12 Aug Should Conduent Be A Part of Your Investment Portfolio?
Conduent, Inc. (NASDAQ: CNDT) offers solutions for automation and analytics, to businesses and governments worldwide, in areas such as business processing, customer experience management, healthcare, payment processing and transportation solutions.
Conduent, Inc. (NASDAQ: CNDT)
Market Cap: $1.46B; Current Share Price: 6.85 USD
Data by YCharts
Strengths
The Company’s services and solutions are utilized by a majority of Fortune 100 companies and more than 500 governments worldwide. Conduent helps organizations transform their businesses by automating operations by using leading-edge technology that enable them to achieve supply chain efficiencies and drive revenue growth. The services offered by the Company encompass document management and automation, casualty claim solutions, HR and learning solutions, Finance, accounting and procurement, legal and compliance solutions among others.
In June 2021, Conduent was named a GM Supplier of the Year winner in General Motors’ 29th annual Supplier of the Year awards. The Company was recognized for providing services such as Payroll, Legal Compliance, and Finance, Accounting and Procurement.
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The Company also enables the delivery of omnichannel customer experiences that are customized to suit specific industry, region and language requirements. Conduent provides customer experience (CXM) services such as contact services, multichannel communication and work-at-home solutions to companies in the banking, financial services, healthcare, retail, hospitality and telecom sector to name a few. Conduent registers more than 205 million customer interactions daily and over 10 billion annual customer communications.
As part of its Healthcare solutions the company offers payer, provider and interoperability solutions, besides life science and government and community health management services, which ensure that organizations are able to meet with compliance requirements, deliver high quality patient care and improve operational efficiency and reduce costs.
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The Company’s IT modernization solutions assist government agencies and public sector organizations to transform the handling of payment processing, record management, child support and case management to name a few. Conduent has played an instrumental role in implementing Medicaid, CHIP and other government aid programs, with more than $80 billion disbursed to those eligible to receive federal, state and local government support.
Furthermore, Conduent uses a combination of hardware, software and advanced video analytics to help communities stay safe. The DriveSafe™ Enforcement System facilitates red light enforcement, speed control, restricted lanes and one-way enforcement to name a few. Furthermore, its Vehicle Passenger Detection System (VPDS) is able to recognize violators with more than 95 percent accuracy and upon identification a license plate recognition camera collects plate number as evidence, with a 95 percent client retention rate across 114 global locations.
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Conduent’s data analytics solutions include visual data analytics, statistical modeling and prediction analysis capabilities. Furthermore CiteWeb®is a violations processing system that offers support to its photo enforcement programs. The Company offers a full gamut of citation management and enforcement solutions ranging from automated enforcement, database management, delinquent collections to name a few.
In addition, it offers Automated License plate recognition system integration which is critical to toll collection, automated enforcement, parking assistance, Airport, Campus and event parking. The technology can also assist in retrieving stolen vehicles and creation of AMBER alerts in case of “HOT LIST” numbers.
Conduent’s ALPR system differs from other competitors, mainly through Signature Implementation that helps single out distinct characteristics or marks, which can be stored for confirming the number plates and act as references for the future. The system can also weed out number plates that aren’t a match, are too dark or unclear and prevent them from going to the manual review team. Additionally, the image segmentation feature helps establish character confidence by isolating individual characters.
Weakness
Conduent, which came into existence in January 2017, is a spinoff of Xerox. For a long time, the Company struggled with low sales, conflicts and a very public spat between the Chairman of the board William Parrett and activist investor Carl Icahn.
In April 2019, Michael Nevin, appointed to the board by Icahn Enterprises, resigned from the board and filed a four -page letter of grievances with the SEC, complaining about the company’s board and management. The issues raised related to mismanagement, no proper succession planning, rubber stamping management decisions, and being uninvolved among others.
The Company was also subject of a lawsuit claiming $2 billion in damages, filed by the state of Texas, which accused Conduent of Medicaid fraud. The claim was settled for $236 million later after the intervention of Carl Icahn and another board member.
Things seem to be finally turning around with the appointment of Clifford Skelton as the CCO, interim CEO and finally the CEO in February 2020. The new CEO has been diligently addressing the company’s weaknesses such as weak sales, low renewals and has been delivering positive results as evidenced by the improvement in signings etc.
