Good morning, and welcome to the Unisys Corporation Third Quarter 2023 Financial Results, and Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Michaela Pewarski, 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 Altabef, our Chair and CEO; Deb McCann, our CFO; and Mike Thomson, 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 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 statements 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 explain 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 nonrecurring. We believe 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, Michaela. 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 Ex-L&S 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 Ex-L&S, we had another solid quarter, growing revenue by 6.2% year over year or 4.1% in constant currency. Our Ex-L&S solutions primarily consist of gentle workplace solution segment, our Cloud Applications & Infrastructure Solutions segment, as well as our Specialized Services…

Thank you, Peter, and good morning everyone. My discussion today will refer to slides in our third quarter earnings presentation, posted on our investor website. My commentary today will discuss financials as reported, except for segment revenue growth rates, which we discussed in constant currency. I'll also provide information both including and excluding L&S solutions to allow investors to isolate the portion of ECS that includes uneven revenue based on license renewal timing to evaluate the progress we are making in the business outside of that area. As Peter highlighted, we had another solid quarter of results in both our L&S and Ex-L&S solutions. Looking at our results in more detail, as you can see on Slide 6, third quarter revenue was $465 million in increase of 0.7% year over year, or a 1.4% decline in constant currency. The constant currency decline was driven by the timing of license renewals in our ECS segment, which was better than expected at the beginning of the quarter. Year-to-date, revenue was $1.46 billion, up 2.5% year-on-year or 3.1% in constant currency. Excluding License & Support, third quarter revenue was $398 million, up 6.2% year-over-year or 4.1% in constant currency. Year-to-date, Ex-L&S revenue is up 4.3% or 5.1% in constant currency. We are pleased with the growth we have been able to achieve in light of the uncertain macroeconomic backdrop and believe our Ex-L&S performance is evidence that our strategy is working. I will now provide third quarter detail by segment with revenue growth in constant currency terms. DWS segment revenue was $141 million in the third quarter, up 6.2% year-over-year. The majority of growth came from expansion of existing clients and revenue from recent new logo wins. CA&I segment revenue was $134 million, up 8.7% year-over-year. CA&I revenue also benefited from expansion as…

Thank you, Deb. Operator, we will now open the line for Q&A.

[Operator Instructions]. The first question comes from Rod Bourgeois with DeepDive Equity Research. Please go ahead.

Okay. Thank you, operator. So, I want to ask a question about the connection between TCV and your revenue outlook. You are upping your revenue guidance despite the optically weak TCV this quarter. Others in the industry have been posting strong TCV. But actually, reducing their revenue outlook. So, can you say, a bit more about your revenue progression despite the recent loss that you had in TCV? Thanks.

Rod, thanks. This is Peter. That's a really great question. And I think it gives insight if I answer it correctly on a number of fronts. So first, for us, TCV is not directly related to current year revenue. So, our increasing of guidance is not so much because we believe that we are going to have a good fourth quarter in TCV. In fact, we already had a good fourth quarter. October alone had more TCV than any of the three quarters in this year. But a lot, it will take time for renewal TCV does not necessarily change. The revenue picture and new business and new scope TCV really doesn't kick in immediately. So, there isn't too much of a direct connection between the fact that we expect to have a really strong TCV quarter in the fourth quarter, and already have. And the fact that we are raising guidance. The raising guidance is really what we have seen over the course of the year. And particularly what we saw in the third quarter. So, we feel obviously good about our position versus our older guidance. And we thought it was appropriate to increase it now. I hope that helps to put the context into the question.

Yes, for sure. That's helpful. And then you talked in your commentary about the increased client consumption volumes in your L&S segment. And I just wanted to get, you shared a little color on it, but I'd like more color on what drove the increase in client consumption and then is -- what's the outlook for those consumption levels going forward?

Yes, so let, let me start with that, and then turn it over to Deb for a little more color on that. It's really interesting. So, some of the increase in revenue, both for this year from what we originally thought would be in this year is clients wanting to accelerate or sign long-term contracts. And as in L&S, unlike most of our other business, we take that into revenue when we sign it up pretty quickly depending on the terms of the contract. So, some of what's going on is in fact, people just deciding I want a long-term contract now or a longer renewal. But some of it is actually what we talk about increased consumption. And Deb mentioned that in her comments. What we're seeing in probably three quarters of our largest clients in L&S is a ramping up of usage. And I think, what we're seeing with the advent of AI and the advent of big data is we have some really incredible data sources for our clients and they're taking advantage of that. And so, we feel really good about that. Interestingly, we don't think that the increase in that kind of revenue this year will detriment our revenue going forward. We just think that's an increase. So, we feel pretty good about that, really across the board.

