Unisys Corporation New

Good morning and welcome to the UNICEF's fourth quarter and full year 2022 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists 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 on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conversation over to Michaela Paworski, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. This is Michaela Paworski, Vice President of Investor Relations. Thank you for joining us. Yesterday afternoon, Unisys released its fourth quarter and full year 2022 financial results. I'm joined this morning to discuss those results by Peter Altebeff, our chair and CEO, Deb McCann, our CFO, and Mike Thompson, our COO, who will participate in the Q&A session. 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 presentation slides that we'll 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 relations 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 have provided reconciliations within the presentation. I would also like to remind you that all forward-looking statements made during this conference call, including any references to guidance or color regarding expected future financial performance, are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations. These factors are discussed more fully in the earnings release and 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. To the extent that we provide any guidance or color regarding expected future performance Such information is effective only on the date given and UNISIS does not assume any obligation to update this information or any other information presented on this call, except as UNISIS deems necessary and then only in a manner that complies with Regulation FD. With that, I'd like to turn the call over to Peter.

Thank you, Michaela. Good morning and thank you for joining us to discuss UNISIS fourth quarter and full year 2022 results. We had a solid finish to the year, allowing us to hold revenue flat on a constant currency basis during a year impacted by macroeconomic and geopolitical uncertainty. And we closed the year above the midpoint of the revenue and profit guidance ranges we provided on our third quarter call. We believe the fourth quarter is evidence that our approach is working. Our higher growth and higher margin solutions are gaining momentum. This is especially evident when viewing our performance excluding license and support, or L&S, which fluctuates based on the timing of license renewals. To provide investors with increased transparency into the business, we will discuss ex-L&S revenue growth on a quarterly basis. This will be helpful when looking ahead to our 2023 expense performance, which on the surface will show declines in total company revenue, profit margin, and EBITDA margin, due to the light L&S renewal schedule we discussed last quarter, overshadowing the underlying improvement we expect to achieve in our ex-L&S solutions. As we start 2023, we believe the new Unisys brand is resonating with our clients, prospects, third-party advisors, and industry analysts, and our pipeline and TCV trends highlight our strengthening positions. Deb will provide detailed commentary on our financial results overall and by segment, and an update on our U.S. qualified defined benefit plans and other global defined benefit plans. But first, I will discuss our focus areas and provide an update on several important initiatives setting the stage for what we believe will be future growth and margin improvement over the coming years. I'll first discuss our key focus areas, including Modern Workplace, digital platforms and applications, or DP&A, and specialized services and compute, or SS&C, which we have discussed previously. Our key focus areas also include certain micro-market solutions, a subset of our business process solutions, which are highly specialized industry offerings. Going forward, we'll refer to these areas, which are both higher growth and higher margin offerings. as our next-gen solutions. Although next-gen solutions are currently a smaller part of our business, we see an opportunity to generate sustainable growth and margin expansion and drive these solutions to become a larger part of our business and focus of our global sales efforts. The first next-gen solution we are covering is modern workplace, consisting of our proactive, experience-based solutions within our Digital Workplace Solutions, or DWS, segment. The digital workplace has only become more complex as hybrid work models have accelerated. Our modern workplace offerings transform technology support through solutions such as hybrid virtual desktop, advanced services, employee experience, communication and collaboration platform management, and device subscription. Modern workplace is delivered through the integration of managed services, proprietary Unisys IP and third party offerings, and leverages advanced technology such as artificial intelligence and machine learning. We expanded our modern workplace solutions by enhancing our unified communications and unified endpoint management capabilities. We now have an end-to-end portfolio of next-gen experience-based solutions, which we believe is a market-leading portfolio. In the fourth quarter, Modern Workplace Total Contract Value, or TCV, and annual contract value, or ACV, each more than doubled versus fourth quarter of 2021. The second next-gen solution we'll discuss is digital platforms and applications, or DP&A, which consists of our higher growth and higher margin DA&I solutions spanning modern application migration and development, data analytics, cloud management, hybrid infrastructure, and cybersecurity. Clients are investing in these solutions to improve the efficiency and flexibility of their operations and significantly accelerate the pace of product and experience innovation they are able to deliver to their customers, which is becoming table stakes to compete in the digital age. In the fourth quarter, DP&A, TCV, and ACV each more than doubled versus fourth quarter of 2021. The third next-gen solution we'll discuss is specialized services and next-gen compute, or SS&C, which includes highly specialized industry solutions that help analyze and optimize workflows or diversify compute capacity with serverless, edge, and quantum computing capabilities. Our SS&C industry solutions address an opportunity to advance our industry-specific innovations, such as in cargo management, where we have deep expertise. In the fourth quarter, SS&C TCV grew approximately 45% year over year, and ACV grew approximately 65% versus the prior year period. Overall, our next-gen solutions are building momentum in the marketplace, creating pipeline opportunities with new clients, and leading to successful cross-selling with existing clients. In the aggregate, Fourth quarter next-gen solutions, TCV, grew more than 80%, and ACV more than doubled year over year. Before discussing the pipeline in more detail, I want to take a moment to address the 2023 headwinds caused by the renewal schedule we expect in L&S, which we discussed last quarter and which Deb will provide more detail on in a