Unisys Corporation New

Good day and welcome to the Unisys Corporation third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Courtney Holben, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. This is Courtney Holben, Vice President of Investor Relations. Thank you for joining us. Yesterday afternoon, Unisys released its third quarter 2020 financial results. I'm joined this morning to discuss those results by Peter Alciba, our Chairman and CEO, and Mike Thompson, our CFO. Before we begin, I'd like to cover a few details. First, today's conference call and the Q&A session are being webcast via the Unisys Investor website. Second, you can find the earnings press release and the presentation slides that we will be using this morning to guide our discussion, as well as other information relating to our third quarter performance on our investor website, which we encourage you to visit. Third, today's presentation, which is complementary to the earnings press release, includes the non-GAAP financial measures. The non-GAAP measures have been reconciled with the related GAAP measures, and we've provided reconciliations within the presentation. Although appropriate under generally accepting accounting principles, the company's results reflect charges that the company believes are not indicative of its ongoing operations and that can make its profitability and liquidity results difficult to compare to prior periods, anticipated future periods, or to its competitors' results. These items consist of pension, debt exchange, and debt extinguishment, cost reduction, and other expense. Management believes each of these items can distort the visibility of trends associated with the company's ongoing performance. Management also believes that the evaluation of the company's financial performance can be enhanced by use of supplemental presentation of its results that exclude the impact of these items in order to enhance consistency and comparativeness with prior or future period results. The following measures are often provided and utilized by the company's management, analysts, and investors to enhance comparability of year-over-year results as well as to compare results to other companies in our industry. Non-GAAP operating profit, non-GAAP diluted earnings per share, free cash flow and adjusted free cash flow, EBITDA and adjusted EBITDA and constant currency. In addition, this quarter we will be continuing to report non-GAAP adjusted revenue and related measures as a result of certain revenue relating to reimbursements from the company's check process and JV partners for restructuring expenses included as part of the company's restructuring program. For more information regarding these adjustments, please see our earnings release and our Form 10-Q. From time to time, Unisys may provide specific guidance or color regarding its expected future financial performance. Such information is effective only on the date given. Unisys generally will not update, reaffirm, or otherwise comment on any such information except as Unisys deems necessary, and then only in a manner that complies with Regulation FD. And finally, I'd like to remind you that all forward-looking statements made during this conference call are subject to various risks and uncertainties that could cause the actual results to differ materially from our expectations. These factors are discussed more fully in the earnings release and in the company's SEC filings. Copies of those SEC reports are available from the SEC and along with the other materials I mentioned earlier on the Unisys Investor website. And now I'd like to turn the call over to Peter.

Thank you, Courtney. And good morning and thank you for joining us to discuss our third quarter financial results. We continue to hope that you, your families, and friends are safe and healthy. Our financial results improved significantly versus the second quarter, and we took meaningful steps to improve our pension structure. While keeping a sharp focus on near-term goals, we have also been enhancing the productivity of our operations and focusing on higher margin, higher growth segments of the market to drive the business going forward. In addition to our overall operational productivity enhancements, We were pleased to see that the recovery from COVID related impacts continued in the third quarter. The combination of these factors helped drive significant sequential improvement in our key financial metrics and year over year non-GAAP operating profit margin expansion, which Mike will go through in more detail. One element of the financial results that I will highlight is that our services non-GAAP adjusted operating profit margin increased 520 basis points sequentially and has increased 830 basis points since the end of the first quarter this year. This has largely been driven by effectively removing negative synergies following the sale of our US federal business and has also been helped by our ongoing efforts around workforce planning. We are utilizing predictive analytics and near real-time data to optimize the efficiency of our workforce, including through improved labor supply and demand management and skill gap resolution. While these efforts are in early stages, we are pleased to see the improvement to date with the total services cost of labor as a percentage of services revenue down 320 basis points year over year in the third quarter and down 250 basis points sequentially. Moving to revenue in the quarter, factors contributing to our sequential revenue improvement include the increase in monthly tickets in our field services business from approximately 70% of their pre-COVID levels in June to approximately 80% in September. Volumes on the two large BPO contracts that we referenced