Q2 2020 Unisys Corp Earnings Call
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Good day and welcome to the units of Corporation second quarter 2020 earnings Conference call all participants will be in listen only mode.
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I'd like to turn the conference over to Courtney Holben, Vice President of Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone. This is Courtney Holben, Vice president of Investor Relations.
Thank you for joining us.
Earlier today, you know just released a second quarter 2020 financial results.
I'm joined this afternoon, just discuss those results by Peter Altabef, Our chairman CEO and Mike Johnson, our CFO.
Before we begin I'd like to cover a few details first today's conference call I'm acuity session or being webcast to be able to use this investor website.
You can find the earnings press release in the presentation slides that we will be using this afternoon got our discussion as well as other information related to our second quarter formats on our Investor website, which we encourage you to that.
Third today's presentation. So just complimentary to the earnings press release includes some non-GAAP financial measures non-GAAP measures have been reconciled to the related GAAP measures, we provided reconciliations within the presentation.
Although appropriate under generally accepted accounting principles. The company's results reflect charges that the company believes are not indicative of its ongoing operations and that can make its profitability and liquidity results difficult to compare to prior period anticipated future periods orchards competitors' results.
Yes, I don't consistent pension debt exchange and extinguishment cost reduction and other expense.
Management believes each of these items can distort the visibility of trends associated with the Companys ongoing performance.
Management also believes that the evaluation of the Companys financial performance can be enhanced by use of supplemental presentation of its result that excludes the impact of these items in order to enhance consistency and competitiveness with prior or future period results.
The following measures are often provide it and utilized by the company's management analysts and investors to enhance comparability of year over year results as well as to compare results to other companies in our industry.
Non-GAAP operating profit non-GAAP diluted earnings per share free cash flow and adjusted free cash flow EBITDA and adjusted EBITDA in constant currency.
In addition, this quarter, we won't be continuing to report non-GAAP adjusted revenue related measures as a result of certain revenue relating to reimbursements from the company's check processing JV partners restructuring expenses included as part of the company's restructuring program.
For more information regarding these adjustments please see our earnings release and our form 10-Q.
From time to time, you just as may provide specific guidance or color regarding its expected future financial performance such information is effective only on the date given.
You know so generally will not update reaffirmed or otherwise comment on any such information, except as uses deems necessary and then all in a manner that complies with regulation FD.
And finally I'd like to remind you that all forward looking statements made during this conference call are subject to various risks and uncertainties that could cause the actual results to differ materially from our expectation.
Actors are discussed more fully in the earnings release and in the company's FCC filings.
Copies of those FCC reports are available from the FCC along with other materials I mentioned earlier on the use this investor website.
Now I'd like turn call over to Peter.
Thanks, very much coordinate and good afternoon, everyone and thank you for joining us today up since our last call World has continued to confront health.
Economic and social issues.
And I'd like to start by saying that we hope you your family and friends for me. So you can healthy usually what I say that which I do a lot, though I'm, referring to cope with 19. This afternoon I'm also referring to the hurricane and a hurricane conditions that are affecting those of you on the eastern seaboard.
2020 has simply been that kind of year.
Turning to the company's operations in the most challenging cope with 94.
Revenue expectations are unchanged for the full year 2020, when we have increased visibility.
On profitability.
Our client satisfaction is high represented by our industry, leading net promoter score and our liquidity is strong with our cash balance at 782 million compared to 790 million at the end of the first quarter.
I wanted to begin by highlighting some of the reasons why our revenue expectations for the year are unchanged.
By the year over year declines we experienced in the core.
Approximately half of our revenue decline in the second quarter was due to cope with 19 related impacts to our services business.
And the other half was driven by intra year inside your ships.
Perhaps forward renewals as well as currency and expected declines and extract processing joint venture.
We anticipate improvements in the most significant covert 19 drivers and the second half of the year.
For instance, and as we expected field services, VPO and travel and transportation well the areas of the business that were the most significantly disrupted by called <unk>.
And leading indicators within each of these have started to improve.
Before describing the improvement in each of these I want to put in context, our performance perhaps relative.
To what we're seeing in the economy in the industry.
Looking at the makeup of some of our services revenue.
Those of you on this call no because you have followed us for a while we're hopefully you have.
Our global workspace business is a large part of our revenue in the second quarter, good reflected about 30% of our revenue.
That is.
Typically high.