few moments. Changes in timing, or term of renewals from client to client can lead to fluctuations in LNS revenue and consumption based pricing elements also play a role. We expect to see that in 2023. However, our ECS business has certain attributes. First, our relationships in LNS are very sticky. Our technology provides mission critical capabilities for our clients as the operating and computing environment for some of the most vital transaction processing of numerous global financial, travel, transportation, healthcare, commercial, and government clients. Among the clients contributing more than 90% of LNS revenue, client retention is approximately 95%. And these clients have typically had multi-decade relationships with Unisys. Second, we usually have good visibility into client renewal plans. Replacing our technology when that does happen often involves a highly complex multi-year migration and utilizing support from our teams. Third, revenue compliance transitioning away, again, where that happens, typically declines over an extended period or may stabilize for an extended time at a lower level due to migration challenges, cost overlays, or the need to maintain business continuity. The client may even reverse its decision if it finds that costs outweigh benefits. Lastly, We continually make investments in our L&S products and platforms to increase Unisys' value through innovation. In addition, we are investing in our SS&C industry and compute solutions, which we believe will further incentivize L&S clients to partner with Unisys. Turning to the progress we are seeing in our sales efforts, our total book to bill ratio for 2022 calculated as trailing 12-month TCV divided by revenue, expanded to 1.1 times, up from 0.8 times a year ago. And our backlog increased by 230 million, sequentially, to 2.92 billion from 2.69 billion in the third quarter. Importantly, we signed contracts with three of our five largest DWS clients in the fourth quarter, recommitting to their partnership with Unisys, and turning to us to deliver an elevated experience for their employees. We also expanded several CA&I contracts during the quarter. In one case, a large client who relies on Unisys for both DWS and CA&I solutions significantly expanded the scope of the CA&I solutions we provide to them. This client began their multi-year Unisys relationship as a traditional DWS client many years ago. And the win is a strong example of our opportunity to cross-sell and up-sell solutions that span IT functions and consolidate IT transformation for a global organization with tens of thousands of employees. From a pipeline perspective, we're entering 2023 from a better position than a year ago. Overall, our pipeline expanded during the fourth quarter on a year-over-year basis, growing approximately 15% from prior year levels. with single-digit sequential decline due to our high sales conversion in the quarter. Our next-generation solutions grew its pipeline by more than 35%. Please note that when we discuss pipeline, we mean qualified pipeline, which are deals that have already been prospected and vetted. In summary, there is positive momentum in our leading indicators, such as TCV, ACV, book-to-bill, backlog, and pipeline. On the cost side, workforce planning initiatives we discussed in prior quarters have gained momentum. Our focus on increasing our low-cost footprint, expanding the foundation of our labor pyramid, and continuing to invest in associate development has driven improvement in our cost of workforce. For the full year, workforce costs as a percent of revenue decreased 50 basis points to 53.7% from 54.2% in 2021. In addition, our continued focus on building an open and inclusive environment resulted in an increase in associate engagement in 2022, as measured through our annual engagement survey. Initiatives for increased diverse recruitment and overall retention had positive results. At year end, excluding field services and our IPSL joint venture, women accounted for more than 36% of our global associates. a slight uptick from 35% at the end of 2021, and nearly 30% of our U.S. workforce, again, including field services, is from underrepresented ethnic groups, up from 25% at the end of 2021. In the coming year, in addition to continuing to mature our workforce transformation and DEI programs, we are increasing our focus on the associate experience, by cultivating a winning culture through targeted initiatives that enable associates to contribute to the success of the company through innovation, recognition, and continued career development opportunities. From a sales and marketing perspective, we also implemented a number of strategic growth initiatives in 2022, some of which are already contributing to our improvement in leads, pipeline, win rates, and to our growing list of industry recognition. We introduced a new sales leadership structure in 2022, which has brought increased rigor and process around contract negotiation, pricing, and client relationship management. Another key ingredient for growth is our partner ecosystem, which we expanded and strengthened during the year. Significant partnership activity occurred within DWS, where we made strides with Microsoft during the fourth quarter, obtaining the Modern Work Adoption and Change Management specialization, and with ServiceNow, where we became an elite partner. In addition, we are increasing our engagement with industry analysts in 2022, an example of which was the analyst and advisor day we held in June, bringing together leaders across our company to share our most exciting solution innovations and client case studies. Enlisting our industry thought leaders is increasing awareness of our transformation, and we've received recognition from our DWS and CA&I offerings throughout the year from prominent organizations such as Gartner and ISG. Finally, we had a successful November launch of the new Unisys brand, which you can experience through our website and social channels, as well as today's supplemental earnings materials. This is the most significant brand transformation for the company since 1986. Our new brand is all about progress. It's about Unisys being a catalyst that pushes people and organizations to break through to their next innovation. Our brand embodies our entrepreneurial spirit and the aspirations for what we know this company can achieve for itself and its clients. We believe this platform will influence consideration in the market and be a catalyst for our own growth by influencing the key sales metrics I discussed earlier, such as leads, pipeline, wins, and revenue growth. Through year end, we have already seen a 27% increase in visitors to our website, and those who click on our ads are staying on the site 61% longer. The new Unisys brand is propelling our start to the year, which we expect to be a year of progress, building upon our fourth quarter results. Finally, we are encouraged by the positive trends in our TCV and pipeline and the growth in our next-gen solutions. With that, I'll turn the call over to Deb to discuss our financial results in more detail.