last quarter increased from 38% and 80% of their pre-COVID monthly levels in June to 57% and 91% respectively in September. Within travel and transportation, our global average daily way bill count increased from 51% of its pre-COVID monthly volumes in June to 68% in September. We also saw an increase in sales, with services total contract value signings increasing 4.3% sequentially in the quarter. We have taken significant steps to improve our pension structure and liquidity since the second quarter, including with the notes offering we just priced. Mike will provide more detail on this, but the progress enhances both Our financial and operational flexibility. We have been making improvements to the business to drive efficiencies over time, including the workforce management efforts I noted, as well as increasing the implementation of automation and artificial intelligence and enhancing collaboration tools to increase associate productivity. We also saw sales momentum with our pipeline increasing over 20% sequentially. as a result of increased unsolicited bids to help clients solve their business challenges. This is also a higher quality pipeline as we have been more rigorous in pre-qualifying opportunities and we have enhanced sales training efforts through the implementation of boot camps and investment in more sophisticated training platforms to aid our new digital selling approach. As a result, Our year-to-date win rate was up significantly relative to win rates in the last two years. Within digital workplace services, as we discussed last quarter, we are shifting our focus to higher growth, higher margin segments of the market, such as end-user experience. Intelliserve, which is our artificial intelligence and advanced analytics-powered platform, helped differentiate us within digital workplace services. Intelliserve uses cloud-based, mobile-centric solutions to improve end-user experience and productivity while supporting workforce optimization and reducing IT costs. As an example of how Intelliserve can help clients transform their digital workplace strategy, during the third quarter, we signed a contract with DJO Global Inc., a provider of intelligent medical devices and services. Intelliserve will enable omnichannel service that support to help provide a more affordable and effective experience for DJOs customers. Within cloud and infrastructure, we are prioritizing our cloud efforts enhanced by Cloud Forte, which offers a comprehensive set of cloud services across applications and infrastructure with embedded governance and security to accelerate digital transformation for our clients. During the quarter, we signed a new scope contract with the state of North Dakota. As part of this contract, Unisys will be providing Cloud Forte services related to the Microsoft Azure GovCloud to support that state's unemployment insurance agency. With respect to ClearPath Forward, while we report license revenue in our technology segments, and ClearPass Forward services revenue in our services segment, we think about this business as a franchise with the services inherently linked to the technology. We continue to innovate this platform and enhance our offerings. During the quarter, we announced the general availability of ClearPass Forward from Microsoft Azure. This offering provides our clients with the ability to utilize secure, high-intensity computing in a public cloud environment. This solution creates the opportunity for clients to increase volumes processed by ClearPass Forward systems and to increase their usage of related Unisys services and solutions, such as Unisys Cloud Forte hybrid and multi-cloud services, Stealth and Stealth services. The new work with the state of North Dakota is an example of the power of leveraging ClearPass Forward for Azure with other Unisys services such as Cloud Forte. ClearPass Forward services represents an ongoing opportunity for growth, including application development, modernization, and managed services. We believe all these initiatives will help us maintain our very high ClearPass Forward client retention rate. I have spoken in recent quarters about our ongoing commitment to diversity, equity and inclusion. This quarter, I want to highlight our focus on ESG matters. While environmental, social and governance activities have been important to us for years, during the third quarter, we published our first sustainability report, which is available on our website. Among the targets and accomplishments highlighted in the report We note that in 2006 we announced a goal of a 75% reduction in our absolute greenhouse gas emissions from Scope 1 and Scope 2 sources by 2026. We are currently 96% of the way to achieving this goal and will do so years ahead of schedule. We have achieved a 99% reduction of our hazardous waste generation over the last 20 years. with zero hazardous waste generated across our US operations in 2019. We also recognize the need to expand the impact of our ESG efforts. So we have announced a target of having 75% of our key suppliers disclose their ESG targets and committed actions. Before turning the next section of the call over to Mike, I would like to thank all of our associates for coming together to support each other and our clients this year. As examples, our field services technicians put themselves on the front line, even during the height of the initial wave of COVID-19 to serve our clients. And our sales executives have quickly adapted strategies to achieve success in a more virtual world. We are truly grateful for our associates commitment to Unisys, our clients, and our investors. I am proud of our progress since our last call, and we look forward to continuing to execute in the fourth quarter. Mike, over to you.