For companies in our space.
And with you that we have a higher percentage then I believe any of our peers and what we call field services.
If we look just at field services revenue alone.
And we did.
Reduce that.
Well, we look at the reduction as a percentage of constant currency services revenue.
Once we take out I P. S L. with Mike will talk about little bit is our nonprofit.
Joint venture so taking out IPO so.
Field service is a loan.
Represent 85% of the reduction in our constant currency is currency services revenue.
So I just want us to sit on that for a second <unk>, 85% is in the area, where we are simply unlike the rest of the business.
And I hope that that explains why our performance is a little different than perhaps some others.
Speaking about field services, however that is on the rebound.
So ticket volumes declined in March and April, but we began to see the trend reversing in May and June.
So for instance monthly tickets raised from a low of approximately 50% of their pre cope with levels in April to approximately 70% by the end of June.
Okay, moving beyond field services, well, let's look at DPL and of course, the largest part of BPL is IPO sell but we have other VPO contracts as well.
As our beep you know teams went back to the office in many geographies BPL volumes began to increase.
For instance volumes on two of our largest contracts rose from lows of zero percent and 36% of their pre cobot volume levels in April to 38% and 80% respectively by the end of June.
Within travel and transportation volumes are still depressed compared to pre covert levels. However by the end of June our global average daily airway don't count, which measures volume of air cargo transactions has increased from a low of 36% of pre cobot bargains in April two.
51% as of the end of June.
Additionally, our services renewable schedule is approximately twice as high in the second half of 2020 as it wasn't the first half and our renewal rate remains in the high nineties.
With respect to the other half of the revenue decline.
We also have a more favorable clearpath forward renewal schedule in the second half of the year.
As to clear path forward contracts in the second quarter were delayed and are now expected to sign in the third quarter. So although clearpath forward revenue in the quarter was down significantly year to year. We view this as a timing issue inside the year on them.
We expect second half technology revenue to improve compared to the first half as a result.
And as Mike will describe in more detail revenue for the quarter was also negatively affected by currency movements and expected declines in that IPO sell check processing joint venture.
Based on all of this we expect improved revenue in the second half of 2020 compared to the first half.
Additionally, the scenarios were currently modeling for the full year indicate revenue inline with our discussion in the first quarter showing that non-GAAP adjusted revenue, maybe down approximately 10% year over year, although of course, this could be more or less.
We also have much better visibility into full year profit expectations and while we were not in a position to provide you a range of expected results last quarter. We are doing that today and Mike will be providing that information in a few minutes.
With respect to the quarter the lighter clearpath forward renewals I mentioned accounted for 90% of the year over year decline in non-GAAP operating profit in the quarter.
And as we said they are not expected to impact the full year either revenue or profit.
In the quarter, we expanded services non-GAAP adjusted gross margin both year over year and sequential.
Additionally, we had previously identified a number of contracts that were performing below their target margins.
During the second quarter, we increased margins on over half of these contracts and we expect further upside during the second half of the year.
Mike will provide some more color shortly on some additional initiatives as well as our views unexpected profitability for the showed year.
We continue to excel at serving our clients and this is highlighted by our industry, leading net promoter score of 53. This NPS reflects the sentiments of clients that participated in our April Twentytwenty client satisfaction survey.
Client satisfaction and Referenceability, our key go to market Differentiators for us.
In addition to enter yes, there are a number of things that are we consider leading indicators to monitor insight on our go to market momentum. We think those are especially relevant in periods like this.
We look at pipeline win rate and TCV among the metrics.
As the total comp at the total company level, our pipeline was up 10.1% sequentially versus the first quarter. This was supported by growth in all regions.
Total company, New business pipeline, which is a subset of all pipeline and consists of new logo and new scope was up 14.4% sequentially.
Our win rate increased 29 points sequentially and was up more than that year over year.
And services TCV.
Which is inherently lumpy in this business was up 1.4% year over year in the quarter.
And up 16.5% year over year during the first half.
[noise] demand drivers continue to aligned to our products and platforms, which also contributed to our go to market position.
Specifically there were strong demand for digital transformation cloud enablement and cyber security.
We're meeting this demand within Telesur, our digital workplace solutions.
Forte, our integrated multi cloud application optimization platform and still our cyber security solution. The demand for these solutions even during coker 19 was highlighting highlighted during the quarter by the pipeline TCV and when reach I mentioned.
