Earnings Call Transcript - CNDT Q3 2024

Operator, Operator

Greetings, and welcome to the Conduent Third Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Giles Goodburn, Vice President of Investor Relations for Conduent. Thank you. You may begin.

Giles Goodburn, Vice President of Investor Relations

Thank you, operator, and thanks, everyone, for joining us today to discuss Conduent's Third Quarter 2024 earnings. I'm joined today by Cliff Skelton, our President and CEO; and Steve Wood, our CFO. We hope you had a chance to review our press release issued earlier this morning. This call is being webcast, and a copy of the slides used during this call as well as the press release were filed with the SEC this morning on Form 8-K. This information as well as the detailed financial metrics package are available on the Investor Relations section of the Conduent website. During this call, we may make statements that are forward-looking. These forward-looking statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to materially differ from those statements. Information concerning these factors is included in Conduent's annual report on Form 10-K filed with the SEC. We do not intend to update these forward-looking statements as a result of new information, or future events or developments, except as required by law. The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP financial measures and how we use them, as well as the limitations to their usefulness for comparative purposes, please see our press release. And now I'd like to turn the call over to Cliff.

Cliff Skelton, President and CEO

Thanks, Giles. Welcome, everyone, to our Q3 earnings. As we did last quarter, Steve will begin with the financials, and I'll follow with a status report on what's changed in the last quarter and a brief discussion on what continues to make Conduent's balance sheet, solution set and growth expectations unique. But first, the quarter Q3 adjusted revenue and adjusted EBITDA were $781 million and $32 million, respectively, at a 4.1% margin, meeting or slightly exceeding our expectations. This is fully adjusted now for all completed divestitures, and these results continue to validate our previously described game plan for our growth trajectory. New business signings were $111 million with a strong performance in commercial sales, offset with some continued softness in government in parts of our transportation business, where there was less deal activity in the quarter. As you know, there can be lumpiness in sales performance by quarter, but overall, we are on track for a 2024 sales year that meets our expectations. As expected, our net ARR number returned to positive territory. Steve will go deep on all these numbers here in a moment, but here are a couple of key points. We completed the initial phase of the divestiture program we communicated 18 months ago, and we've deployed 75% of the $1 billion targeted against debt prepayment and share repurchases. We've been consistent in our messaging for the last 18 months. We're on a continued path to those 2025 exit rate parameters of lower debt and debt ratios, sequential margin improvement, less capital intensity and top line growth. We will stay on course both strategically and tactically toward a narrower, more nimble, growing company with a clean balance sheet. Finally, with a more simplified board structure, we can now turn our attention on what's next. But first, let me hand it over to Steve to talk about the detailed results for Q3.