Yes, I really don't have more to add. I think we covered it.

Maybe one thing I would add, Rod. Hey, good to hear from you, its Mike. Look, it's been a recurring theme from our perspective of increased volume in really all of the client contracts we see increases versus decreases. I think, you're aware already, we have pretty good downside protection on the decrease side, right? It's not volumes down, it's really volumes up. And I think Peter's spot on, right? The data analysis, the creation of these large models are really driving further increases in consumption, and again, very, very little risk on kind of downside there. It's really all upside and this whole concept, even market-wise, where you're seeing a lot more kind of repatriation to legacy environments, I think just creates this swell of a lot of that activity increasing the volume and usage. So pretty good trends from our point view.

Yes, and I'll just add one thing to the, your prior question, Rod, about increasing guidance. I think, the L&S is one portion, but what we're happy to see this quarter is we're looking at the year is the ex-L&S portion is really at the high end of the range we had originally laid out. So, we're happy with the performance there as well. I think it's just an important point to note when thinking through the full-year guidance change.

Yes, Deb, and thanks for that clarification. And maybe a little more on the ex-L&S. Could you share more about what you're experiencing in the employee experience market? I'm wondering how you're feeling, if you're feeling better about that market even in recent months due to the ongoing work from home experience that's out there, and also AI-related opportunities. Can you just share a little more about the employee experience market?

Hey, Rod, it's Mike again. Yes. Look I think we're feeling stronger and stronger in relation to that market. I've had the luxury of spending a lot of time with our clients, both prospective and existing as we continue to deploy our solutions. I think Peter mentioned during the call, a whole series of things that we think are very distinctive in that case. But I will tell you the dialogues we're having it, it's no longer a commodity discussion, right? We're really talking about productivity, we're talking about value, we're talking about time to value, the whole concept of personas and how they impact security and deployment and procurement and smart refresh. I mean, it is absolutely real. And it's absolutely the gist of all of the discussions that we're having, both on a renewal basis even converting some legacy to what we'll say is experience and certainly on all of the new prospective. In fact, it's interesting, we're seeing a lot more combined view of experience, right? It's not just experiences in the employee experience from a digital perspective, it's also the experience on the cloud infrastructure and data side, right? When you talk about the AI components there, they're so intertwined that most of our discussions with new clients actually end up being cross sell opportunities for us and, and multiple elements of both of those business units. So, we're very pleased with the way it's progressing.

And Rod, just to add to what Mike has said with -- and I agree with everything he said, it's an interesting space, digital workplace. There are some companies that kind of go hot and cold in terms of their focus on that space. We've never lost focus on that space. And if you go to our website and look at our awards section on our website, you'll see current in year awards that we've received around digital workplace from ISG, from Gartner, Nelson Hall, from IDC, from Everest. This has been a push for us for a long time. We're happy to see some others focus a little more on the space. We think it's good for the industry. We think it's worthy for clients. But as I said, we have established a really strong position, and, we intend to keep moving forward on it

The next question comes from Joseph Vafi with Canaccord. Please go ahead.

Good morning and nice to see that Ex-L&S organic growth. Just wanted to drill down a little bit into this October bookings activity. It seems like a lot and I was just wondering if there's any read-through there relative to the macro and perhaps all of a sudden clients wanting to sign for next year, or was it really, truly kind of just more company-specific timing with this kind of huge ramp up in award activity? And now I'll follow-up.

Look, I think, one of the things that we've learned over the course of the year is that the sales cycle for kind of this, I'll say the experience offering is about as long as our legacy sales cycles were, we're running about a year. And so, if you dial back a year and what we've done from a market-facing perspective, the continual work we're doing on the advisor side, Peter just mentioned a whole bunch of those we're getting invited to a ton more deals in regards to that. They see the value of the solutions that we have got. And I think what you are seeing is really just the output of the timing of the negotiation of those sales cycles, right? So, sitting at about a year, fourth quarter is kind of where they are at. We are seeing strong activity already. Deb mentioned the signings that we already have in October. Peter talked about those being, greater than from a TCV perspective, the prior three quarters individually, just the first month of October. And we feel really good about the pipeline. It's grown throughout the year. It is grown in the areas that we wanted to grow in. We are seeing the Next-Gen solutions grow in that pipeline. And I think it is just the natural duration of time, it's taken to get these into production. So really happy with the progress we are seeing there, really happy with how the market is reacting to the offerings. And again, that's the basis for the raising the guidance.

