Unisys Corporation New

Good morning and welcome to the Unisys Corporation second quarter 2024 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 two. Please note this event is being recorded. I would now like to turn the conference over to Michaela Paworski, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its second quarter financial results. I'm joined this morning to discuss those results by Peter Altadev, 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 caution listeners that the current expectations, assumptions, and beliefs forming the basis for 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 8K and in our most recent forms 10K and 10Q 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 exclude certain items such as post-retirement expense, 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 these measures provide a more complete understanding of our financial performance. They 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 investor website. 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 the company's second quarter results. It was another solid quarter for the company, and we remain on track to achieve our full year guidance ranges for both revenue growth and profitability. The second quarter adds to our track record of executing the strategy we presented at our June 2023 investor day. The impact of our portfolio transformation and initiatives in sales and marketing, delivery and associate development are becoming increasingly evident in our signings, pipeline quality and delivery efficiency. In the first half of the year, we have signed more than three times the new logo TCV signed in all of last year, a positive signal of awareness and demand for our solutions in the market. The second quarter also demonstrates a clear positive trajectory on our ex-LNS gross margin, where expansion has been substantial and broad-based. Our first half ex-LNS gross margin of 18.4% is a 350 basis point improvement, over the prior year that gives us a pathway to a non-GAAP operating margin above the midpoint of our guidance. We are well positioned to accelerate our progress next year when the new logos we have signed in the first half of this year and are signing in the third quarter will begin generating margin accretive revenue. In addition, we anticipate new scope and expansion opportunities with these clients in the coming quarters. For next year, we also expect continued delivery efficiencies, lower legal and environmental payments, and increasing benefit from our SG&A initiatives, all of which will benefit cash generation. Looking more closely at second quarter client signings, total company TCV increased 25% sequentially and 19% year over year. Excluding license and support, TCV was up 35% for last quarter and up 10% year over year. The strength in XLNS signings is the result of continued new business momentum. We signed 17% more new business than the prior quarter and 64% more new business than the prior year period. New business growth was driven by a more than doubling of new logo TCV on both a sequential and year over year basis. Growth in new business signings was strong in both our CA&I and DWS segments. In DWS, Many of our new business signings have a combination of traditional and modern workplace solutions, validating our belief that focusing on excellence in the mission-critical capabilities clients need is a pathway to securing more revenue at attractive blended margins. In C&I, clients are turning to Unisys for our end-to-end expertise in transforming, running, and securely increasingly complex IT estates across multiple cloud environments. We're also seeing a much higher mix of cross segment solutions in our new business science, proving the strength in our strategy to provide integrated mission critical offerings. For example, we were engaged by one of the world's largest private trading groups to provide IT support to their approximately 55,000 employees, manage their hybrid infrastructure across data centers and cloud environments, and provide security and network managed services. We also had a large new logo signing with a public sector client in Australia, including both DWS and CA&I solutions. As part of this agreement, Unisys will help this government agency integrate new technologies and support its approximately 6,000 end users with solutions and services in communications and collaboration, security, and compliance. So far in the third quarter, we have seen continued momentum in our new business signings with both existing clients and new logos. Turning to a discussion of our pipeline, we exited the quarter with a robust pipeline and our opportunities are better aligned to our portfolio as a result of an increased emphasis on pipeline quality, which has led to improved new business win rates this year. New business pipeline with existing clients, which consists of new scope and expansion is up 7% sequentially. Our overall pipeline declined 7% quarter over quarter, driven by a combination of the timing of our XLNS renewal schedule, strong conversion of new logo opportunities, and some normal pipeline fluctuation. In the third quarter, we're seeing a good inflow of new opportunities and are pleased with the size, solution mix, margin profile, and winnability of our pipelines. In digital workplace solutions, we had strong growth in new scope opportunities in modern workplace solutions, such as unified endpoint management and device subscription services, which typically includes intelligent PC refresh that optimizes hardware spend within an OpEx model. During the quarter, we also signed several framework agreements for DWS field services, which put in place contractual terms to serve future demand with speed and agility. and will create future pipeline as that demand materializes. In cloud applications and infrastructure solutions, we continue to see increasing demand in our higher margin digital platforms and application solutions in both the public sector and in public and private higher education. Many of these clients will need to invest to adopt emerging technologies, modernize administrative functions, and provide a digital experience for residents, students, and employees. We have built specialized public sector software partnerships with Unisys providing implementation and customization on the front end and typically providing a recurring managed service