Steve Wood, CFO

Thanks, Cliff. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Our reported numbers and the guide for this quarter have been adjusted again for the divestiture of the Casualty Claims business. We've published a full set of historical adjusted financials in our metrics filed, which you will find in the Investors section of the Conduent website. Let's turn to Slide 5. We continued to make progress in the quarter with our divestiture plans, completing the third transaction of 2024 with the closure of the sale of our Casualty Claims business, receiving $224 million. Gross proceeds on these three transactions were approximately $865 million, with approximately $60 million still to be received between Q4 this year and April next year. Overall, net proceeds will be approximately $780 million. This is right at the top end of the range I outlined for this initial set of transactions. I said 18 months ago that we were targeting $1 billion of deployable capital. And to date, we've deployed approximately 75% of that, buying back a total of approximately 61 million shares and prepaying $539 million of term loans with a further authority to prepay another $125 million, which we'd expect to do in the fourth quarter. Let's now turn to Slide 6 and 7 and review our key sales metrics. Q3 was a strong sales quarter within the Commercial segment, but this was offset with a lighter quarter in the Government segment, where there was less deal activity. And so our overall ACV attainment of $111 million was slightly below our expectations. We see the full year outcome being in the range of $500 million to $550 million of ACV. Within that estimate, there are a couple of larger deals in our public sector market where precision in predicting timing can be an issue. Within Commercial, we're expecting to see a strong finish to the year. Our clients continue to look to us for solutions to address cost, drive technology upgrades and business transformation through outsourcing, both in the CX and BPaaS spaces. We have a strong set of horizontal offerings in our commercial businesses that give us a breadth of capability to provide technology-led BPO solutions end-to-end across our clients' value chains from the front office to the back office. On Slide 7, you'll see that our net ARR metric rebounded this quarter. We'd expect to finish the year with this metric somewhere around $100 million. Now let's turn to Slide 8, and discuss our Q3 2024 financial results. Adjusted revenue for Q3 2024 was $781 million as compared to $831 million in Q3 2023, down 6% year-over-year. This is in line with our expectations and my guide from last quarter when adjusting for the removal of the Casualty Claims business. The causals are consistent with the last couple of quarters with runoff from lost business, partially offset with new business ramp and that gap continuing to narrow. Adjusted EBITDA was $32 million for the quarter as compared to $60 million in Q3 2023. And the adjusted EBITDA margin was 4.1% for the quarter as compared to 7.2% in Q3 2023. Again, this conforms to our guide adjusted for the Casualty Claims business. It's also sequentially up, which again, we expected as we get into our cost work around the removal of standard costs from the divestitures and our other efficiency programs. We expect this sequential climb in the EBITDA margin now each quarter as we progress through the remainder of 2024 and into 2025 and towards the exit rates we outlined. Turning to the segment results on Slide 9. For Q3 2024, Commercial segment adjusted revenues were $385 million, down 3% as compared to Q3 2023. The top line story for the Commercial segment this quarter continues to be one of working off the effect of some prior year lost business, which is starting to work out of the compare. We expect the growth gap to narrow sequentially due to improving sales performance and retention and the segment coming closer to flat as we move through the first half of 2025 with growth towards the second half of 2025. Adjusted EBITDA for the Commercial segment in Q3 2024 was $35 million, up approximately 21% as compared to Q3 2023. And the adjusted EBITDA margin of 9.1% was up 180 basis points year-over-year, driven by sales ramp and continued cost efficiency. For the Government segment, Q3 2024 revenues were $255 million, down approximately 12% as compared to Q3 2023. This is in line with the 3 discrete drivers I outlined last quarter. Adjusted