Unisys Corporation New

Good day and welcome to the Unisys Corporation second quarter 2025 earnings conference call. All participants will be in 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 on a touch phone phone. To withdraw your question please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Michaela Pruosky. Please go ahead.

Thank you operator. Good morning everyone. Thank you for joining us. Yesterday afternoon Unisys released its second quarter 2025 financial results. Joining me to discuss those results are Mike Thompson our CEO and president and Deb McCann our CFO. As a reminder today's call contains estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that current expectations assumptions and beliefs forming the basis of these statements include factors beyond our ability to control or precisely estimate. This could cause results to differ materially from expectations. These items can be found in the forward-looking statement section of yesterday's earnings release furnished on form 8k and in our most recent forms 10k and 10q filed with the SEC. We do not assume any obligation to review or revise any forward-looking statements in light of future events. We will also refer to certain non-GAAP financial measures such as non-GAAP operating profit or adjusted EBITDA that excludes 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 however they are not intended to be a substitute for GAAP. Reconciliation for non-GAAP measures are provided within the presentation. Slides for today's call are available on our investor website and with that I'd like to turn call over to Mike.

Thank you Michaela and good morning everyone. Thank you for joining us to discuss the company's second quarter 2025 financial results. Before I discuss the quarter I want to briefly touch on the meaningful steps we've taken to accelerate our path to removing our U.S. qualified defined benefit pension plans. In June we issued 700 million dollars of senior secured notes, refinanced our existing debt and used 200 million dollars of proceeds and 50 million dollars of existing cash to make a 250 million dollar discretionary pension contribution which reduced our U.S. deficit dollar for dollar. We then shifted our asset allocation within the plans to primarily fixed income securities that match asset and liability movement essentially removing market and interest rate volatility in our U.S. contributions. We believe removing significant pension volatility simplifies our story and improves our ability to attract new investors. The actions we've taken are accretive to cash flows over the next five years and the reduction in our five-year contribution exceeds the interest expense on incremental borrowings. Our discretionary contribution will also allow us to continue to remove liabilities through additional annuity purchases both lowering the cost of future premiums and full plan removal as well as accelerating the timeline for full removal. These steps reflect our commitment to enhancing long-term shareholder value while protecting financial flexibility and allowing for continued investment supporting innovation and growth. We discussed the financial stability of our investments and we focused all of these actions in more detail and provided updated projections for our contributions and deficit during a July 24th webcast that's available on our investor website. Turning now to our results, second quarter reported revenue increased 12% on a sequential basis and 10% in our XL&S solutions in part due to some acceleration of revenue expected in the third quarter. Total company revenue was also up 1% year over year as reported and in constant currency. This exceeds the expectations we shared last quarter. We again benefited from our strong 2024 new business signings and saw a sequential improvement in project work, business process solution volumes and revenue related to the PC cycle. Second quarter L&S revenue was also stronger than anticipated driven by both increased consumption and some accelerated integrated system purchases. We were pleased with the growth in the digital workplace segment which had faced some headwinds in recent quarters from volume declines in lower margin field services. Those declines have stabilized and we continue to see increases in higher value infrastructure field services such as enterprise storage and network services. We expect increases in those volumes in the second half to drive year over year growth as we lap PC service volumes declines especially in the fourth quarter. While some of the items we benefited from in the second quarter are expected to moderate in the third quarter, we have a clear line of sight to achieving the full year XL&S targets implied in our revised revenue guidance and we are raising our outlook for full year profitability. We're pleased with the results this quarter especially in light of continued headwinds in the industry stemming from the ongoing macroeconomic and geopolitical uncertainty. As we look to the second half, our updated guidance does embed some incremental impact from elongated decision making and slower ramp up of implementations or transitions. While this is shifting some XL&S revenue out of the current year, we're not seeing any impact to the total expected revenue generation over the life of these contracts or any contraction in our ability to expand these relationships in the future. We are encouraged by the recent progress on trade negotiations and why we're not building improved client sentiment into our outlook these trade resolutions should reduce uncertainty and help expedite client investment decisions. Looking at client signings, we saw a slight increase in sequential total contract value or TCB based on higher renewal levels offsetting a decline in new business signings which is coming off a strong first quarter. Importantly, our first half new business TCB was up 15% compared to the made up a larger portion of our new business signings during the quarter. As a reminder, this work is generally shorter duration with lower absolute contract value but moves to revenue recognition more quickly. Improved project levels are not attributable to a single factor. Some clients are shifting budget towards Windows 11 upgrades and refreshes. Others are moving forward on overdue work they de-prioritized for AI pilots and some are simply resumed project flows that had been paused during renewal negotiations on their larger long-term services contracts. We're also converting follow-up opportunities on new logos we added in 2024 and we continue to have a good pipeline behind those. As we've said before, the precise timing of renewals and new business signings can be uneven and we did see some signings shift out of the second quarter due to typical complexities in negotiating large long-term contracts. We expect contract signings on most of these by the end of the quarter which would lead to improved new business TCB in the back half of the year. I want to share a few client wins from the second quarter that help illustrate how we're expanding within the key clients across our segments. In digital workplace solutions, we're expanding IT support to three hospitals recently acquired by a U.S. -for-profit hospital system. Under our existing scope, we provide IT support for around 200,000 end users including frontline healthcare providers and support integration of