Unisys Corporation New

Good morning and welcome to the UNISIS third quarter 2023 financial results and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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 2. Please note this event is being recorded. I would now like to turn the conference over to Michaela Paworski, Unisys Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its third quarter financial results. I'm joined this morning to discuss those results by Peter Altabev, our chair and CEO, Deb McCann, our CFO, and Mike Thompson, our president and COO, who will participate in the Q&A session. As a reminder, certain statements in today's conference call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions, and beliefs forming the basis of our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to differ materially from our expectations. These items can also be found in the forward-looking statement section of today's earnings release furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures such as non-GAAP operating profit or adjusted EBITDA that excludes certain items such as post-retirement expense and cost reduction activities and other expenses the company believes are not indicative of its ongoing operations as they may be unusual or non-recurring. We believe that these measures provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. The non-GAAP measures have been reconciled to the related GAAP measures, and we have provided reconciliations within the presentation. The slides accompanying today's presentation are available on our website. With that, I'd like to turn the call over to Peter.

Thank you, Michele. Good morning, and thank you for joining us to discuss Unisys' third quarter 2023 results. We had another quarter of solid revenue and profit results, allowing us to raise guidance across all our guided metrics. Notably, this was our third consecutive quarter of year-over-year growth in our xLNS Solutions revenue. During the quarter, revenue from expansion and new scope with existing clients contributed to the growth of our cloud applications and infrastructure solutions and digital workplace solutions segments. Within our enterprise computing solution segment, client consumption trends and good support volume generated upside in license and support revenue. New Scope and New Logo TCV increased 22% sequentially during the quarter, with approximately 60% of these signings in next generation solutions. demonstrating gains with existing clients and within the market in higher value areas. While total third quarter signings were impacted by low renewal levels due to timing, overall, we have already signed 60% more TCV in the month of October than we did in the entire third quarter. And we expect the fourth quarter to be our highest TCV quarter in 2023. Our pipeline is robust, up 18% from a year ago. with our next generation pipeline up 50% year over year. Our sales strategy, partner ecosystem, and analyst and advisor recognition are driving higher value opportunities that are supporting our expansion into faster growing areas of the IT services market. Looking at our top line performance, third quarter revenue increased 0.7% year over year as reported and declined 1.4% in constant currency. Excluding license and support, or XLNS, we had another solid quarter, growing revenue by 6.2% year-over-year, or 4.1% in constant currency. Our XLNS solutions primarily consist of digital workplace solution segment, our cloud applications and infrastructure solution segment, as well as our specialized services and next-gen compute solutions within our ECS segment. In all three of these areas, we achieved mid to high single-digit growth. Revenue from license and support was $67 million in the third quarter, which is significantly better than the $50 million third quarter expectation we had discussed on our last call. Outperformance was primarily due to additional consumption and support revenue with some existing clients. As a reminder, the vast majority of LNS revenue is from licensed sales and support services related to our ClearPath Forward operating system. Our technology powers a range of mission-critical functions, such as travel reservations, financial transactions, and mortgage processing. And digitalization in these areas has led to consumption growth at many of our largest clients. Turning to contract signings, Aggregate new logo and new scope TCV was up 22% sequentially with a 60% next generation solutions mix. As a reminder, new scope represents the purchase of additional offerings by existing clients, while new logo signings are with new clients. The growth and mix of these signings demonstrates increased client and prospect willingness to partner with Unisys to further up the value chain. Total company TCV declined 31% sequentially, driven by lower renewals in the quarter. However, this was a timing issue with some third quarter renewals slipping just outside the quarter. Our renewal rate remains strong at 96% year-to-date. In our ex-LNS solutions, TCV was down 30% sequentially, again, due to renewal timing. Expansion TCV in our ex-LNS solutions also declined modestly, on a sequential basis after a strong first half of expansion signings. While renewals were low in the third quarter, we continue to expect a strong back half of renewal bookings. We have already closed multiple large multi-year renewals in October in both our L&S and XL&S solutions. We also expect new logo TCB to be a strong driver in the fourth quarter with October signings already more than double the new logo TCV signs in the third quarter. And with several larger opportunities, we're working to convert before year end. Turning back to the third quarter, I want to discuss some notable new scope contracts we signed in our next generation solutions. In our CA&I segment, we signed a next generation new scope contract with one of the most popular states in the United States. As part of this new scope, we will develop and manage a platform to help the state's health, and human services department manage assistance programs that distribute crucial benefits to hundreds of thousands of recipients each month. We signed another new scope next generation solution engagement during the quarter with a prominent paint and coatings client. As part of this engagement, Unisys will transition the client to the cloud, optimize its cloud environments and implement a managed security operation center. Moving to pipeline, Our qualified ex-LNS pipeline is robust and high quality, up 18% versus a year ago, and with 47% of