EBITDA for the Government segment in Q3 2024 was $60 million, down 37% year-over-year. The discrete items from last quarter's narrative remain what drives this as well as some short-term elevated expenses related to a couple of implementations that should normalize later in the year. Transportation segment adjusted revenues in Q3 2024 were $141 million, down approximately 2% year-over-year. The implementation ramp from our large transit project in Australia was $23 million, offset by our long anticipated reduction in scope and pricing adjustment for a large, long-term client in our tolling business. The Transportation segment adjusted EBITDA was breakeven in Q3 as compared to $3 million in Q3 2023. The primary driver here was revenue mix, specifically with the two contracts noted previously and partially offset by some improved operational performance. There's been a margin reset within Transportation because of the divestiture of the curbside and public safety businesses. And this is one area where we have several initiatives underway to remove stranded costs, drive incremental operating efficiency and continue to build scale back into our tolling and transit businesses with new leadership now in place. Let's turn to Slide 10 and discuss the balance sheet and cash flow. We ended the quarter with approximately $400 million of total cash on balance sheet and our $550 million revolving credit facility was largely undrawn. We repurchased 3.9 million shares and have now completed this previously approved program. We made prepayments on debt of $75 million, which included voluntarily prepaying the remainder of our Term Loan B and starting to prepay our Term Loan A. We have additional authority to prepay debt up to $125 million from divestiture proceeds on hand and still to be received. We'd expect to use the remaining authority before the end of the year. Our net leverage ratio decreased to 1.4 turns. This ratio will go up over the next couple of quarters as we annualize the divested EBITDA in the calc, partially offset by the sequential recovery in adjusted EBITDA as we work through our stranded cost and efficiency programs. Once this work is completed during the second half of 2025, you'll see this leverage returning to around 1.5 turns and then moving towards the 1 turn that we've outlined in our midterm outlook as we exit 2025. Capital expenditure in the second quarter was 2.5% of revenue, and we expect it to be about 2.8% of revenue for the full year 2024. Let's turn now to Slide 11 and cover our outlook for 2024. Now that we've completed the 3 divestitures we planned for 2024, our full-year guide is adjusted to reflect all of these. In line with how I laid out last quarter, the Casualty Claims Solutions divestiture removed approximately $150 million of revenue and about 1 point of reduction in the adjusted EBITDA margin. Therefore, we now expect full-year adjusted revenue to be in the range of $3.185 billion to $3.215 billion. At the midpoint, that's about a 3% down year-over-year. And we expect adjusted EBITDA margin to be in the range of 3.75% to 4%, which will be towards the top end of the range we previously guided. In terms of other modeling considerations, our adjusted free cash flow is not a fully adjusted metric because we don't break out discrete cash flows at the levels of these divested assets. At this point, we expect the year to land around negative $50 million with around three-quarters of the reduction from last quarter's outlook driven by a handful of billing milestone adjustments on large contracts in our Public Sector businesses. These are timing events, not scope changes, and we expect the milestones to be reached early in 2025. Finally, you'll see capital expenditure reducing here with the effect of the divestitures, again, all in line with the prior outlines I've given you. Moving to Slide 12. This remains our walk to the exit rates in 2025, and we remain confident in achieving these targets. We have a strong pipeline and multiple levers in our cost efficiency work to drive our margin outcomes. We will continue to be opportunistic about the portfolio in terms of additional transactions for the right multiples that could continue to enhance value. Special thanks to all my teammates who worked really hard to deliver on this initial phase of our divestiture program. That concludes my financial remarks for the quarter, and I'll hand it back over to Cliff for the broader business update.

