Unisys Corporation New

Good day, everyone, and welcome to the Unisys Corporation second quarter 2021 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. To ask a question, you may press star, then one. Please note that this conference is being recorded. I would now like to turn the conference over to Courtney Holbin. 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 second quarter 2021 financial results. I'm joined this morning to discuss those results by Peter Altebeff, our Chair 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 related to our second 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 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 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 post-retirement, debt exchange and extinguishment, and 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. For more information regarding these metrics and related adjustments, please see our earnings release in our Form 10-Q. 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 as UNISIS 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, everyone, and thank you for joining us to discuss our second quarter results. We achieved double digit year over year revenue growth and significant year over year improvements to profitability and cash flow. We executed against our strategy for sustainable growth and margin expansion that we described during our January investor presentation, which was enabled by our strengthened balance sheet. Progress in the quarter against our key strategic goals included advancing our DWS transformation, broadening our cloud capabilities, and expanding our enterprise computing solutions. I would note that enterprise computing solutions, or ECS, is a new name for the segment previously referred to as ClearPass Forward. This is a change to the segment name only, not to the ClearPass Forward product line. Mike will provide detail on our financial performance and accomplishments, but first I will give some insight into the business. Starting with Digital Workplace Solutions, or DWS, our goal has been to transform this business to focus on higher growth and higher margin solutions through broadening our offering portfolio and increasing our focus on experience solutions through a build, partner, buy approach. Our recognized leadership position in the DWS market, supported by our IntelliServe platform, world-class delivery capabilities, and NPS scores consistently and significantly above IT services averages positions us to achieve these goals. The second quarter continued our work laying the foundation for a sustainable growth through execution against this strategy with a focus on maturing and enhancing our solution portfolio. Speaking of organic developments, we are building out additional solutions to support cloud-native virtual desktop interface within Workplace as a Service and are hiring new consultative resources to expand our transformation services capabilities all within DWS. We also continue enhancing the automation and artificial intelligence capabilities in our solutions, including completing the migration of all Service Desk clients to our Cloud Contact Center platform as of April. allowing for increased usage of conversational AI solutions in voice and chat, and expanded deployment of all of our IntelliServe automation capabilities for these clients. Automation as a percentage of Service Desk ticket volume increased 500 basis points sequentially and 300 basis points year over year in the second quarter. With respective partner developments, we enhanced our modern device management capabilities including by entering into several new partnerships during the quarter. We are already leveraging these new partnerships to create more powerful end-to-end solutions for our clients. We also acquired Unify Square, a unified communications as a service, or UCaaS company, with a focus on seamlessly managing, securing, and optimizing enterprise communications and collaborations. including through partnerships with companies such as Microsoft and Zoom. Unify Square broadens our UCAS portfolio, which is projected to be one of the fastest growing portions of the DWS market. The acquisition also enhances our experience solutions and expertise, which improve the productivity of clients' digital workplaces and deliver higher value than our traditional DWS offerings. Finally, we also see significant cross-selling opportunities as a result of this transaction, especially since the two companies have only one shared significant client. For DWS, during the quarter, one of the largest healthcare providers in the US awarded us a contract under which we will proactively measure and improve user experience, increase productivity of field services and service desk personnel, decrease service tickets, and enhance device and software management with real-time data. A key differentiation in our proposal was our holistic approach to device management and proactive experience capabilities. We also signed a contract with a consortium of US-based energy companies to provide a full range of IT solutions, including digital workplace, application support, and cloud infrastructure with security oversight and protection. Moving to the CNI segment, our emphasis is to grow cloud in our targeted markets. We believe our established credentials, Cloud Forte IP-led platform, and embedded security solutions position us to achieve this goal. During the second quarter, strong revenue growth continued in CNI, with cloud revenue specifically growing 28% year-over-year. In July, we completed a new release of capabilities within the Cloud Forte platform. with improved automation and standard repeatable