Opportunities
According to a report by Grand View Research, the global business process outsourcing solutions market is poised to reach USD 435.89 billion in 2028, growing at a CAGR of 8.5 percent, from USD 232.32 billion in 2020. The rising demand for improving cost efficiency and reducing operational costs, which aren’t at the core of the business, will drive the growth in the market. More and more businesses are now looking at focusing on their core operations and roping in third parties to manage non-critical components of the business. This enables them to improve their operations, while leveraging the expertise of a third party that can result in improved performance and efficiencies.
The emergence of digital technologies such as Cloud computing and storage, automation, IoT solutions and artificial intelligence are making it easier for organizations to adopt newer and more intelligent solutions to manage businesses.
Information storage and access remains a very crucial requirement for the success of any entity, hence the need for a faster, convenient and cost-effective solution is the need of the hour. This is especially true in case of utilities management as data that they generate is humongous. Digital Payments are gaining popularity owing to COVID-19, the need for cashless transactions and lockdown restrictions have compelled people to rely on contact-less purchase of services and products. Digital payment options such as mobile wallets, internet banking etc. are also helping simplify transactions for consumers as well as service providers.
According to a report by Grand View Research, the Global Payment-as-a-Service Market that was worth USD 6.2 billion in 2019 is likely to grow at a CAGR of 16.9% from 2020 to 2027.
Automatic Number Plate Recognition also referred to as Automatic License Plate Recognition (ALPR) or, Automatic Vehicle Identification (AVI) uses optical character recognition (OCR) to read vehicle numbers/license plates automatically. These are classified into two, the first is Stationary, which uses infrared at fixed locations such as traffic signs, highways, schools or hospital zones etc., while the second one is Mobile that uses cameras mounted on vehicles to capture and transmit license plate numbers to a database.
The data captured is relayed to a database that searches for relevant matches and alerts the user if it matches a “vehicle of interest”. The application of ALPR technology can be diverse such as tracking stolen vehicles, criminal activity, parking assistance in buildings and events, security on campuses and schools to name a few. Furthermore, the technology can prove invaluable for traffic management and toll booth operations as well. According to a report by Markets and Markets, the global Automatic License Plate Recognition (ALPR) Systems market was worth USD 2.3 billion in 2020, and will grow at a CAGR of 10.0%, to reach USD 3.8 billion by 2025.
The rise in vehicle thefts, fraud, criminal and terrorist activities has made vigilance and surveillance mandatory for law enforcement agencies. The growth in the number of vehicles and their management is another challenge faced by authorities. The adoption of artificial intelligence in the ALPR industry helps meet the challenges to an extent, however the lack of a standardized system for number plates, makes it difficult to read them accurately for most vehicle recognition software.
Threats
The Company operates in the highly competitive business process outsourcing space, which has players such as Accenture, Cognizant, CGI, Hewlett Packard Enterprises, Genpact, Sutherland among others.
The Covid-19 pandemic has impacted the budget and spending of various organizations across the world. This is likely to result in a cutback on spending which may impact contract renewals for business process outsourcing companies such as Conduent.
Financial Results
On August 5, 2021, the Company announced its Q2,2021 financial results. Conduent achieved a record quarter of y-o-y revenue growth with revenues at $1,026M. The Company reported new business signings, whose Total Contract Value (TCV) stood at $115M, an increase of 10% as compared to Q2 2020. The Company also achieved a 10 percent increase in Annual Recurring Revenue (ARR) signings, which stood at $115M.
The Company’s sales performance improved with new business TCV signings, valued at $775M due to strong add-on revenue in Government Healthcare and a large Highways England deal in Transportation.
Conduent expects its revenues to be in the range of $4,100M – $4,175M, as per its Updated FY 2021 Guidance
Conclusion
Despite the many challenges, the Company has been able to build a strong global delivery footprint with presence in over 22 countries. With the focus on vaccination drives and opening up of the economy, the impact of COVID-19 pandemic may finally be on the wane, which augurs well for the growth of its business.
The Company’s improving sales performance, increasing new signings and laurels for its management team may point to good times ahead for Conduent.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://www.grandviewresearch.com/press-release/global-business-process-outsourcing-bpo-market
https://www.grandviewresearch.com/press-release/global-business-process-outsourcing-bpo-market
https://investor.conduent.com/static-files/93724ea4-7221-4da0-9fe4-1e9f199adc67
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