Great. That's good color. Thanks, Mike. Sounds like good progress, and you are seeing the results. And then just back on L&S and the just maybe a quick two parted there, on the consumption volumes, how do those margins look versus kind of the base license sales? And then I know Deb, I think you said that you are seeing a larger contract renewal over longer periods of time. What does that do maybe to evening out or making, perhaps maybe more lumpy the, the license sale part of that segment? Thanks a lot.

Yes. So, the margin on the consumption is similar to our overall L&S business. So that's the answer to that. As far as some clients coming to us, saying instead of a one-year GL renewal, over multiyear, that's just enable, we recognize the revenue, a prime. If there is more consumption built into that, to kind of lessen the impact of the outer years. So, it's not -- in the past, we have seen where a client just renews early. So, they are four-year deal instead of next year is this year. And so, then this year takes away from next year, and it is different than that, when these happen, when it's just the client wanting to link deals.

Yes. I would say, Joe, just to expand on that a little bit, for at least three or four deals over the course of the last 12 months, we have seen extensions of those deals, right? So, for us, it is really solidifying the use of the ClearPath Forward operating system. And the work that we are doing from an application development on top of that system, the map service component of that system. So, it is a really strong belief and I think the efforts that we have put in over course of the last four or five years to really future-proof that operating system and the fact that, folks are signing from three to five or five to seven and extending those deals, I think, is a real testament to, A, the security and processing power of those systems. And, B, their support in continued utilization of those systems. And we are not really seeing an impact to the overall contract price for the longer duration. It is not like we are sitting here discounting these significantly because they are going for a longer duration. It has been pretty consistent and we have been pretty consistently getting increases in pricing upon renewal. So again, pretty happy with what's going on in that space.

Great. It sounds like, those platforms are perhaps becoming even more strategic than they were. So great. Thanks very much, guys.

You're welcome, Joe. And this is Peter. Just to follow on in your last comment. I think that's true. With the current environment, the advent of new technologies here, I'm not just talking about artificial intelligence or generative AI, I'm really talking about the beginning of the quantum era. And then using both of those, historically, you haven't heard a lot of talk on this call about our enterprise computing solutions segment outside of Clear Path Forward. And that's for good reason. That represents, it still represents the vast majority of the revenue of that team. It is a very high margin. It is a very high cash flow. We're very proud of it. But that team, which differentiates itself from most of the rest of the company, because it's steeped in Unisys proprietary technology and IP, not that the others don't have that, but that ECS team has more of it proportionally, is kind of having a moment. When you think about the importance of engineering, when you think about the importance of thinking about quantum, thinking about AI, putting it together, we recently announced a new solution called Unisys Logistics Optimization. We issued a press release about that. I made a reference to it in my opening remarks. It's in pilot with a client today. We're very excited about it. That exists because of kind of the combination of our engineering talent, our knowledge of quantum, our knowledge of AI, and really the deep industry knowledge we have in specific industries which travel, and transportation, and logistics is one. So, we expect to talk more about ECS going forward. It's very nice that it happens to be the highest margin and highest cash flow piece of the business. But I think that whole team is having a moment for a good reason.

That's great. Looking forward to more on that subject, as we move forward. Thanks, Peter.

The next question comes from Arun Seshadri with BNP Paribas. Please go ahead.

Hello, everyone. Thanks for taking my questions. Great performance and good to see. Just wanted to specifically drill down on L&S. Is there any way you could sort of give us in the prior guidance of $350 million for the year, what was the, I guess the quarterly outperformance? Or what is your expected, or I guess what is a quarterly out performance in Q3 and the first half of the year? And then I think typically around this time each year you develop a better view into L&S's performance for the following year. I don't know if you could broadly share directionality versus the $420 million expected this year. Do you expect to revert back to something kind of in the mid to high 300s? That'll be very helpful. Thank you.

Yes. So as far as the outperformance seven -- a big portion about $17 million was in Q3 with that higher consumption, and then for us going forward, that extended contract was one of the ones in October. So, having visibility into that is what allowed us to feel comfortable in raising that. As far as for future years for L&S, we don't see -- we're kind of staying consistent with what we talked about in investor day, so it won't change that as far as our expectations for the outer years of L&S, I think is, did that answer your question?