on the back end. This model has been successful with our partner Clarity, which provides permitting and licensing software. We also have four new public sector software and technology partners in areas such as health and human services. In child welfare information systems, we have already built a pipeline of more than 100 million in opportunities to modernize these platforms for several large US states. In specialized services and next-gen compute within our ECS segment, new business pipeline grew more than 20% sequentially, driven by growth in financial services and the public sector, including a number of new application expansion opportunities. Clients in every sector and region are continuing to focus on AI, both generative and traditional, and there is broad interest in AI-enabled solutions with enhanced services. First, we're seeing new opportunities in AI-related consulting across our business. For example, we are working with a global food processing client to enhance their data inputs and engineering to increase the value of an AI application already in production. As another example, we're advising a technology, media, and telecom client to leverage multiple large language models to enable dynamic ad generation for target audiences. The second area of AI related growth is in data services, which is the fuel of artificial intelligence. We're seeing growing demand for services and solutions relating to migrating, transforming, and managing data within a cohesive data layer, as well as delivering actionable data insights. For example, Unisys will leverage generative AI and machine learning to help one of the world's premier quick service restaurants analyze service data. We will utilize inputs from all restaurant technology, including point of sale, ordering kiosks, visual displays, and automated kitchen equipment to identify and prioritize process, technology, and behavior changes to improve restaurant operations. A third area of opportunity is providing managed services supporting maintenance and optimization of AI platforms and applications. This includes multi-cloud, application, and security managed services, AI ops, and data center management. For example, Unisys is providing field services to help a client in the technology sector with the relocation of their data centers in North America. Finally, there is delivery of AI-enabled solutions. which are beginning to take shape through AI-enabled platforms and applications, infusing AI into existing solutions and through tools and accelerators to speed model tuning and AI development. For instance, within a digital transformation project with a leading provider of automated test equipment, we were able to modernize 90 enterprise applications in half the time. By infusing AI into every facet of the project, including code generation, design, development, and testing. I now want to spend a few minutes discussing innovation within our segments, specifically enterprise computing solutions. More than half of ECS revenue and profit is licensed and support, which is primarily related to our clear path forward operating systems for secure high volume transaction processing in sectors such as financial services, health and life sciences, public sector, and travel and transportation. Our systems are typically embedded within complex client IT environments consisting of hybrid infrastructure, data, and application layers. While this makes our technology relatively sticky, it is also dynamic, and we devote capital engineering resources to continually strengthen our platforms. For example, we rolled out a new generation of our software this quarter to increase transaction speed and security. The remainder of ECS revenue and profit consists of our specialized services and next generation compute solutions, or SS&C, which includes specialized services supporting the use of our platforms and our portfolio of industry applications and services, including an area such as cargo management, retail banking, and mortgage processing. Our expertise positions us to meet growing demand for application expansion services by providing engineering and integration capabilities needed to modernize application layers by infusing new digital capabilities. In the second quarter, we enhanced our application expansion services by partnering with a leading provider of retail banking point solutions. Unisys will custom engineer our partner's digital products for clients in Europe and Latin America to enable digital retail banking experiences for their customers. We also continue to see a compelling opportunity to leverage our expertise to develop new industry solutions that utilize AI and hybrid computing platform capabilities, such as quantum annealing. Our next generation SS&C industry solutions within ECS are accessible on multiple platforms, including public and private clouds. Unisys Logistics Optimization is now in production at our first client. We have also rolled out a design portal we developed to speed prototyping, market validation, and testing of new features. Finally, our OEM partner Dell has a validated design integrating Unisys Logistics Optimization into their AI-ready service. We are also continuing to advance our Productivity and Workforce Management Foundation, where we made important progress during the quarter. Our AI-powered HR talent marketplace is now available globally to all associates and is already increasing internal mobility. We are redesigning our job architectures to provide associates with a clearer path to continued investment. These initiatives will enhance our workforce management capabilities while providing associates with better access to the multitude of opportunities that are being created by our new business signings. During the quarter, we published our 2023 sustainability report, which outlines our progress and milestones achieved in our ongoing commitment to sustainability. This includes our approach to real estate and energy consumption, business continuity, ethical and responsible use of AI, and the well-being of our associates. Our trailing 12-month voluntary attrition remains very low at 12%, which compares to 14.4% a year ago, and we believe reflects our ongoing commitment to fostering a workplace with opportunities to develop and advance. With that, I will turn the call over to Deb to discuss our second quarter financials in more detail.