offsetting the negative implementation impacts. Transportation segment adjusted revenue was $162 million for the quarter, an increase of 14.9% year-over-year, while adjusted EBITDA was $4 million, and adjusted EBITDA margin was 2.5% for the quarter, up 250 basis points versus Q3 2024. Both revenue and EBITDA improvements were driven by strong equipment sales in our international transit business. Unallocated costs were $62 million for the quarter versus $63 million in Q3 2024. The improvement here is driven by our cost efficiency programs in the corporate functions, which more than offset significantly higher employee health care claims activity we experienced in the quarter.

Let's turn to Slide 9 and discuss the balance sheet and cash flow. During the quarter, we completed the refinancing of our revolving credit facilities by amending the credit agreement allowing us to prepay in full the Term Loan A, reduce the revolving credit facility to $357 million, of which $197 million extends to 2028 and $170 million continues to mature in 2026. We also added a $93 million performance line of credit facility maturing in 2028. We utilize the revolving credit facility to prepay the term loan A and at the end of the quarter, had $198 million unused.

We ended the quarter with approximately $264 million of total cash on balance sheet and adjusted free cash flow for the quarter was negative $54 million. Free cash flow in the quarter was impacted by a number of timing items. Firstly, we are still awaiting a number of contract amendments being approved by federal government agencies which given the current environment is taking longer than usual and is a prerequisite for us billing clients for work already performed. Secondly, we are in the post-implementation phase for a couple of contracts in the government and transportation segments, which once stabilized will allow us to routinely bill and collect for steady-state operations and maintenance activity as well as build the final milestones.

The combination of these two factors are the reason for the increase in both our contract assets and accounts receivable balances compared to last quarter. Of the $168 million contract asset balance at the end of Q3, we expect to build over $100 million by the end of Q1 2026, assuming the federal government resumes a more normal level of operations. Our net leverage ratio increased to 3.2 turns this quarter, which was a result of the cash flow items I just referenced. Capital expenditure for the quarter was 3.8% of revenue and we repurchased approximately 4.7 million shares in the quarter at an average price of $2.70.

Let's turn to Slide 10 and look at the 2025 outlook. At the beginning of 2025, we guided the year under the assumption of broad, stable macroeconomic conditions. During the third quarter and entering into Q4, we are starting to feel the impact of the reduced federal government workforce in certain agencies, delaying the progression of RFPs and contract approvals compounded by the current extensive government shutdown, which in combination creates greater ranges of variability and predictability in where we will finish the year financially. The good news is we still believe we will achieve the adjusted EBITDA margin range of between 5% and 5.5%. However, we now believe adjusted revenue for the year will be between $3.05 billion and $3.1 billion, and adjusted free cash flow will be dependent on the timing items I referenced earlier. As we enter the final stages of 2025 and the 3-year exit rate targets established back in 2023, we feel we are making good progress with the business, and we'll lay out 2026 expectations when we deliver Q4 earnings in February next year.

Turning to Slide 11. We continue to make progress with Phase 2 of our portfolio rationalization strategy. And as Cliff stated, we will provide further updates no later than our Q4 earnings. We incrementally increased the number of shares repurchased to approximately $70 million and are confident in achieving the $1 billion of capital deployment we committed to in early 2023.

That concludes the financial review of third quarter 2025. And if you now turn to Slide 12, I'll hand it back to Cliff for his broader view on the business. Cliff?

Thank you, Giles. As always, a couple of closing comments prior to taking questions. Our revenue continues to reflect the puts and takes of our transformational journey while as you can see, adjusted EBITDA and margin are meeting expectations on the high end and continue to be predictable. You can now tell that we remain on track for the 2024 to 2025 EBITDA expansion we've been talking about, where we said you should expect a significant increase and then continued year-over-year increases in adjusted EBITDA and margin. Meanwhile, we're focused on revenue and conversion of working capital to cash for the remainder of 2025 is areas somewhat inhibited by a weaker start in commercial sales. And as mentioned, some deal pushes in the government space associated with the timing of milestone recognition in what was in anticipated government shutdown in late Q3.