Yeah, partially, Deb. I mean, so the Q3 performance in L&S revenue was something just inside of $70 million. So that $70 million would've said would've been closed -- sorry, go ahead.

$17 million in Q3 and then there's a big portion in Q4, in that October signing that we talked about was the --

So, the first half was pretty much in line, and then 17 outperformances in Q3, and then the remainder of the outperformance in Q4. And then as far as -- so your comments we can take is to say that the 2024 for L&S would be, I guess, at this point, at least somewhat similar to your broader overall guidance of 350 to 350 plus. Is that what you meant for ‘24?

Yeah, so at Investor Day, we had said approximately 360, and so it's consistent with that. And when we come out -- when we report our Q4, we'll give more precise guidance for ‘24 and going forward, but as of now, it does not change our view that we laid out at investor day about $360 million.

Got it. Thank you. And then the one question that I had from somebody's prior question was consumption. Did you talk about consumption as a percent of total L&S revenue? What it has run in prior years?

Yeah, I mean, I think it's just -- we haven't talked given that number, but it's really just a part of the overall deal. It's not different, right? The consumption is part of what the L&S deals are based on. And so, it's really just at some point throughout the year, clients may consume a little more than they originally planned. So, there's a true up, and in some cases, when they're renewing deals, they add more, but it's a lot of the basis of this, overall, the actual deal we're signing. So, it's not that, it's a percentage of it. is the what they're purchasing in a way. Is that, anything to add on that, Mike? Does that clarify Arun?

Yeah, that does. Thank you, Deb. That is helpful.

[Operator Instructions]. The next question comes from Anja Soderstrom with Sidoti. Please go ahead.

Thank you, for taking my questions. Could you have for a follow-up on you mentioning the strong growth in the TCV in October what's driving that? Is that an outlier layer or is that a new trend you think?

Well, as I said earlier, this is Peter, and by the way, thank you very much for the question. I'll start and then turn it over to Mike. I think as we think about the year and the progression of the year, there have been a couple of things that have kind of become apparent, and one of them, as Mike said, is just the time it takes to close these deals. And so, we had been hopeful that some of these might have closed earlier in the year especially, around the new logo side or new scope, which is selling new things to existing clients. And we really, that looks like it is stacking up for a very strong fourth quarter on new logo and new scope. On the renewal side, it was just simply a matter of when it happened. So, it did not happen as strongly as we thought in the third quarter, but we don't control all of those things. And we had a lot of that signing in October, so I wouldn't make too much of the timing within the year. I think we expect by the time the year is over to have a good year around new logo, new scope renewals. I think we will have a good year across the board. And that gives us, as Deb said in her remarks, we think that's a nice proof point toward kind of the long-term discussion we had with you folks in June. And Mike, any thoughts on that?

Look, I think we have been talking all year about the increase in our qualified pipeline. And this is kind of the natural progression of increasing the quality of that pipeline, increasing the size of that pipeline, increasing year-over-year from a Next-Gen perspective, ultimately the expectation is that translates to bookings, and higher TCV. So, I certainly won't say it's an outlier. And it is a little early to say, it is a new trend, because it is kind of the natural progression of conversion of pipeline. Hopefully, Anja, three quarters from now seeing that trend continue in that direction. But again, we are very pleased with kind of the progress that we are making, and what we are seeing this quarter.

Okay. Thank you. And in terms of the new logo acquisition, is that picking up for you or...

I think we are seeing some of that what we are expecting in Q4, we are anticipating an uptick in that. And then, as we lay out for next year, we will give a sense of that. But we are seeing, to Mike's point, a lot of the momentum in marketing, go-to-market strategy, and investments that we have been making are starting to take hold.

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Altabef for any closing remarks.

Thanks very much, operator. And I really do want to thank all of the participants of this call, both the folks -- the folks listening, the people asking the questions, and then, Mike and Deb, especially. This has been an interesting year. In the beginning of January, I think, very few people in our industry would think that, the year would unfold as it has, both from the standpoint of technology and the standpoint of how global events are affecting our industry. I am really, really proud of the way the people of Unisys have risen to the occasion. And we look forward to continuing the calls with you. You may have noticed that, our website gets better and better, and that's not just us saying that. We received four very significant awards, from Transform within the last month. So, I hope you take advantage of all of the information we have on our IR site and really throughout the website. Until the next time we do these, thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.