pipeline TCV in next-generation offerings, up 37%. Looking at some of the solutions contributing to our pipeline in more detail, in DWS, we're bringing new ideas and innovation to the market, and our focus is on experience, which is resonating with clients, prospects, and the industry experts who advise. our portfolio is well aligned to market demand. Companies are settling into new workplace models and reprioritizing technology investments that improve the employee experience. Within our modern workplace portfolio inside DWS, we are seeing significant interest in DSS, our device as a service solution. Our DSS solution is differentiated in that it can integrate with our XMO deployment, persona mapping, onboarding automation, and smart PC refresh solutions, all to provide next-level insights into device performance and security. Clients are particularly interested in the potential cost savings from using DSS to optimize device CapEx. This solution puts Unisys at the center of our clients' workplace technologies and gives us an intimate understanding of their workplace technology stack. We're optimistic that it will help us expand wallet share with our existing clients and provide us with more opportunities to deliver value to the large number of end users we already serve. In our CA&I segment, we are building out six core platforms to increase standardization in our solutions development. These are multi-cloud, data, artificial intelligence, applications, security, and industry. Aligning our talent around these platforms is key to expanding our next generation solutions and penetrating the larger high value contracts in areas like FinOps, hybrid infrastructure, and digital transformation, which require complex solution orchestration. In our applications layer, we have a number of specialized projects in the pipeline requiring our combination of public sector expertise and engineering capabilities. For example, We have several opportunities to help state and local governments with complex challenges, such as managing of licensing and permitting processes or identity and access. We've had good success in these high-value areas already this year. For example, in the third quarter, we signed a new logo contract with a city in Texas. In partnership with Clarity, we will build a digital platform to help the city better manage commercial and residential development applications, and will provide managed services for the span of the five-year contract. We're in the process of building out an ecosystem of specialized public sector software partners, where we can provide complimentary implementation and managed services, but also develop standardized yet variable application layers. Across all our business units, we're seeing strong interest in AI. including generative AI and services related to supporting enterprise AI adoption. But beyond understanding use cases for generative AI, our clients want to help with strategies for planning and measuring their AI investments. For example, one of our third quarter wins was a new scope with one of the world's largest quick service restaurant chains that turned to Unisys to help map its strategy for evaluating and observing the performance of new technologies for its customer-facing mobile ordering platform. Across the company, we are collaborating extensively with clients to approach generative AI adoption in areas like content generation, knowledge access, security, fraud detection, and applications development. We are also infusing generative AI into Unisys industry solutions. We're particularly excited about the launch of Unisys Logistics Optimization, an industry solution that we believe has the potential to advance the multi-billion-dollar cargo logistics market. This cutting-edge solution enables faster and smarter business decisions that help airlines, freight forwarders, and ground handlers optimize capacity, route, and warehouse processes. The solution marries AI, advanced analytics, and the power of quantum computing, enabling near real-time decision-making. The solution incorporates proprietary optimized tools and pre-trained models tailored for the cargo industry, as well as quantum annealing capabilities. Ahead of our launch, we showcased our capabilities at a large industry conference, and market perception has been positive with both existing air cargo clients and new prospects. We're also seeing interest from global logistics providers and freight forwarders. Our teams are already on the ground actively scoping and deploying our first full-scale pilot with a large air cargo client in Asia, which we expect to go live sometime in the first quarter. We believe Unisys logistics optimization will serve as a proof point of the significant value our ECS segment can help clients unlock with Unisys industry solutions that combine quantum data, AI, and industry expertise. Finally, Just as we're partnering with clients on their AI journeys and infusing AI into our industry solutions, we are focused on accelerating internal adoption across our own delivery and SG&A functions. For instance, within our HR department, we are leveraging talent marketplace and talent mobility AI platforms to speed sourcing and recruitment. These platforms leverage industry-leading AI, machine learning, and natural language processing capabilities to improve talent mapping, visibility, and workforce planning, which has significantly reduced certain talent acquisition costs. Our HR teams are also beginning to adopt generative AI for job postings and high impact talent marketing campaigns. Before turning the call over to Deb, I want to touch on some of our initiatives to attract and retain talent and to provide an inclusive environment where associates can grow in their careers. In 2023, we have increased our investment in the learning and development of our associates, bolstered our learning library with new courses, and launching custom learning modules, leadership events, tech talks, and training boot camps, all to upscale our talent. We believe our talent initiatives are making Unisys a more attractive place to work, which is evidenced by our lower attrition rates and recognition from third-party organizations. Our trailing 12-month voluntary attrition rate of 13.3% is down significantly from 18.9% a year ago. During the quarter, we won four prestigious HR awards, recognizing our excellence in diversity hiring, talent growth, talent acquisition, and leadership. With that, I'll turn the call over to Deb to discuss our financial results and full year guidance in more detail.