Unisys Corporation New

Good morning, everyone, and welcome to the Unisys Corporation first quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please send to 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 at that time, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Courtney Holbin, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you, Operator. Good morning, everyone. This is Courtney Holbin, Vice President of Investor Relations. Thank you for joining us. Yesterday afternoon, Unisys released its first quarter 2022 financial results. I'm joined this morning to discuss those results by Peter Altibeth, 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 relating to our first quarter performance on our investor website. which we encourage you to visit. Third, today's presentation, which is complimentary 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 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 net income, and 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 and 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 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 first quarter results. Our strategy is gaining traction. Clients and prospects are responding positively to our expanded and enhanced solution portfolio, demonstrated by increased ACV and pipeline year over year. First quarter financial results were impacted by anticipated ECS renewal timing and the exiting of non-strategic DWS contracts in 2021. but we're largely in line with our expectations. Broad market knowledge of our higher value offerings is growing, and we expect our marketing and sales efforts to further increase awareness and differentiation. While there is still work to be done to achieve our goals for the year, we are encouraged by the significant increase in new business signed in the first quarter and are excited by the prospects for the business. Mike will provide detail on our financial performance, but first I'll give some insight into the business. Starting with Digital Workplace Solutions or DWS, we expanded and enhanced this business significantly in 2021 to offer higher growth and higher margin user experience based solutions. We are winning contracts with new clients looking to transform the digital workplace with DWS ACV growing 65% year over year in the quarter. While our financial results in the quarter were impacted, by non-strategic contracts exited in 2021, given the robust industry demand for DWS, we believed there is significant opportunity with new clients. During the quarter, we continue to upgrade our solutions to better meet client needs. We matured our experience model office or XMO offering, and now have multiple clients under management with several others in implementation stages. We are also integrating increased automation into our offerings, including within experience as a service and PowerSuite. For instance, in our PowerSuite collaboration security and governance tool, we are automating end user compliance to eliminate the need for interaction with IT support. This will improve user productivity while ensuring compliance with changing global governance needs and unique regional requirements. We have also enhanced our analytics solution, which helps clients assess their user experience progress and helps us improve our productivity and ultimately our margin. As I mentioned, broad market knowledge of our higher value offerings is growing. Industry analysts such as Gartner, IDC, Everest, ISG, and HFS are recognizing our digital workplace solutions transformation. And we were recently named as an innovator by Avisat in their multi-sourcing service integration. During the first quarter, we were also nominated as finalists in six Service Desk Institute award categories, and we were the winner in two, in both cases, the most of any provider. Additionally, our Global Service Desk was recently certified through the Help Desk Institute's IT Support Center Certification Program. which validates the maturity of our advanced capabilities. Client receptivity to our DWS portfolio has been highlighted by multiple recent contracts for our full suite of solutions, which include modern device management, proactive experience, seamless collaboration, intelligent workplace services, and workplace as a service. For example, during the first quarter, we signed an expansive new logo DWS contract with a global technology company that engineers consumer products and goods. As an example of success with cross-selling, during the quarter, we signed a contract with a major Latin American financial institution that was already an ECS client to provide a wide range of secure digital workplace solutions, as well as cloud and infrastructure solutions. And that client win is a good segue to discussing our cloud and infrastructure solutions business, in which we drove year-over-year revenue growth during the first quarter. CNI revenue grew 7% year-over-year, and cloud revenue specifically grew 43% year-over-year. CNI ACV also grew significantly in the quarter and was up 75% year-over-year. As with DWS, we believe that there is significantly more opportunity to grow our cloud and infrastructure business. During 2022, we are focusing our capability development efforts in this segment on enhanced cloud-native application development, cloud security, and artificial intelligence machine learning operations. During the first quarter, we refined our DevSecOps framework, aligning the application's lifecycle capabilities across Unisys and also aligning with hyperscaler-based microservices. We also now have our IT service ops automation development engine in place, as well as our service intelligence platform. And we are leveraging data analysis to help our clients detect and analyze problems in their IT environments. As an example, during the quarter, we signed a contract with a global marketing and communications company to migrate the client's largest European data center to the public cloud, supporting that client's strategy of increasing operational efficiency, security, and agility. Turning to Enterprise Computing Solutions, or ECS, our goal has been to grow revenue through expanding the ECS ecosystem while maintaining