But again, much demand remains pent up and on the horizon. Some tactics we have underway are as follows: we revised our commercial go-to-market and leadership model to take out layers and produce increased opportunities to penetrate our current client base. We're enhancing sales and revenue generation talent to open new doors with proven leaders in the BPO and BPaaS technology industry. Not only have we embedded our solutions with more Gen AI, but we've begun to do a better job telling our digitization and AI story. Including the as-mentioned launch of our AI experience center in New Jersey and the deployment of new Merci initiatives, not pilots, but real production solutions in areas like agent assist, language smoothing, language translation tools, automated indexing in our digital platforms and automated detection of pharmaceutical reportable events, all of which will drive margin expansion and open new revenue generation opportunities. We've seen significant fraud reduction in our electronic payment card platforms as well due to AI deployment.

The bottom line is we will tell these stories more often as our clients continue to ask for innovation an example of where we can help them do their jobs better.

[Audio Gap]

We deploy our CapEx to continue to evolve these solutions with new innovation to solve client challenges. We've also seen some new software license wins with our HSP claims adjudication platform which now opens up new pathways for not only more software licenses of that product, but potentially simplifying the claims process for even larger health care insurance payers. A couple of other proof points for our quarterly progress. We refinanced our revolving credit facility, as mentioned. The sales pipeline is growing and there definitely deals in the weighting. Our transportation business has seen an expected uptick in sales with some recent wins in Richmond Pay-by-Plate processing, as Giles mentioned, additional work in the Bay Area tolling space, additional transit work in Abu Dhabi in Israel as well as a recent transit win in Greece, among others.

As mentioned in the past, the journey clearly has twists and turns, evidenced by a phenomenal like government shutdowns and natural disasters, which we certainly have contingency plans for we're continuing that progressive path toward year-over-year growth, and I've already seen the pitch up, if you will, from EBITDA -- from the EBITDA trough we described in 2024 to growth. The plan is working. As mentioned, more rationalization is on the horizon, as is continued margin expansion from the cost coming out of the center and less capital intensity associated with future expected transactions.

Thanks for listening today, and thanks to our 55,000 strong team for their hard work. Finally, I'd be remiss if I didn't send best wishes to our folks in Jamaica. But also in Cebu, Philippines, where hurricane activities have done serious damage to those environments and the necessary ingredients of everyday life. So far, our business continuity efforts have held our operations in good stead. But many have real personal hardship to deal with. As I stated, we're optimistic about our future and see sunny skies ahead.

Thanks, and I'll open up to the operator for questions. Operator?

[Operator Instructions] Our first question comes from the line of Gowshi Sri with Singular Research.

Can you hear me? Just -- you flagged that you had near closes in Q2 that was expected to close in Q3. How much of that pipeline actually closed this quarter given that the closings were kind of flattish year-on-year -- and would that be -- we'll be seeing some acceleration if the government shutdown eases up and would that be...

It's sort of like the small animal through a snake is coming through -- I think it's exacerbated, in Q3 because of the government shutdown due to timing in the federal government releasing some deals in places like the CMS where approval is needed in order to get states to be able to improve health care deals, Medicaid deals. I don't see any massive change from Q3 to 2 to 3 to 4 other than in that government space that we just talked about.

Okay. Got you. I know you highlighted Gen AI deployment in both government and commercial space. How are you measuring productivity or quality gains that that will concretely boost the client stickiness or cross-sell opportunity. Any solutions that might be in the public sector wins, what is your expectation on the contract side and the margin uplift from the Gen AI pilot?

Yes, it's a great question. The primary pilot in the government space is in our fraud category, specifically in our Direct Express program, where address validation is really important. We've used Gen AI to expedite that and create a faster determination from our our associates. And we see that spreading throughout the Medicaid and the SNAP environments as well, where we can reduce fraud quickly, and that's been a big mission of the federal government as well.

In the commercial space, it's more around customer experience where everybody is deploying fraud, things like language, the translation, smoothing, agent assist those kinds of things as well as where we see a real opportunity in scanning and indexing, where we can use Gen AI to automate the indexing to create a claims adjudication ready platform for our clients. So that's a big space. That's going to create both revenue and expense opportunities. The fraud space is more about expense reduction opportunities. What's still outline is we process those capabilities onto the client. In other words, where do we share in both those expense reductions and those revenue increases those are contract by contract, to be honest with you, and it's going to depend on exactly what the endeavor is.

And just to add to that, Gowshi, we're seeing the expense positive expense impact from the fraud initiatives in the government space turn up in the P&L now and in the last quarter as well. So we're seeing the free...

And we're seeing in commercial as well. Yes.

