Conduent targets 5%-5.5% adjusted EBITDA for 2025 amid portfolio changes

Management Highlights and Strategic Focus

Clifford A. Skelton, President and CEO of Conduent Incorporated, highlighted that Q2 2025 was a solid quarter for the company. He noted that revenue for the quarter reached $754 million, slightly up from the previous quarter, and aligned with expectations. The adjusted EBITDA for the quarter stood at $37 million, representing a 4.9% margin, which exceeded expectations both year-over-year and remained flat sequentially. Skelton emphasized that this performance was particularly notable given that Q2 typically marks a low point in the annual cycle.

The company continues to make progress in its portfolio rationalization efforts, with strong sales performance in the public sector. The overall Annual Contract Value (ACV) reached $150 million, showing growth compared to both the previous year and the previous quarter. Skelton mentioned that Q3 would be an important period for sales, with improved performance expected from the Commercial segment as some deals shift from Q2.

Conduent signed 8 new logos during the quarter, expanded relationships with 22 existing clients, and renewed several contracts, including the Direct Express contract supporting the federal government as a sub to a leading financial institution. These developments underscore the company's continued focus on expanding its client base and strengthening long-term partnerships.

AI initiatives remain a key priority for the company. Skelton outlined that AI is being rolled out across various areas, including telecom enhancements, language smoothing, fraud reduction, item processing workflow improvements, and end-user simplification. This strategic focus aims to drive efficiency and enhance customer experience across multiple business units.

Skelton also announced the election of Harsha Agadi as the new Chairman of the Board, stating that his appointment comes at a strategic time where his experience will be valuable to the company’s ongoing transformation.

Financial Performance and Outlook

Giles Goodburn, CFO of Conduent, reported that the company signed $150 million of new business ACV in the quarter, marking a 6% increase compared to the same period last year and a 38% sequential rise. The first half of 2025 saw a 9% increase in new business ACV compared to the first half of 2024. Goodburn expressed confidence in achieving strong year-over-year ACV growth in the second half of 2025.

Adjusted revenue for Q2 2025 was $754 million, down 2.6% year-over-year compared to $774 million in Q2 2024. While the Transportation segment achieved revenue growth, the decline was primarily attributed to the Commercial and Government segments.

Looking ahead, the company raised the midpoint of its full-year adjusted EBITDA margin guidance to between 5% and 5.5%, citing stronger-than-expected results in the first half of the year. Full-year adjusted revenue guidance was revised to between $3.1 billion and $3.2 billion. However, management acknowledged that while they expect year-over-year revenue growth in the second half of 2025, the full-year results may fall slightly short.

For Q3 2025, the outlook is for adjusted revenue to be higher than Q2 but slightly below Q3 2024. Adjusted EBITDA margin is expected to remain within the range of 5% to 5.5%. Goodburn reiterated the expectation of top-line growth in the second half of the year and a potential expansion in margins as cost programs are implemented.

Segment Performance

In the Commercial segment, adjusted revenue was $365 million, with adjusted EBITDA of $27 million and a margin of 7.4%. The Government segment reported adjusted revenue of $238 million, with adjusted EBITDA of $60 million and a margin of 25.2%. The Transportation segment generated adjusted revenue of $151 million, with adjusted EBITDA of $8 million and a margin of 5.3%. Unallocated costs for the quarter were $58 million.

The company ended the quarter with approximately $294 million in total cash and an undrawn $550 million revolving credit facility. The net leverage ratio remained at 2.7x. Conduent also initiated a new 3-year share buyback program for an aggregate of $50 million, with 2.7 million shares repurchased at an average price of $2.70 during Q2.

Analyst Questions and Company Responses

During the Q&A session, analysts raised questions about the impact of the "Big Beautiful Bill" on the SNAP program. Skelton described the bill as more ideation than execution, noting that while there are potential opportunities, full implementation remains uncertain. He emphasized that work requirements and residency conditions would need to be addressed by someone, and some green shoots of opportunity exist, but monetization is not yet realized.

Analysts also inquired about the drivers of new business signing momentum in the Commercial segment. Skelton stated that the company has been consistent in its efforts, with increased focus on new logos and capabilities. Regarding the timing of portfolio rationalization, he indicated that work is underway and expressed hope that significant progress will be made by the end of the year.

When asked about AI-driven solutions and client expansion, Skelton confirmed that the company is now in execution mode across eight key initiatives, with fraud reduction being one of them. He noted that AI applications are widespread across different business units.

Regulatory developments were another topic of discussion. Skelton suggested that while the full impact of regulatory changes is still unclear, there are real opportunities for the company, especially as states may need to outsource certain functions.

Talent acquisition and attrition were also discussed. Skelton noted that retention has improved, and attrition rates have decreased compared to the previous year. Salary expectations have also moderated.

Regarding share of wallet efforts and the competitive landscape, Goodburn highlighted that over the past two quarters, the company has written over 40 new capabilities with existing clients, expanding its share of wallet with major commercial clients.

Sentiment and Strategic Emphasis

Analysts maintained a neutral to slightly positive tone during the call, seeking clarity on sales pipelines and strategic initiatives. Management displayed confidence, with Skelton stating that the company is on track and emphasizing its ability to meet or exceed guidance. The language used reflected a strong belief in the company’s capabilities, with phrases such as “we remain convinced” and “we are intently focused on meeting previously mentioned expectations.”

Compared to the previous quarter, the management’s tone remained steady, with continued emphasis on execution, portfolio optimization, and AI-driven improvements. Analysts, however, continued to probe for specifics and concrete impacts.

Quarter-over-Quarter Comparison

The company increased its full-year adjusted EBITDA margin guidance for 2025, while guidance for Q1 remained unchanged. Commercial and Government segment revenues declined year-over-year, with the Transportation segment showing growth, continuing trends observed in Q1.

Portfolio rationalization efforts advanced, with the appointment of a new Board Chairman in Q2. AI initiatives moved from preparation to execution across multiple business units. Analysts’ focus in both quarters remained on portfolio actions, government regulatory impacts, and new business signings.

Risks and Concerns

Management acknowledged uncertainty around the full implementation and monetization of government legislation such as the "Big Beautiful Bill." Volume degradation in the largest commercial client continued to affect revenue in the Commercial segment. Ongoing portfolio rationalization presents execution risks, with the timing and magnitude of divestitures still unclear. Wage pressure and talent acquisition remain challenges, although management noted improvements in retention and more moderate salary expectations.

Final Takeaway

Conduent reinforced its commitment to portfolio optimization, margin expansion, and leveraging AI as a competitive differentiator. The company raised its 2025 adjusted EBITDA margin target to 5%–5.5%. Despite facing continued uncertainty in legislative impacts and client volumes, management emphasized a solid sales pipeline, improved cost efficiency, and ongoing progress in Commercial, Government, and Transportation segments. Leadership transitions and share buyback initiatives further signal the company’s intent to drive shareholder value as it executes on its transformation strategy.