license revenue stability. During the quarter, we took steps to help clients modernize their ClearPath Forward operating systems by releasing a new version of our agile business suite development environment with increased platform interoperability. We also are expanding some of our key industry solutions to address the diverse workflow-centric needs of our clients. For instance, in travel and transportation, we launched the development of expanded data analytics capabilities within our cargo solution that we referenced on our last call. During the first quarter, we signed a renewed and expanded contract with a provider of information technology services to the air travel and tourism industry in Asia. We also signed a new scope contract with one of the UK's largest financial services organizations to deploy new servers which double their infrastructure and strengthen their digital resiliency. As we look across the company, our client wins indicate that the transformation of our solution portfolio and go-to-market approach undertaken during 2021 is gaining traction and leading revenue indicators grew significantly during the first quarter. Total company ACV grew 43% year over year, supported by the growth I noted in ACV for DWS and CNI. Total company TCV was also up 5% year over year in the quarter, Although given clients increasing preference for shorter duration contracts, we are providing more detail on ACV. Total company pipeline grew 31% year over year and was up 24% sequentially. DWS pipeline increased 14% year over year and 29% sequentially. Within that, the pipeline of targeted end user experience solutions more than doubled sequentially and year over year. CNI pipeline grew 40% year over year and 28% sequentially. Within that, cloud-specific pipeline more than doubled year over year and increased 43% since year end. We are pricing new contracts to offset anticipated cost increases related to the competitive labor market. And the weighted average expected gross margin associated with contracts signed in the first quarter was higher than the prior year period. We see more upside for our go-to-market activities. Broad market awareness of our expanded and enhanced solution portfolio is growing. We are increasing our third-party advisor and industry analyst team. to help generate advocacy and increase the quality and size of our pipeline. We are also expanding our direct and indirect sales teams to generate new clients, accelerate our market penetration, and grow pipeline and ACV. We are deploying an account-based marketing strategy to target our highest value prospects with a focus on closing contracts with new logo clients. We have activated targeted cross-selling campaigns across our existing client base to increase revenue from this group. We're also driving increased awareness through a digital advertising campaign focused on our DWS and CNI business that launched in the fourth quarter of last year. Further to this end, our new branding strategy effort is underway. Once this is rolled out, which is expected to be in the second half of this year, it will differentiate Unisys in the market and increase brand awareness. Turning to workforce management, as we all know, the market for talent is highly competitive. Our voluntary attrition in the first quarter on a last 12-month basis was 18.6%, a slight increase from corresponding pre-pandemic levels of 17.2%. Our talent attraction and retention initiatives are helping address the competitive nature of the market, and we expect voluntary attrition to stabilize over 2022. Our focus on creating opportunities for our associates through internal mobility and upskilling programs resulted in a 30% internal fill rate for the first quarter, above our goal of 28% for the year. We are also leveraging referral-based hiring, which increased to 22% in the first quarter, continuing the positive trends of increasing every year since 2019. With respect to wage inflation, we continue actively reviewing our workforce and focusing compensation adjustments on the capabilities and roles that have been identified as critical in achieving our short and long-term strategic goals. Turning to ESG, our increased focus began to be recognized in 2020 when ISS upgraded us to prime status. During the first quarter of this year, we received an upgrade from MSCI to an A rating, and this month we were upgraded to a gold rating by EcoVedas, putting us in the 94th percentile of companies ranked. We also met and exceeded our 2026 objective for a 75% reduction in greenhouse gas emissions, achieving this objective five years early with an 80% reduction. We are now turning to our net zero goal on which we will provide more color next quarter. In conclusion, we are seeing positive receptivity to our solutions. We have more work to do to increase awareness, and we believe our marketing and sales initiatives will be important in accomplishing this objective. With that, I'll turn the call over to Mike to discuss our financial results, although first I would like to take this opportunity to thank him. for all of his contributions to the company in his role as CFO, as this will be his final earnings call in that position. As we previously announced, we have now hired a new CFO, effective May 2nd, and Mike will transition to his new role as president and COO. I am confident that the leadership, deep company expertise, commitment to excellence, and collaborative spirit Mike has demonstrated as CFO will position him for success as he takes on his new role. And I look forward to working with him in this new capacity. We are also excited to welcome Deborah McCann as Chief Financial Officer to succeed Mike. Deb will join us next week from Dun & Bradstreet, where she most recently served as Treasurer and Senior Vice President of Investor Relations and Corporate FP&A. Deb brings significant experience in providing financial guidance, to complex public and global multi-billion dollar organizations across a variety of industries, including technology, services, data, and telecommunications. I know she is looking forward to working closely with our investor community as we continue to advance our company. With that, over to you, Mike.