Unisys Corporation New

Good day and welcome to the Unisys Corporation's fourth quarter and full year 2020 earnings conference call. All participants will be in a 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 Holden, Vice President, 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, Redisys released its fourth quarter and full year 2020 financial results. I'm joined this morning to discuss those results by Peter Alciba, our Chairman and CEO, and Mike Thomson, 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 in the presentation slides that we will be using this morning to guide our discussion, as well as other information relating to our fourth quarter and full year performance on our investor website, which we encourage you to visit. Today's presentation, which is complementary to the earnings press release, includes some non-GAAP financial measures. The non-GAAP measures have been reconciled to the related GAAP measures, and we've provided reconciliations within the presentation. Although appropriate under generally accepted accounting principles, the company's results reflect charges that the company believes are not indicative of its ongoing operations 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 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 and 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. 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 processing 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-K. From time to time, UNISIS may provide specific guidance or color regarding its expected future financial performance. Such information is effective only on the date given. UNISIS generally will not update, reaffirm, or otherwise comment on any such information, except if UNISIS seems 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 filing. Copies of those SEC reports are available from the SEC and along with other materials I mentioned earlier on the Unisys investor website. And now I'd like to turn the call over to Peter.

Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year 2020 results. We ended 2020 in a strong position with improvements to our capital structure and liquidity and 2020 revenue and non-GAAP operating profit margin that exceeded our expectations. It is an exciting time at Unisys as we have transitioned to our new business unit structure in 2021 with a sharpened focus on higher growth, higher margin markets and solutions. We believe the changes we are implementing will better position the company to drive revenue growth and margin expansion over the coming years. During the fourth quarter, we continued our progress from the earliest COVID impacted quarters of the year with sequential services revenue growth supported by sequential growth in all segments with ongoing strength in public sector, our cloud business and ClearPass Forward services. We also had stronger technology revenue growth than expected based on higher volumes of ClearPath Forward renewals than anticipated. As a result, we returned to year over year revenue growth in the fourth quarter and our full year 2020 revenue exceeded our previously stated expectations. Non-GAAP operating profit margin expanded year over year in the fourth quarter and full year 2020 non-GAAP operating profit margin also exceeded our expectations. We continued improving our capital structure and liquidity during the fourth quarter, about which Mike will provide more detail. As a result, our leadership team is now able to dedicate their full focus to optimizing the business. To this end, we undertook a number of initiatives during 2020 to better position the company, many of which began contributing to results in the fourth quarter. We refined and enhanced our strategy and will be reporting in three new segments, effective as of the beginning of 2021. Digital Workplace Services, or DWS, Cloud and Infrastructure, or CNI, and Clear Path Forward, or CPF. Our business platforms and services revenue and profitability will be reported as other in our results, given the diversity of solutions included in that group. We are targeting higher growth and higher margin markets and solutions with a particular focus on areas where we are recognized as a leader and have a clear differentiation. For instance, we are shifting our focus within DWS from end user services to the higher growth, higher margin end user experience or EUX market, which has a three year expected industry CAGR of seven to 10% versus a zero to 1% expected CAGR for the rest of the DWS market. Within CNI, we are specifically targeting cloud, which typically comes with higher margins. And within cloud, we are focused on public and other highly regulated sectors where we have a strong track record. The expected three year industry CAGR for public excluding federal within CNI is 15 to 18% versus 11 to 12% for the rest of the C&I market. Within CPF, as you would expect, we already have significant share in license, SAS and warranty work, but we are focused on growing ClearPath Forward services, which are the highest margin services in the company. The three year expected industry CAGR for ClearPath Forward services is one to 3% based on a $1.2 billion market opportunity. but we only had 13% of that market as of year end 2020 and we expect to grow that market share. As I said, our financial reporting will track these segments starting in 2021 and our new structure is expected to drive increased internal accountability for delivering results. In addition to business unit initiatives, we are also continuing to implement change across the entire company. During 2020, We enhanced our go-to-market approach with a new digital sales platform, upgraded training and a more proactive sales approach. And we are digitizing and industrializing our delivery and operations. We've instituted new workforce management initiatives and are implementing a new ERP system. We provided more insight on all of this at our recent investor event, the slides and replays of which are available on our newly updated investor relations website, which we encourage you to visit. The go-to market improvements we instituted in 2020 are gaining traction with TCV up 22% year over year in the fourth quarter and 8% for 2020 overall. And we believe the other operational changes I highlighted position us to drive revenue growth and margin expansion going forward. That said, although TCV improved in the fourth quarter, services backlog was down 10.5% year over year to $3.4 billion at year-end 2020, given the COVID-related disruptions to client purchasing decisions