Conduent CEO Responds To Controversy Surrounding Cashless Tolling Contract

Conduent is facing mounting issues over a cashless tolling contract, with two senators calling for an investigation and action by the Federal Trade Commission against the company for what they called "mismanagement" of cashless tolls in several states.

Recent problems at Conduent-run cashless tolls in Florida, New Hampshire, Michigan and New York prompted a joint statement on July 30 by U.S. Senators Bill Nelson (D-Fla.) and Gary Peters (D-Mich.), who called the company out on a "pattern of mismanagement" and urged the FTC to investigate.

"Conduent's pattern of mismanaging cashless toll systems is deeply troubling and warrants further scrutiny," the senators said in a statement. "If drivers are being hurt financially, the FTC should hold the company accountable and prevent it from doing further harm."

The Florida Department of Transportation in July suspended $287 million in payments to the company.

During the company's second-quarter earnings call Wednesday, Conduent CEO Ashok Vemuri addressed the issue.

“I want to address a matter that has been in the press recently around our performance on a tolling contract with the state government agency,” he said.

“Confidentiality agreements prevent us from going into the specifics. However, I will note that issues tend to arise in the implementation phase of the startup and ramp of a new tolling system, particularly one that involves transitioning multiple legacy systems to a new and updated integrated statewide system. We have the capability to efficiently resolve these issues and are dedicating all necessary resources to meet our contractual commitments,” he said.

The Florham Park, N.J.-based company Wednesday beat analyst expectations for its second quarter by 7 cents a share, reporting earnings of 29 cents per share.

Conduent reported revenue of $1.38 billion for its second quarter compared with $1.49 billion for the same period a year ago, a decrease of 7 percent. Net income was $11 million compared with a loss of $4 million in the year-ago quarter.

Conduent's share price was up 39 cents Thursday morning to $20.10 per share.

In addition to selling off portions of its business as part of a divestiture program, Conduent is scaling down its real-estate holdings. The company has reduced the existing number of offices from 462 in 2016 to 319 locations at the end of the second quarter.

As part of that divestiture, Conduent completed the sale of its commercial vehicle operations business June 28 and sold its off-street parking business July 10. A deal for company’s HR consulting business, for which a buyer was announced in May, has not yet closed. The company also said it was selling its local government services business. All told, the company said it expects $600 million from those deals.

Conduent is also shopping for a buyer for 15 customer care contracts worth about $500 million.

On the earnings call, Vemuri also spoke about what he is doing to help boost the company's overall business, which includes increasing the number of sales personnel to drive revenue, an effort he said is beginning to pay off.

“The investment in sales [personnel] ... continues to happen,” he said. “I think early signs of their productivity are reflected in the new business pipeline, it's reflected in the renewal rate and the pivot that we are successfully making into digital interactions using our platforms.”

Vemuri said he is encouraged that renewals are high, with 99 percent of customers opting to continue to do business with Conduent. That, he said, creates more revenue opportunities.

“This level of strong renewals gives us the opportunity to cross- and upsell in our installed base,” he told investors. “So there are two elements to this. Unless and until I have strong renewals and a sustenance and continuation of business in my installed base, I don't have the opportunity to cross- or upsell in that particular portfolio, which in my particular case is very rich. Having said that, we also need to drive new business growth.”