Cliff Skelton, President and CEO

Thanks, Steve. Now let's turn to Slide 14 to talk about what's changed over the last quarter, what we've been working on and some trends, a status report of sorts. We have consistently stated that building a solid foundation of operational stability was foundational and precedent to growth. We're now at a stage where new leadership with enhanced relationships is necessary. We've hired three key executives to help us make this pivot. Mike McDaniel joined us from DXC and previously Accenture. He now leads our commercial businesses as Group President. Anna Siever joins us from Magellan Federal and previously MAXIMUS. She is now leading our Government business as President. And Scott Copeland joined us from Cubic as our new leader for tolling, part of our Transportation sector. Meanwhile, we see continued improvement in both employee and client retention, and our sales pipeline remains strong with a renewed appetite for offshoring to drive efficiency for our commercial clients. A year ago, we experienced strong sales performance from our Government businesses, and our Commercial performance lagged. This year, we see the opposite. This is where a diverse portfolio can take advantage of economic and policy swings. We believe that while the pipeline is strong end to end, our commercial businesses will continue to outperform. Within Transportation, we're progressing well in our largest implementation in the state of Victoria, Australia, and believe upon completion that will have quite an impressive state-of-the-art account-based ticketing system, among other solid attributes. Net-net, while Commercial is experiencing a year of solid relative performance, overall pipelines across all of our business lines are in good shape. Finally, divestitures. In this regard, our journey is not over. We see ongoing opportunities to further enhance our balance sheet, become more nimble and better focused investments and bandwidth. More to come here, but our Board of Directors is fully supportive of our plan and ongoing efforts. Now let's turn to Slide 15 to go a little deeper on that diverse portfolio I alluded to. Slide 15 is a snapshot of where Conduent is today. This is a very different picture than we would have been able to present just five years ago, and we've made a lot of progress. Our exit rates for revenue and margin percentages are consistent with how we've been narrating this journey for the last 18 months, as is the expected rate at which we estimate we can grow our new business sales. Conduent has a high base of recurring revenue. Approximately 90% reoccurs each year. So as long as volume stays constant, sales stay the course and churn continues to slow. We are growing as expected. We have client relationships in 46 of the 50 states in the public sector, and we service approximately 50% of the Fortune 100. Our top 20 clients have an average tenure of 20 years. The most significant opportunity is in those large commercial clients where cross-selling is available. We've worked very hard over the past four to five years to drive meaningful improvements in the things that are most important to our clients. And our Net Promoter Score, or NPS, is now up 30 points. How this translates into financial outcomes is through improved client retention, which is 40% improved since 2021. The inverse of this is annual churn, and we've seen that come from a rate of over 11% to around 7% and line of sight to that going lower. Our near-term target is to be below 5%. All of the above is testament to the work we've done to stabilize our company, and we're positioned well for growth as we move into 2025. Importantly, the divestiture work we've done over the past 18 months has resulted in approximately $780 million of after-tax proceeds, which we've deployed to strengthen our balance sheet through prepaying debt as well as repurchasing around 25% of our outstanding shares. Even after this initial round of divestiture work, we still have a very rich portfolio of assets across our businesses with over 90% of our solutions underpinned by proprietary technology, and over 500 patents across key technology capabilities, including automation, analytics, AI, digital payments and mobility. I'd like to take a few minutes to recap on how we're thinking about those assets on Slide 16. At this point, our Commercial segment represents about 51% of the overall business from a revenue perspective. And we think about the solutions broadly in two categories. We have a rich set of horizontal BPO capabilities at the core of our commercial business that can be deployed across multiple industries. These are our cross-industry solutions. Our attach rate across clients here is approximately 1.6 solutions for a top 200 on average, and we expect to drive that higher with more dedicated efforts around cross-sell. Our CX business is almost exclusively focused on higher-tier work, more complex work, if you will, where continuum of service is important and quality is a primary KPI. Nearly half of our clients in this area have other Conduent products and solutions. Given the complexity of the work we support, we continue to see the evolving AI landscape as one that will augment agent performance, not replace it. We see this business as the tip of an integrated sword and don't think of this business as a competitor with a traditional customer experience company. Our industry-specific solutions or platform assets that support key business outcomes for our clients unique to a particular industry, including loan servicing, e-discovery analytics, health care claims and specialty drug eligibility. Across our Commercial business as a whole, more than one-third of our revenue comes from the healthcare client vertical with financial services, auto, travel and logistics being other important verticals. But healthcare is where we stand apart from other BPOs as a ubiquitous provider of service because healthcare is not only an industry where many can play, but it's also a set of products where fewer can play. We bridge those gaps unlike others in the field. As we continue to develop our Commercial business, we see further opportunity to reshape the portfolio, narrowing in some places, partnerships and tuck-ins in others as well as continuing to work on the onshore to offshore mix to improve margins. Let's turn to the Government and Transportation segments on Slide 17. Our Government and Transportation segments combined to make up approximately 49% of our revenue. We continue to believe that our assets in the public sector have strong defensive characteristics against broader macro headwinds. And therefore, having to set up businesses that address public sector markets continues to make sense. Government and Transportation can be thought of in three unique set of solutions, government healthcare technology and servicing for primarily state distributed Medicaid services, state and federal benefit payments distribution, primarily through open and closed-loop prepaid cards, and tolling and transit services within our Transportation business. Each of these business areas are unique. The overall contract length is typically longer than in the Commercial businesses, and the government margins are certainly superior. The buyers within state governments and agencies are often independent from one another, and the work itself is different. For example, government healthcare is primarily a technology play, government eligibility and enrollment is primarily a service play, electronic benefits card program is a closed-loop prepaid card program, and payment card programs are an open-loop program, branded primarily by Mastercard. Tolling is primarily a technology and servicing business, and transit is primarily an equipment and technology business. We think about our Commercial business as a business with embedded technology, whereas our public sector businesses are technology businesses with embedded service capabilities. Now let's turn to Slide 18 to wrap up. Across all these businesses, public and commercial, we're infusing new talent to continue to drive growth and optimize margins, as I've previously discussed. We've demonstrated over the past 18 months through our divestiture work that there's significant value in the underlying assets that make up Conduent. We will continue to look at the portfolio through the lens of maximizing shareholder return, be that through running, combining or in certain cases, monetizing assets within what is still a very broad portfolio. There's a lot of trapped value in this diverse portfolio. The key is to focus and increase scale organically or inorganically to compete with fewer peers, allowing for more simplicity and more optimized bandwidth utilization. I'm confident we have Conduent on the right trajectory, moving our business to sustain top-line growth, sequential margin improvement, less capital intensity and improved cash flow conversion. As always, I'd like to thank our shareholders, our clients and our 55,000 associates for their support. Thank you, everyone, for listening, and I'll now turn it back to the operator for questions.

Operator, Operator

Our first question comes from Pat McCann with NOBLE Capital Markets.