earlier in the year. We're also still in the early stages of evolving our DWS offerings to focus more on EUX, which will be a key driver of growth in that segment. As a result, we are guiding to 2021 revenue growth of 0 to 2% with acceleration in growth expected in 2022 and 2023 as we emerge from the COVID impacted period and grow our EUX offerings. We expect cloud and infrastructure to be our fastest growing segment in 2021. DWS is anticipated to grow more modestly in 2021 with stronger growth in subsequent years as I just noted. The Clear Path Forward segment is expected to grow slightly year over year in 2021. Margin expansion is expected to be relatively consistent over the coming years with profitability improvements driven in part by operational efficiencies, some of which are already benefiting us as labor as a percent of revenue was down year over year again in the fourth quarter and for 2020 overall. The transition to higher margin and user experience and cloud revenue is expected to further benefit profitability. We are guiding to non-GAAP operating profit margin of nine to 10% and adjusted EBITDA margin of 17 and a quarter to 18 and a quarter percent, both up approximately 200 basis points year over year at midpoint. Our enhancements to our digital workplace services platform continued during the fourth quarter with integration of new AI, automation, and analytics to provide more proactive detection and resolution of problems aimed at improving end-user experience. We are offering cloud-based virtual desktop as a service through a partnership with VMware to allow enterprises to provide app streaming and virtual desktops to workers as their primary workspace. Through our partnership with Timuron Group, we are leveraging VirtuWork to provide advisory services identifying infrastructure changes needed to allow clients and employees to work anywhere with the same security and effectiveness as when they are in the office. Additionally, the profitability of a number of key DWS contracts improved over the course of 2020. As an example of our work in DWS, during the fourth quarter, we signed a contract with a global healthcare provider for Unisys Intelliserve artificial intelligence and robotic process automation to improve the user experience for 39,000 employees globally. Also during the fourth quarter, Information Services Group or ISG recognized Unisys as a global leader in digital workplace services in their reports on the US, the UK and Brazil. ISG highlighted our Intelliserve digital workplace automation platform as a strength for Unisys, in addition to our industry-focused consulting for the post-COVID world. These recognitions come after being named again to the Gartner Managed Workplace Services Magic Quadrant in North America earlier in 2020. We completed a number of development initiatives in the fourth quarter within cloud and infrastructure to enhance our Cloud Forte solutions platform, including a new release of AIOps that helps optimize cloud infrastructure and improvements to our cloud management platform that accelerates deployments of cloud resources with appropriate security to reduce implementation efforts from several days to a few hours. The new and updated capabilities increase automation of existing and new features leading to enhanced productivity and greater flexibility and agility for our clients. and we plan to continue evolving our cloud offerings over the course of the year. As with DWS, we have also improved the profitability of a number of key CNI contracts over the course of 2020. During the first quarter, we expanded our work for US state government to support the state's workforce model that is quickly shifting to a remote first strategy. We will provide Cloud Forte as the foundation for a virtual infrastructure that will secure sensitive applications and regulated data by preventing users from printing, copying, or downloading data into unsecured devices. In the fourth quarter, as with DWS, ISG also recognized us as a leader in public cloud solutions and services in its quadrant reports on the US, UK, and Brazil. They specifically highlighted Cloud Forte, noting that it provides a comprehensive delivery model leveraging automation, AI, and best practices. We were also named a leader in the December Nelson Hall vendor evaluation for cloud infrastructure brokerage, orchestration, and management in the overall market segment. We were placed in the leader quadrant in all three areas evaluated, overall cloud services, cloud brokerage services, and Cloud Orchestration Services. Going forward, Stealth will be included as part of our cloud and infrastructure business unit. During the fourth quarter, we announced the latest version of Stealth Identity, our biometric identity management software. The new version includes enhanced features such as a managed identity interface that cross references biometric results against records from fingerprint readers, Scanners and other recognition methods for robust positive authentication and a mobile and web accessible software development kit that provides enhanced customization and an improved user experience. Stealth Core 6.0, our micro segmentation solution, is serving as the security foundation for the cloud solutions we are leveraging for travel and transportation and hospitality clients related to COVID testing. With respect to ClearPath Forward, the client demand for these solutions was highlighted again in the fourth quarter with higher than expected volumes on renewals and technology revenue, as I mentioned. As an example, TravelSky, the leading provider of information technology solutions for China's air travel and tourism industry, renewed its contract for ClearPath Forward to process business critical transactions, including passenger reservations, cargo bookings, and load calculations. During the fourth quarter, we extended a contract with our largest ClearPath Forward managed services client. Providing more end-to-end managed services is part of our growth strategy in 2021. Managing a client's full environment enables us to significantly increase the level of services penetration into an account. In closing, I would like to say that I truly appreciate all of the hard work from our associates. under unprecedented conditions during 2020. We ended the year in a strong position, are implementing exciting change, and are poised to drive improved growth and profitability going forward. With that, I will turn it over to Mike to provide more insight into our fourth quarter and full year financial results.