approaches to increase speed and reliability of hybrid cloud deployments. Security is embedded with cloud capable stealth and AI enabled threat protection and detection and faster remediation. The new capabilities also allow for quicker application releases and advanced Kubernetes and container deployments. By focusing on a secure transition to the cloud, we differentiate ourselves with clients, including a number in the US public sector, as well as with third-party advisors and industry analysts. In addition to existing partnerships with Microsoft, Azure, and AWS, we recently announced joining the Google Cloud Partner Advantage program as a Google Cloud and Google Workspace reseller partner. With respect to client wins, during the quarter, we expanded modernization and security work at the Georgia Technology Authority and with the Virginia Information Technologies Agency, both highlighting our opportunities for add-on work and our continued success with US state government clients. We also signed a contract with the state of Wisconsin that spans both our CNI and DWS segments to provide a cloud-based contact center solution that will improve the experience of how citizens interact with government. Turning to ECS, as I noted, this refers to the segment previously referred to as ClearPass Forward. Our near-term goal for this business has been to grow revenue through expanding and enhancing ECS services while maintaining the stability of license revenue. We believe there is meaningful opportunity to expand ECS services given our relatively low penetration combined with our clients' increasing desire to migrate to cloud and hybrid environments and for a seamless application set that works across these architectures. Clients also need help managing application workflow creation and orchestration in these environments. We are uniquely positioned to help with all of this, given our embedded IP. We recently released a new version of ClearPass Forward with enhanced capabilities and functionality. The new release allows clients to enhance existing ClearPath Forward applications using Python and enhances interoperability with other environments. It also uses enhanced security features, including expanded multi-factor authentication and mobile device facial recognition and fingerprint identification. Our partnership with Microsoft Azure offers another avenue for growth within ECS, as clients migrate to ClearPath Forward cloud and hybrid environments. We recently went live with ClearPath Forward for Azure with a public sector client, and we are in discussions with a number of additional clients. We're seeing early stage traction with ECS services expansion, with revenue from these services up 2% year over year. License revenue in the quarter was also strong, helped by higher volumes than anticipated, which Mike will discuss later. We signed a contract with one of the largest financial services institutions in Brazil during the quarter for consulting and application services for their clear path forward and related application environment, including development and modernization relating to the integration of more than 90 systems to support the institution's mortgage processing operations. Moving to our go-to-market metrics, our efforts across segments resulted in total company TCV being up 50% year-over-year in the second quarter and 24% sequentially. Total company pipeline was up 2% sequentially, though down 3% year-over-year. However, as of the end of July, pipeline was up 8% versus the end of the first quarter this year and 2% versus the end of the second quarter last year. We continue to be recognized for our market leadership in important areas of the business, including being named a leader for managed security services in Australia, Brazil, and the US, and a leader in technical security services in the US, all in ISG's provider lens for cybersecurity solutions and services. In late July, we launched a new corporate website, which we encourage you to visit. It is faster and more user-friendly, giving visitors a richer experience and an easier way to learn about our solutions. We expect the new website to help visitors gain a deeper understanding of the outcomes our capabilities deliver and to lead to additional opportunities for us. And finally, with respect to workforce management, our workforce management initiatives, such as upskilling, rotations, work from anywhere flexibility, and enhanced recruiting efforts have been benefiting us. Although total company last 12 months voluntary attrition was 12.9% in the second quarter versus 10.4% in the first quarter, the second quarter level was 210 basis points lower than the prior year period and 480 basis points lower than the pre-pandemic level in the second quarter of 2019. Our attrition levels have not impacted the ability to meet client demand, in part due to the workforce management initiatives I highlighted. Our open positions filled internally increased 13% since year end 2020. Applicants for open positions increased 30% sequentially. Our time to fill positions decreased 25% since year end 2020. And referral-based hiring has increased significantly relative to last year. So in conclusion, we are energized by the progress we're making toward the goals we laid out at the beginning of this year. I'd like to thank our associates for their continuing efforts. Those efforts not only include with respect to clients, but also include with respect to bringing on friends and others that they know into this company. which shows quite a lot about our existing associates' views of this company. With that, I'll turn the call over to Mike to discuss our financial results.