Pat McCann, Analyst

Congrats on the quarter. I was just going to ask about the election results. Of course, that's on everyone's mind today, I think. And I was just wondering if you could comment a little bit on how you view Republican versus Democratic administration when it comes to how it affects the various business units, when you look at the potential effects of maybe change in regulation on your Government segment versus what might occur for your Commercial segment. Just wondering if you had any thoughts on how the election would affect your business units for good or for bad?

Cliff Skelton, President and CEO

It's a great question. I think our business, particularly in the Public Sector, mainly focuses on entitlement and Transportation sectors, which are rarely influenced by political changes. Occasionally, there may be shifts in policy regarding subsidies that could impact revenue in the Public Sector, but overall, the business remains fairly stable. When I joined at the end of the first Trump administration and during the four years of Biden/Harris, we noticed minimal differences in how these changes affected our operations. Therefore, from a revenue and sales standpoint, we remain largely unaffected. As a corporation, we do face impacts from corporate tax rates, among other factors, but overall, we believe there will be no significant effect on our goals.

Pat McCann, Analyst

Great. And just my other question was regarding the MMIS business. I was just curious if you could dig a little deeper into that specific business as far as states doing RFPs. And it just seems like a nice opportunity for you in that Medicaid management information systems. And I was just wondering if there's anything you could say about the timing of new contracts and how soon maybe more states will be looking to pick new vendors for that?

Cliff Skelton, President and CEO

There are numerous opportunities in that area. While I can't specify the exact timing for any particular state or the RFP scheduling, I can say that when CMS mandated modularity, it significantly changed the MMIS landscape. It is no longer just a massive RFP for everything. There are several opportunities across the five or six different modules in the MMIS suite, such as financial, enterprise data warehouse, claims, and pharmacy modules. The positive aspect is that these RFPs are usually issued separately, creating a consistent stream of opportunities. The key to success in this business, which is mainly technology-focused, lies in reducing our reliance on RFPs and instead building relationships with decision-makers in the states. This will enable us to secure sales when the RFPs are released because once they are issued, the process is heavily regulated. We see significant growth potential there, and we need to pursue it actively.

Operator, Operator

Our next question comes from the line of Marc Riddick with Sidoti & Company.

Marc Riddick, Analyst

So I was wondering if you could start with the thoughts around the portfolio rationalization and kind of where we are there and whether sort of maybe what inning we're in or thoughts as to the divestiture program and what might be further ahead at this point?

Cliff Skelton, President and CEO

Yes. Well, the inning to the baseball analogy is an interesting one because I can't tell whether we're going to go to extra innings or not. But what I can tell you is that we see opportunities continuing. In other words, there's good bones in this portfolio. There's still a lot of scarcity value in this portfolio. We still believe that our portfolio is too wide. We still believe that narrowing it can help us get more nimble. And so I would say that we're going to be opportunistic and continue to be opportunistic into the future with respect to portfolio rationalization and certainly what we do with the proceeds. But the game, to use your analogy, is not over. We're not in the ninth inning.

Marc Riddick, Analyst

It seems like from your previous comments that you believe there are opportunities for growth in the pieces you have, and there may still be avenues to explore if you decide to pursue them. Is that a fair interpretation?

Cliff Skelton, President and CEO

Generally speaking, we believe that everything has the potential to grow. However, we need to assess whether we have the necessary resources, depth, and scale to achieve that growth at our desired pace. The answer is not always favorable. This consideration influences our decisions on how to manage and optimize our portfolio. While there’s no doubt about the need for overall growth, we recognize that growth rates, investment requirements, and leadership capabilities vary across different areas. Therefore, we will evaluate our portfolio to determine the best approach. Steve, do you have anything to add?

Steve Wood, CFO

No, I would just like to add that over the last 18 months, we have divested three distinct assets at appealing multiples. We successfully carved them out and found strategic buyers who were able to integrate them effectively into their businesses. As Cliff mentioned, there is still a strong portfolio of assets remaining, and some of these assets align well with our concept of horizontal solutions in our Commercial business, as well as with certain assets in the public sector markets. We will remain opportunistic, looking for the right balance between what works together in our portfolio and what might yield attractive multiples externally. As Cliff noted, this will continue to be an important strategy as we work to achieve our business goals.

