Conduent To Grow Sales Force By 20 Percent, Focus More Narrowly On Core Offerings, Verticals

Conduent plans to expand its 300-person sales force by at least 20 percent and only go after contracts that align with the company's expertise and margin expectations.

"We are not in the business of trying to capture a headline by doing a big deal that we do not even understand," Ashok Vemuri, Conduent's CEO, told Wall Street analysts during the company's earnings call. "The core philosophy now is to drive more repeatable, scalable and predictable business."

The Florham Park, N.J.-based business process services provider, which split off from Xerox on Jan. 1, had previously been burned by trying to take on business outside its core area of expertise. Conduent recorded a $161 million charge since it might not be able to complete a health enterprise platform project for New York state, the third time the company has backed out of a deal in less than two years.

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The company, which as Xerox Global Services was No. 9 on the CRN Solution Provider 500, was hit with a $389 million charge in late 2015 when it failed to complete health enterprise Medicaid platform implementation projects in California and Montana. Conduent stopped accepting new health enterprise engagements in late 2015 and has limited its exposure to completing three in-progress projects.

"Unlike in the past, we will not necessarily continue to try and win every deal," Vemuri said. "We [now] have a much more sophisticated qualification criteria."

Vemuri said Conduent had developed pricing and margin guidelines that the company can take into the field and use to make faster "go/no go" decisions on potential opportunities. The company also wants to avoid signing long-term contracts since rapid process and technological change makes it difficult to have a view on where the industry will be more than a half-decade down the road, Vemuri said.

Conduent also plans to customize its solutions and capabilities to better address business issues within specific verticals, Vemuri said. Conduent plans to narrow its focus to North America and parts of Western Europe and focus on driving higher levels of service penetration through bundled offerings.

Conduent is already one of the largest collectors of data in the public sector and commercial spaces, and the company plans to leverage its information for analytics, automation, mining and robotics in its customer care business. The company's customer care business ranges from low-end technical support to higher specialized assistance for nursing and pharmaceutical specialists, Vemuri said.

Sales for the quarter ended Dec. 31 tumbled to $1.51 billion, down 12 percent from $1.73 billion the year prior. That missed Seeking Alpha expectations of $1.64 billion.

The company's net losses skyrocketed to $951 million, or $4.69 per share, up from a net loss of $5 million, or 3 cents per share, the year prior. On a non-GAAP basis, net income ticked up to $61 million, or 29 cents per share, up 5.2 percent from $58 million, or 28 cents per share, the year prior. This beat Seeking Alpha's estimate of 25 cents per share.

For the full year 2016, Conduent's sales dipped to $6.41 billion, down 4 percent from $6.66 billion the year prior. Its reported net loss was $983 million, or $4.85 per share, down 137 percent from $414 million, or $2.04 per share, last year.

Conduent shares climbed $1.30 (8.61%) to $16.39 in trading Wednesday. Earnings were announced before the market opened.

The arrival of the Trump administration has spurred more conversations between Conduent and financial services and pharmaceutical clients who are excited about the potential for reduction in regulatory overhead, Vemuri said.

The Trump administration's focus on infrastructure should also boost revenue for Conduent's public sector business, Vemuri said, particularly around its transportation and tolling solutions.

"Those conversations that are beginning to happen will gain momentum as things become more clear," Vemuri said.

Conduent's fourth-quarter commercial industry revenue tumbled to $660 million, down 10.2 percent from $735 million last year due to a delayed ramp of new business and lower volumes. The company plans to focus on reducing costs, remediating contract and bidding on new business with an appropriate profitability and risk profile.

Public sector sales dipped to $441 million, down 0.7 percent from $444 million the year prior as contract run-off more than offset the ramp-up of new business. Conduent drove margin improvement in its public sector business through strategic transformation and other productivity initiatives, the company said.

Healthcare sales sunk to $409 million, down 10.5 percent from $457 million the year prior due to contract run-off and lower volumes. Cost and productivity initiatives have generated positive momentum for Conduent's healthcare margins, the company said.

Revenue from other business fell to $87 million, down 7.4 percent from $94 million last year as Conduent's student loan business remains in run-off. The company is focused on supporting its current book of health enterprise business in Alaska, North Dakota and New Hampshire, and moving the practice toward profitability.

For all of 2017, Conduent expects rates of revenue decline similar to 2016 levels and adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) of greater than 5 percent.