several acquisitions each year. In cloud application and infrastructure solutions, we're expanding data center management services with a global financial institution adding two additional data centers in Asia Pacific to support increasing transaction volumes in their card services business. We also extended our existing agreement for data center management and the network services we provide in 58 countries globally. In enterprise computing solutions, we'll be leading a project to upgrade core banking systems to the next generation of ClearPath forward systems. This is a large-scale transformation including new data center, adopting networking standards, and building a new architecture designed for reuse and scalability all crucial to maintaining service and 24-hour support for roughly 50 million customers checking and savings accounts. Shifting the discussion to our solution portfolio, we continue to invest in innovation and operationalizing AI to scale our delivery. We see an outsized benefit from AI as it begins to shift our delivery from a labor augmented by technology model to one that is led by technology and augmented by labor. AI gives us the ability to scale delivery and shrink the size advantage historically held by larger competitors which makes it easier to penetrate the market with differentiated solutions. In digital workplace solutions, our device subscription service or DSS provides an early example of how we can combine AI with unique data sets, domain expertise, and specialized services to attract some of the largest organizations to Unisys. Similar momentum is building within our service experience accelerator or SEA, the technology framework powering our next generation service desk. SEA harnesses generative and agentic AI, service data analytics, and intelligent workflow automation to provide highly automated omni-channel service desk within a client's trusted network. SEA is resonating with clients and prospects in part because of its differentiated knowledge management capabilities which enhances the accuracy and efficiency of issue resolution. One of the biggest impediments to AI adoption is the cost and challenge of building and maintaining quality training data for AI models which is leading to hallucinations and pressuring business cases for deployment. SEA uses our custom developed machine learning models along with LLMs to automate the cleansing of low quality or outdated information, identifying knowledge gaps and self-generating content in response to new issues, increasing the efficiency and effectiveness of virtual agents. SEA is in production for several clients and while it's early days we're seeing -to-end automation resolution increase from an average of 15 to 40 percent, translating to a better client experience while lowering the cost of high quality delivery. We're currently pursuing multiple patents for the IP related to these differentiated capabilities. In field services, we are continuing to scale our specialized capabilities in high value infrastructure services including high-end storage, networking and liquid cooling. We have a robust pipeline in these higher margin opportunities and expect demand for these services to grow alongside the underlying demand for data center and private cloud capacity. In cloud applications and infrastructure solutions, we're leveraging our centralized application capabilities and hybrid multi-cloud capabilities to execute transformations at scale for some of the largest global enterprises and governmental agencies. We recently shared two client stories that highlight the transformations we've led for two of our premier clients Omnicom and Benjamin Moore. I encourage you to take a look at the videos and marketing materials on our website to hear more about our impact directly from the CIOs of those organizations. We have a robust pipeline in cloud services and are continuing to enhance our cloud managed services and our data center managed services which we collectively refer to as intelligent operations. This unified foundation is our framework for delivering seamlessly integrated AI ops to manage hybrid infrastructure environments and leverages -in-class partner technology coupled with Unisys accelerators. The result is a highly automated intelligence driven delivery model that enhances performance and resilience while driving efficiency and cost optimization at scale. Cyber security continues to be an area of focus and urgency for our clients and we continue to evolve our offerings for SOC transformation, cyber recovery, continuous threat exposure management, digital identity and management, managed detection and response and secure network access services. In ECS we're advancing our clear path forward 2050 strategy to expand our proprietary ecosystem to enable the modernization of hybrid infrastructure and applications and unlock valuable data residing on our platforms as well as increasing the speed of deploying security encryption algorithms to respond to dynamic threats. We recently migrated several clients to the newest version of our ePortal which connects the structured data on our platforms to front-end applications to power insights throughout the enterprise. Our clear path forward strategy enables us to maximize value by integrating our platform evolution while delivering features and capabilities specifically requested by clients and provides cross-selling opportunities. Alongside solution development we continue to advance our alliance partner strategy. One element is going deeper into a smaller set of alliance partners to forge a more impactful and mutually beneficial relationship. Some of our larger alliance partners are starting to view solutions such as DSS and specialized field services as additive capabilities our partners can provide to their clients and they're bringing us into some of their pipeline opportunities. Last month we received three prestigious awards at Dell Tech World signaling our growth influence with one of our largest alliance partners. This included being named Dell's 2025 global alliance growth partner of the year. We are also expanding our access to addressable markets by adding partners that increase the range of solutions we can offer to better help clients leverage their existing technology or provide them lower cost alternatives. ITSM partnerships with EasyVista and FreshWorks are one example that we discussed last quarter and in the second quarter we expanded our DSS offering into Apple devices and are exploring expansion into peripheral devices beyond PCs. We're continuing to see increased awareness and recognition with both industry analysts and advisors. In Q2 we appeared in seven major industry reports and received new and improved rankings in state and local and higher education digital services. We were named a leader in new report on attack surface management, retained our designation as a leader in data center security and innovator in application services and improved our position in applied AI services. In digital workplace we received best service improvement initiatives award from the help desk institute and finally I'm especially proud that Newsweek recently named us one of the to fostering a dynamic empowered workforce which is apparent in our very low trailing 12-month attrition rate of 11.7%. With that I'll turn the call over to Deb to discuss our results in more detail.