Marc Riddick, Analyst

I appreciate the insights shared in the previous question regarding the national political implications. I'm curious if there are any developments at the state or local level, such as races or results, that you believe we should monitor for the future.

Cliff Skelton, President and CEO

Most of our public sector contracts are with states, and these states typically strive to do what is best for their constituents, regardless of political affiliation. There are occasional situations, such as with SNAP, where if federal funds are no longer available, states might hesitate to fully cover SNAP payments. We're sometimes observing trends related to which states, whether red or blue, may be more or less supportive. However, that situation has mostly stabilized now. Unless you have something to add, Steve, I don't believe there is anything from the recent election that will influence our business operations.

Steve Wood, CFO

Yes, Marc, I would add to that. As we think about that state government business and technology needs, the CMS mandate, everything that they've got to do out there to upgrade technology, figure out how to get stuff off mainframes, figure out how to get stuff into the cloud. There's a lot of work that's got to go on over multiple years, and we play very nicely in our state government business into many of those themes. Most of the programs, almost all of the programs that we run, you would regard them as being critical programs. They're not at the edges of policy. They're about maintaining critical core services to constituents. And so our Government business is right over the target of being positioned to play very nicely into a lot of technology functionality upgrades that have got to go on in those state infrastructure programs around health and supporting citizens for many years to come. And that's a far more important base tailwind to this business than an election result.

Cliff Skelton, President and CEO

There would need to be significant changes in government spending on programs like Medicaid, social security, unemployment insurance, and VA benefits. Even if changes occur, it will take a long time to see their effects. Therefore, these entitlement programs are unlikely to generate immediate revenue for us, which is primarily where our income comes from. We believe we are on a steady path forward.

Operator, Operator

Our next question comes from the line of Chris Sakai with Singular Research.

Chris Sakai, Analyst

As we look out towards 2025 and your targeted exit rate, can you provide more color on the key drivers of margin expansion? Specifically, how much of the anticipated improvement is expected to come from the removal of stranded costs versus operational efficiencies or revenue growth?

Steve Wood, CFO

Yes, certainly. On Slide 12 of the presentation, I want to emphasize the key aspects. We have $50 million in stranded costs related to the divestitures, all of which has been identified, and we already have plans in place for most of it as we move through 2024 and into 2025. We are also targeting an additional $50 million in cost efficiencies across the business, which is a typical goal for a company of our scale, given that we are looking at a $3 billion cost base. Achieving this level of expense efficiency should not be too difficult, especially as we continue to explore ways to optimize our portfolio. The margin expansion will come from specific, well-understood pricing strategies and adjustments to our mix, including the shift from onshore to offshore operations. We have distinct pricing strategies we intend to pursue to enhance our margins. Additionally, the transition to our targeted exit rate will benefit from natural growth as we see an increase in top-line revenue. Those are the four main components outlined on that slide, and that's how you can understand the progression.

Chris Sakai, Analyst

Okay. And the loss of the government health care contract had a pretty good impact on Q2 results, and it's expected to continue affecting performance through Q4. Are there any similar high-impact contracts up for renewal in the near term that investors should be aware of? And how are you working to mitigate potential losses?

Steve Wood, CFO

Yes, I'll address the second part of your question first. We're seeing an improvement in our churn rate, which has decreased from a historic 11% to 7%, on our way to reaching 5%. This is a positive indicator for us and demonstrates the significant efforts we've made over the past four to five years to stabilize all aspects of our business. We've undertaken critical work that has led to increased client retention, giving us the confidence that our sales teams can continue to drive growth. Regarding the second part of your question about the MMIS, the drivers I mentioned last quarter related to the three components of our Government segment, including the MMIS contract, continue to influence our margin outlook. Everything is accounted for, and after we annualize those impacts, we expect to see margins stabilize. With growth, we anticipate further expansion.

Cliff Skelton, President and CEO

Chris, I don't believe you can identify any single factor like renewals as an indicator of future trends. The direction we are heading is influenced by several factors including volume expectations, the renewals you mentioned, additional volume from our existing portfolio—where we have room to grow in the commercial space—and new business sales. These are counterbalanced by project revenue decline and losses. We believe that when we consider all these elements together, we can anticipate an exit rate that remains positive when everything is factored into the calculations.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session, and that concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.