Good day, and welcome to the Unisys Corporation Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michaela Pewarski. 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 Thomson, 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 statements section of yesterday's earnings release furnished on Form 8-K and in our most recent Forms 10-K and 10-Q 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 postretirement expense, 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, they are not intended to be a substitute for GAAP. Reconciliations 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 the 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 have taken to accelerate our path to removing our U.S. qualified defined benefit pension plans. In June, we issued $700 million of senior secured notes, refinanced our existing debt and used $200 million of proceeds and $50 million of existing cash to make a $250 million 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 5 years and the reduction in our 5-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 time line 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 all of these actions in more detail and provided updated projections for our contributions and deficit during a July 24 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 Ex-L&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…

Thank you, Mike, and good morning, everyone. As a reminder, my discussion today will reference slides from the supplemental presentation posted on our website. I will discuss total revenue growth, both as reported and in constant currency and segment growth in constant currency only. I will also provide information excluding license and support revenue or Ex-L&S, to allow investors to assess the progress we are making outside the portion of ECS, where revenue and profit recognition is tied to license renewal timing, which can be uneven between quarters. We are pleased with the sequential improvement we were able to achieve on both the top and bottom lines, allowing us to raise our non-GAAP operating margin guidance and pre-pension free cash flow expectations. For top line, we tempered our growth outlook to reflect macroeconomic-related uncertainty impacting the broader industry as well as some shift in timing of backlog conversion. At the same time, many of our most innovative solutions support the type of efficiency goals being broadly prioritized and are resonating with clients. Looking at our results in more detail, you can see on Slide 4 that second quarter revenue was $483 million, an increase of 1.1% year-over-year or 1.0% in constant currency. Excluding License and Support, second quarter revenue was $396 million, essentially flat year-over-year and in constant currency. We exceeded the sequential growth we expected starting the quarter with revenue up 8.5% in constant currency and 6.5% in Ex-L&S solutions. We continue to expect a stronger back half with a higher weighting of license and support renewals and improvement in our Ex-L&S solutions. We have visibility into more upfront revenue and project work associated with certain signings, primarily in the fourth quarter, though some of this is subject to final deal terms that could impact revenue recognition. Our updated…

[Operator Instructions] The first question we have is from Rod Bourgeois of DeepDive Equity Research.

Okay, guys. And thank you for the detailed update on top of the call that you did recently on the pension front, which was also very helpful. I want to start just by asking if you can break down the components of the change in your new revenue guidance for 2025. If you can just break down the specifics there, that would be helpful.

Rod, it's Mike. Thanks for the question. I appreciate it, and I appreciate you joining the previous call as well. Very helpful to have your questions and embedded into our dialogue here. So I appreciate that. Look, I think in general, the tempering of that guidance was largely related to the macros, right, just budget uncertainty. As you know, we're pretty heavily weighted in CA&I and public sector and pushing in public sector and higher ed. And that's the area where we're seeing some of that, I'll say, muting of contract decisions. Deb mentioned in her prepared remarks, which I think is important to note that we're continuing to see increased pipeline. So we hope that pressure is easing and that we'll see some of the relief from this kind of buildup that we've seen over the last, I don't know, 18 to 24 months in general. I think we all feel from an industry perspective that there's a little bit of a backlog there certainly, some of the discussions recently on the trade elements, et cetera, getting certainty back into the market, we think will really ease that. But that's the primary issue from a macro point of view. Tied to that, I would say there's a component piece related to backlog conversion, right? So we sign a contract and there's a transition period. And that transition period can also be a little muted, right, from converting that backlog, how many countries we bring on, what services we bring on first, et cetera. So I think some of that, I'll say, hesitancy in the market, we're also seeing in a little bit of our backlog conversion. But importantly, I'll note that, that has no bearing on the overall contract value that we're going to see or the term on that contract. So we expect it all to come in, in the same manner that we signed it. It's really just how quickly it ramps. And then lastly, as we looked at things in the queue, there's a revenue recognition component of contracts that we're currently negotiating, which, again, we feel like they're kind of an in-call perspective from our point of view. And those contracts have elements to them that could be upfront or over time from a revenue recognition perspective. So we thought it important to at least have our guidance reflect the overtime view of those particular contracts as opposed to an upfront view. And so those are really the three primary reasons why we tempered that guidance. But the flip side of that is increasing our profitability and increasing our pre-pension free cash flow value. We feel really good about the continued strength we're seeing in L&S and the pull-through there. And again, those other elements in our view, are timing elements, not realization elements.

Okay. Great. And it sounds like there's some green shoots happening in the DWS segment. There had been some struggles in that business in recent quarters on volumes, and it sounds like there's some turn there. Can you elaborate also on the DWS volumes and also your progress in ramping the high-performance compute business as well?

