Negative Points

• Conduent Inc ( NASDAQ:CNDT )'s Q2 2026 revenue declined 11.9% year-over-year to $531 million, driven by contract losses and volume declines, particularly in the Commercial segment's customer experience management offering.

• The company's largest Commercial client contract will end in Q3 2026, which is already incorporated in the outlook but will continue to pressure revenue.

• Adjusted EBITDA margin decreased to 3% in Q2 2026, down 80 basis points year-over-year, with Government segment margins down 150 basis points due to revenue impacts and prior-year favorable reserve releases.

• The company's adjusted free cash flow remained negative at -$8 million for the quarter, and the full-year 2026 guidance was recalibrated to exclude discontinued operations, reflecting ongoing transformation challenges.

• Conduent Inc ( NASDAQ:CNDT ) continues to face a natural timing difference between winning new business and realizing revenue impact, with some contracts rolling off and volume declines in existing client programs.

• The company incurred approximately $4 million in stranded costs related to the former Transportation segment in Q2 2026, which will need to be addressed post-closing of the divestitures.

Q & A Highlights

Q: What is the realistic medium-term adjusted EBITDA margin for the remaining business, and is the previous goal of achieving a 10% margin still the appropriate framework after the portfolio simplification? A: Harsha Agadi (CEO) stated that the goal of achieving greater than 10% margins remains unchanged. He emphasized that the Commercial and Government segments need to reach mid-to-higher double-digit margins before subtracting central SG&A costs. He noted that peers in the industry achieve this and that Conduent needs to do it even faster, highlighting rapid AI implementation and organizational changes in the Government segment as key drivers.

Q: With the largest Commercial client rolling off, what does client concentration look like on the remaining book, and is it improving? A: Harsha Agadi (CEO) explained that the company has a reasonably diversified portfolio with depth in areas like banking, lending, and healthcare, and does not have the same exposure risk as with the departing client. He noted that the company is focused on increasing "service density" by selling more of its 12-15 services to existing clients (currently averaging only 1.4) and expanding geographically beyond the US to Canada, Western Europe, and Australia.

Q: As you build out the next-generation Medicaid platform, does that require a CapEx step-up in 2027, or are you deferring anything to protect this year's cash? A: Giles Goodburn (CFO) confirmed there is no significant step-up in CapEx required. The investments are part of the normal course of business. He added that overall CapEx across the company should tick down due to the Transportation segment divestiture and more prudent capital allocation.

Q: Now that you've had six months to review, what are the buckets that are still in the "fix" versus "sell" categories? A: Harsha Agadi (CEO) stated that while the Transportation exit is complete, the company receives continuous inbound interest for various parts of the business. He noted there might be "another business or two" that could be considered for sale, but the leaders of Commercial and Government are working to improve margins to make selling unnecessary. He emphasized that the value realized from selling two small businesses was close to the company's market cap, highlighting the potential for further value creation.

Q: What are your general views on comfort levels of leverage or potential target ranges? A: Giles Goodburn (CFO) stated that after the divestiture transactions close, leverage will come down to the "two-dot range." He expressed a goal to reach the "one-time levered range" over the next 18 months to two years, driven by the benefits of cost reduction, top-line growth, and reduced CapEx.

Q: Could you talk about the general areas you are targeting for the $100 million of cost savings? A: Harsha Agadi (CEO) detailed that 60% to 70% of the savings will come from headcount reductions and 30% to 40% from re-evaluating the technology stack. He noted that more than half of the savings have been identified, with a small portion already executed. He expects the Commercial segment to see the fastest margin improvement due to its lower starting margin and higher potential, and he aims to complete the right-sizing and have no consultants inside Conduent by the end of the year.

Q: Could you give us general views on the upside or new learnings from your client meetings, such as the ELEVATE conference? A: Harsha Agadi (CEO) shared that he now directly dialogues with CEOs of major clients, who are often unaware of the full breadth of Conduent's 15 services. He cited examples of top-10 bank CEOs being excited about services like lockbox and document digitization. He also mentioned that Conduent is being invited to non-RFP partnership meetings and that his direct participation in the RFP process, such as with the largest health insurer, has helped advance deals. He emphasized an aggressive market approach until revenue growth and double-digit margins are achieved.

Q: Do you expect AI to become a more measurable contributor to revenue growth, and is that factored into your outlook? A: Harsha Agadi (CEO) said AI will be a "very big difference" in execution. He explained that AI is being used internally for code porting, requirement validation, testing, and quality checks, which compresses the time to go live for new business. This faster implementation leads to faster revenue accretion and improved accuracy. He also noted that AI-driven automation is resulting in a reduction of the company's cost structure and employee count.

Q: How much of the Government segment's margin improvement is structural versus temporary, and what is the outlook? A: Harsha Agadi (CEO) highlighted that the Government segment leader, Anna Sever, is rapidly implementing AI, including a new fraud detection tool called VeriSight, which is generating interest from state officials. He also noted she is making rapid changes to the organization's headcount. He reiterated that the overall company goal of achieving 10-plus percent margins remains unchanged.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .