Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 adjusted revenue and adjusted EBITDA exceeded expectations, with $811 million and $29 million respectively.
- New business signings were $142 million, showing sequential growth.
- Significant progress in divestiture activities, with proceeds used to deleverage the balance sheet and repurchase shares.
- Strong sales momentum in the Commercial segment, especially in offshore and nearshore delivery models.
- Continued recognition for workplace culture, including being named to Newsweek's Global Top 100 Most Loved Workplaces.
Negative Points
- Net ARR turned negative for the first time, indicating challenges in revenue retention.
- Adjusted EBITDA margin decreased to 3.6% from 7.5% year-over-year.
- Government segment revenues declined by 9.3% year-over-year, driven by contract terminations and lower volumes.
- Transportation segment adjusted EBITDA dropped significantly, from $9 million to $3 million year-over-year.
- Ongoing challenges with stranded costs and the need for further cost efficiency programs.
Q & A Highlights
Q: After repurchasing Carl Icahn (Trades, Portfolio)'s shares, how does that affect the decision-making process for you guys going forward? Does that really simplify your strategic decisions?
A: (Clifford Skelton, CEO) With Carl Icahn (Trades, Portfolio) no longer holding shares, decision-making has become easier. Previously, with three board members out of eight from Icahn, there were more complexities. Now, with a streamlined board, we feel a bit liberated and can make strategic decisions more efficiently.
Q: Can you give additional commentary on where your confidence comes from for your full-year target, given the results you reported for Q2?
A: (Stephen Wood, CFO) Our confidence is based on the sequential journey we outlined through 2025. We have cost efficiency programs underway that will become more evident in the second half of the year. Additionally, we expect incremental sales ramp and modest sequential improvement in EBITDA as we progress through the year.
Q: Are there more opportunities for minor divestitures in the future before you're done?
A: (Clifford Skelton, CEO) We don't see any major divestitures on the horizon, but there are a couple of small things we might consider. Our focus remains on optimizing and growing the remaining portfolio. (Stephen Wood, CFO) We still have a rich portfolio of assets with strategic value and will entertain attractive offers if they align with our goals.
Q: Can you talk about the partnership with Microsoft on AI and what you're seeing from client receptivity?
A: (Clifford Skelton, CEO) The partnership with Microsoft is promising, especially in areas like fraud detection and document management. We're focusing on proven pilots and leveraging Microsoft's salesforce and Azure for hosting. The client receptivity has been positive, and we see a bright horizon for these initiatives.
Q: Can you provide more color on the status of the Government Direct Express contract?
A: (Clifford Skelton, CEO) We don't have formal messaging yet, but we know the contract is complex and risky to transition. Even if negotiations are happening with another bank, the transition would likely take a year or two. We believe there's a high probability of retaining the contract due to its complexity and risk.
Q: Can you talk about future thoughts on returning capital to shareholders, such as dividends or share repurchases?
A: (Stephen Wood, CFO) We've earmarked around $880 million of the $1 billion deployable capital for debt repayment and share repurchases. We feel good about our current path and will consider additional capital returns as we progress through the next few quarters. (Clifford Skelton, CEO) These decisions are largely up to the Board, but we plan to stay the course in the near term.
Q: Are you seeing increased interest in outsourcing across the board or just in specific sectors like healthcare?
A: (Clifford Skelton, CEO) We're seeing increased interest in outsourcing across various sectors, including healthcare, logistics, and others. There's also a growing appetite for nearshore and offshore capabilities, which offer stronger margins for us. (Stephen Wood, CFO) We're also seeing opportunities to deploy commercial solutions in the public sector, indicating broad interest in outsourcing.
Q: What new geographic markets are emerging as attractive outsourcing destinations, and do you have capabilities in those regions?
A: (Clifford Skelton, CEO) Traditional markets like the Philippines and India remain strong, and we're seeing some interest in places like South Africa and Egypt. We have a significant presence in Guatemala and Jamaica and are adding capacity in key locations to meet demand. (Stephen Wood, CFO) Building scale in key markets and driving cost efficiency is crucial, and we're happy with our current geographic mix.
Q: How does the revenue model work for the Gen AI-Microsoft collaboration?
A: (Clifford Skelton, CEO) The collaboration is mutually beneficial. More business for us means more business for Microsoft, as it will be hosted on Azure. There's no direct exchange of revenue; instead, both companies win by leveraging each other's strengths and capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