Got you. Given that there is a negative operating cash flow, I know you said at 87% of that the divestiture has done. Are there any specific cost out of stranded cost areas left to tackle what's the internal time line for fully realizing those benefits.

Yes. So I think we're through the initial phase of stranded costs related to the divestitures we did last year. Clearly, we're in the process of Phase 2 of the portfolio rationalization. And there'll be a little bit that we act on in 2026. One thing I will say is we do have a very strong cost discipline in the organization, and we're continually looking to optimize areas, whether it's in spans and layers in the organization or our real estate portfolio. So it's a continual effort, and we'll keep on that journey.

Okay. And just my last question. As you -- given the environment as it is, are you changing the contract classes or structural changes, especially given the recent government or commercial deals to reduce churn risk or exposure to budget delays?

No, we're not, I guess. I mean the thing to remember here, given the government shutdown, is it hasn't affected our revenue stream. It's affecting the timing of milestones and the release of sales opportunities that all are going to get through the end of the snake, as I mentioned earlier. But the revenue stream and the revenue deployment is not affected and we're primary state and local government business in the public sector. So, we see no reason to change the model as we speak today.

Our next question comes from the line of Marc Riddick with Sidoti & Company, LLC.

So wondering if you could talk a little bit about the client mix that you're seeing, particularly on AI endeavors. You made mention of the fraud focus. I was wondering maybe you could talk a little bit about maybe what the industry verticals look like and maybe the sort of first movers, if you will, that are engaging and maybe what you're learning from them?

Yes. It's two different questions really depending on whether it's commercial or in the government space. In the commercial space, we're in the neighborhood of 30% to 40% in health care and a lot of the opportunity from an AI perspective and efficiency perspective and potentially even fraud reduction perspective, although not yet is in that health care space. In the government space, it's a different kind of health care. It's Medicaid processing, primarily in Medicaid eligibility, where there's a lot more fraud and a lot more opportunities to reduce expense and drive fraud reduction.

So, I mean, it's two different opportunities, but most of those opportunities from an early mover perspective or centered around health care.

Great. And then as we sort of think about the opportunities on the commercial side. I was wondering if you could talk a little bit about as we sort of look into next year, I can understand some delays with activity and the like. But do you get the sense that there's any particular areas that you would like to shore up bandwidth or sort of maybe the level of comfort that you have as far as being able to meet opportunities on growth opportunities on the commercial side.

In the commercial side, I mean if you think about our product sort of penetration, we're less than 2 products per client, which for a company that has as many products and opportunities as we have is too low. We're very focused on that client penetration, especially in our top 60 top 80 clients. And we're putting some new processes in place to deploy against that. Again, health care is a big play there. But the continuum -- for example, the continue of service and claims adjudication from all the way from the beginning of a claim through the servicing of a claim as opportunities end and we're intently focused on that. And we're also focused on some software deployment and software licensing opportunities that we've never really deployed in the commercial space. We just had our first 1 with our HSP license to a midsized client in California.

We've always done it to a lesser degree in public health medicine in the public sector with our Maven platform, but we're now starting to do the same thing in commercial. So we see real upside here in technology deployment. We see real upside and further penetration of our current client base. We're putting a new business development team together to feed the top end of that pipeline better, which we think is the [indiscernible] for us in commercial. It's really not sales execution is feeding the top of the pipeline. So we're all over that and then we're all over the penetration of our current client base.

I think, Marc, we're seeing some of the results in that, right? As I said in my remarks, on a year-to-date basis, we're up year-over-year as far as new capability sales are in the commercial and overall in the Conduent organization and that's selling new product into the existing client base. And specifically, as it relates to commercial, put aside the largest client that we've got, the other '24 or '25 clients are growing year-over-year as well. So we're seeing some of that actually flow through into the financials.

I mean that's a great point. While we're not satisfied with our commercial sales in 2025 just yet, I mean, absent that 1 client, it's already growing. So there's real opportunity. We're seeing growth already. we just need to outrun that 1 client.

Got you. And then so do you potentially see -- I think those mentioned made as far as adding talent, sales talent, is there sort of a general time frame or sort of runway that you see there? I guess that's kind of a '26 question. I know we're not doing '26 guidance, but I guess maybe I was sort of thinking about the time frame of how some of that might roll out.

Well, it necessarily will affect '26 performance, but it necessarily needs to happen in Q4 2025.

And we have reached the end of the question-and-answer session, and this also goes conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.