Digital workplace services is a key strategic focus for the company and our until a certain platform helps differentiate our offerings during the quarter, we launched general availability of our entirely app and artificial intelligence and milling machine learning functionality, which came to improve the customer experience and overall.
All efficiency of customer interactions for our clients.
In digital workplace services, we extended and expanded our relationship with a leading provider of innovative technology solutions for the treatment of cancer and brain disorders.
We will now deliver our intelliserv solution to enable omni channel service to support for improved and user experience and at a lower cost.
We use our cloud offerings, such as cloud for Jay to implement holistic digital transformation solutions for our clients. We launched general availability of cloud 14 navigator to Dot Hill and cloud for take compliance to Dido during the second quarter, which help clients more effectively and efficiently manage.
After their migration to the cloud.
Which is even more relevant in a covered and post covert periods due to removed work trends.
Cloud services, we entered into an expanded contract with a global commercial real estate services from under which will use cloud forte to optimize their cloud environment will also provide intelliserv to automate that clients digital workplace support experience as in this situation. We are increasingly looking to provide multiple sold.
Actions to our clients.
Also in cloud services, we're using cloud for Terry in a new logo crop contract with the state of Nevada.
For the Nevada criminal Justice information system to improve safety for Nevada citizens. This contract is a good example of the strength of our public sector. Even after the sale of our Federal Division earlier this year.
Cyber security remains a top global priority as attacks have increased worldwide in the remote work environment of the last few months.
Our pipeline for stealth grew 20% sequentially versus the end of the first quarter and during the quarter one of our partners secured a multiyear contract with an I.T. services company to provide unisys stealth to protect critical applications, a course across an assortment of I T platforms for the clients customers.
These have implications covering data centers retail stores and distribution centers.
I'd like to close by spending a minute on our views on diversity and inclusion and on our associates in general as units since we have an unwavering commitment to diversity inclusion any color that is at the center of our principles as a company.
We have zero tolerance for racism, bigotry, where hatred of any kind.
Our goal is to continue increasing diversity across the company at all levels Im sitting already and continue raising awareness of unconscious bias through training offered to help all leadership and associates.
We have a global inclusion and diversity Council that helps guide the company's efforts, including establishing our women in action program aimed at helping women successfully transition to leadership roles and our diversity accelerator program, which focuses on minority associates with a desire to advance into leadership.
Decisions are council has also supported associate interest groups such as the Pride network, the ability innovation group and the veterans interest.
We were honored by being recently recognized as a note worthy company I diversity Inc. and were named as a best employer tradition ability inclusion by the disability equality index.
Beyond these focused efforts related to inclusion and diversity.
Also want to recognize the outstanding contributions made by associates of every kind and description as we're navigating through cobot 19.
I have never been more proud of our students this team.
The rest of 2020 will undoubtedly continue to bring more challenges, but our team can handle it and we remain focused on executing against our plans and driving the business phone.
With that I'll turn the next section of the call to Mike to provide more detail on our results Mike.
Thank you Peter and good afternoon, everyone I'd like to Echo Peters sentiments and hoping that you your families and friends are all doing well during what continues to be a difficult time.
And my discussions today I'll refer to both GAAP and non-GAAP results as a reminder, the reconciliations of these metrics are available in our earnings materials.
Likewise information related to discontinued operations is available on our website.
As Peter had already highlighted our revenue expectations for the full year 2020 are unchanged and we've increased visibility into full year profitability expectations.
We ended with a strong liquidity position after our most challenging koby core.
Give me a little more insight into the cobot related impacts that uniquely affected us due to our mix of field services, the timing of our technology renewals.
Expansion of our services margin and our strong liquidity position as well as an update on some other important topics.
Let me start by reiterating that data our actual and anticipated results are in line with our full year revenue expectations that we provided in the first quarter.
Well covert 19 made the second quarter challenging portions of the business it impact that were consistent with our expectations heading into the core.
Non-GAAP adjusted revenue was down 22% year over year or 18.9% on a constant currency basis.
Approximately half of this decline was driven by services non-GAAP adjusted revenue, which was down 13.3% year over year on a constant currency basis.
Give me a little more insight here I would note that field services was the primary driver this decline and accounted for 8.7 points of the 13.3% decline.
As we've discussed we expected a revenue decline in our check processing joint venture and that business accounted for an additional 2.8 points of the 13.3% decline.