Yes. Thanks again, Rod, the questions. You're exactly right. I mean we've had several quarters of kind of pressure on the traditional field service or PC work in that business. We've seen those volumes from a PC service perspective kind of level off, and we're encouraged that we're seeing some of this PC refresh continue to come in. The conversion to Windows 11, I think, is helping that. So that's one byproduct of the, I'll say, the traditional component of that. And we continue to see increases on the field services high-end storage and network services. So that volume we're seeing continually ramp. Again, we think that, that's aligned to not only what we've got in the pipeline for contracts we've signed, but aligned to what we're seeing from an industry perspective as we continue to build out these data centers from supporting of AI and the like, right? So there's a lot more high-end type field services work, and we're really well positioned to take advantage of that, largely because of a lot of work we've done over the last 18 to 24 months, getting our field service technicians trained up to handle a lot of that high-end storage. And then lastly, the back part of your question in relation to high-end compute. Our L&S business obviously continues to outperform. We've outperformed in 2023, '24, again here in 2025. And we're not really calling down anything from the future years. So '26 is still being projected at $400 million. So we're seeing advanced consumption in that business. We continue to have good pricing power in that business. We continue to modernize our CPF infrastructure or ClearPath Forward infrastructure really to support that enhanced data analytics and use of the data on our platform. So that continues to be really strong from our perspective. And you should expect, Rod, that we're going to do similar to the investor education session that we did in Q2 in relation to pension and capital structure, we're going to do one for ClearPath Forward to just try to help educate the investor community more on really the strength of that business because L&S margins are 70% and again, continues to outperform.

The next question we have is from Anja Soderstrom of Sidoti.

So you actually answered one that I had about the L&S and the growth for next year and the implications for the margins and cash flow there. It seems like you still expect that to be around $400 million.

Yes, Anja, that's correct. We're still calling for that to be $400 million. But again, if history is indicative of the future, we hope that, that will continue, right, outperform '23, '24 and '25. And again, the consumption is the story there.

Okay. So most of the upside you've seen this year has come from the increased consumption and not really pull-ins from next year?

Yes, that's correct. And again, I think that's been a very consistent trend. And again, I think it's consistent in the sense that there's this data layer, right, when we talk about the application of AI and the utilization of this data set. Well, we have this tremendous long-standing data set embedded in our platforms that we're seeing this continued use or additional use from the ClearPath Forward ecosystem. And don't forget, too, that those ecosystems as they get refreshed, are more than just a production environment, right? Typically, there is a test environment, a development environment. We talked about a little bit of a pull forward in relation to an integrated system that was shipped in Q2 that we thought would have been shipped in Q3. That is a hardware, software component integrated package. So there's a little bit of improvement in Q2 that came from Q3. But again, we've taken those elements up. I think, Deb, keep me honest here, but I think we originally started the year at $390 million and now we're calling $430 million.

Correct.

So the increase in that is really all consumption-based, even though there is a little shift quarter-to-quarter.

Yes. And also at Investor Day, we were saying more around that $360 million average per year, and we've clearly outperformed, as we've said.

Okay. And also, what's your ability to add new logos in this kind of environment?

Look, we're pretty happy with the pipeline that we're seeing from a new logo perspective. We've talked a little bit about the muted aspect of people actually like getting to the point of signing the contract, but we're really happy with the pipeline. I mean, remember, our new business is up 15% first half this year versus first half last year. So we feel really good about what's in that pipeline and really good about the new logo. Our DWS offerings, we talk about DSS, we talk about intelligent operations or Service Experience Accelerator, all resonating in the market, all real value propositions from a client perspective. These are complex long-term contracts, 3 to 5 years in general, and they're multi-BU from our perspective, usually have a component of CA&I and DWS in them. And they just take a good amount of time to work through the logistics, but we're seeing, again, a strong pipeline, a strong pipeline in the areas where we think we're differentiated, and we're still bullish on our growth in new logo for the year.

[Operator Instructions] At this time, we have no further questions, and that concludes the Q&A session. I would like to turn the conference back over to Mike Thomson for any closing remarks.

Thank you, Operator. Before we wrap up, I want to emphasize three key points we hope you took away from today's call. First, we're increasing our profitability outlook as a result of continued upsides in our L&S solutions and successful implementation of operational efficiency initiatives, including AI adoption. Second, while we're not immune to some of the macro uncertainty weighing on the industry growth, the impacts are primarily timing, and we've got a clear line of sight to achieving our full year objectives. And finally, the steps we've taken to transform our capital structure have removed substantially all volatility in our U.S. pension contributions, and they provide a more defined path to reducing leverage and ultimately removing our U.S. qualified pension obligations in the next 3 to 5 years. So thank you for spending time with us today and the great questions, and we look forward to speaking with you again next quarter. With that, Operator, you can close out the call.

Thank you. Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.