Excluding these two businesses the rest of our services segment was down just 3.3% year over year on a constant currency basis.
We saw no identifiable negative revenue impact, resulting from our remote work environment as we continue to provide exceptional service to our client base, that's supported by a significantly higher NPS than our competitors.
I'll discuss some of the opportunities and we see as a result of that shortly.
Services backlog ended the quarter at 3.6 billion down 4% sequentially. Despite the covert disruption in the court.
The other half of the non-GAAP adjusted revenue decline was driven by intra year shift in timing a clear path forward contracts, which we do not believe will resolve the change in our full year expectations for technology revenue.
Did however result in a technology revenue being down 49.7% year over year in constant currency.
No that last quarter that to clear path forward contracts are renewed earlier than expected, bringing that revenue and margin into the first quarter.
Conversely during the second quarter, we had two other clearpath forward contract renewals that were expected to be signed in the second quarter that we now expect to be signed in third quarter and as we've discussed we generally recognized all revenue associated with Clearpath forward contract upon renewal and this could drive lumpiness into our technology results.
Contracts or accelerated or delayed.
The activity coupled with the other scheduled clearpath forward renewals is expected to yield a year over year increase and technology revenue in the second half of the year and our full year outlook remains unchanged.
As a reminder, we said entering into the year, though we expect technology revenue to be down high single digit percentage year over year do a lighter clearpath forward renewal schedule versus last year.
Our current expectation is that technology revenue will be split approximately 40%, 60% between the first and second half, but the second half revenue split being approximately 30% and 70% between third and fourth quarters.
As Peter noted. Despite these numbers are solutions continue to be highly relevant for our clients and we saw revenue growth of 7.2% year over year within our public sector, indicating ongoing demand for our digital government transformation solutions, which has become an area of increased focus for us.
Well, we're optimistic about the outlook for the second half of the year.
Based on the current visibility we have around improving trends. We have highlighted this throughout this discussion and assume that there are no significant negative terms in the macroeconomic conditions, we anticipate our revenue will improve sequentially during the third and fourth quarters.
This is expected to be driven in part by continued improvement in our field services and be deal businesses as they recovered from the temporary disruptions brought on by Cobot 19, as well as the anticipated increase in technology revenue in the second half that I've noted.
As we look at 2020 overall the models. We're currently running continue to indicate that the 10% year over year revenue decline, we discussed on the first quarter call remains a relevant frame of reference so ultimately results can be better or worse than this.
Moving to profitability non-GAAP operating profit margin for the second quarter was 20 basis points relative to 9.8% in the prior year period.
Over 90% of that year over year decline and non-GAAP operating profit due to lighter technology renewals in the quarter relative to a largely fixed cost base in that business.
Acknowledging cost are largely related to software development and as a result of this and the shift in technology revenue. There was a significant impact to both gross and operating profit margin within technology.
Technology gross profit margin was 42% relative to 78.1% in the prior year period and technology operating profit margin was 2.2% relative to 56.7% in the prior year period.
I'd also remind you that there were significant number of Clearpath forward renewal sign in the second quarter of last year, which benefited profitability in that period.
With respect to services, we were successful in quickly identify number moving costs to mitigate a significant portion of the margin impact due to cobot related revenue declines.
We continue to automate to improve productivity, which reduces excess capacity and other associated costs.
We also made progress on many of the accounts. So we've been targeting for margin improvement and the on the removal of the cost previously allocated to our U.S. federal business.
We have now taken steps to remove approximately $50 million costs previously allocated to our legacy U.S. federal business.
We expect that the remaining 10 million of such costs will be removed over the remaining portion of the year.
As a result of all this services non-GAAP adjusted gross profit margin was up 20 basis points year over year to 15.5% and was up 280 basis points sequentially.
Services non-GAAP operating profit margin of a negative 40 basis points was down 90 basis points year over year, though up 310 basis points sequentially.
Year over the year decline at the operating profit level was largely due to the flow through impact of lower revenue on as DNA. Some elements of which are more fixed in the short term than the cost of revenue.
For the company overall, we saw a decrease in operating cost of 48 million on a sequential basis versus the first quarter and 69 million year over year.
We recognized approximately 8.5 million in restructuring charges during the period, which impacted GAAP operating profit and a total of 66.8 million of charges through net income or one dollar and six cents per share.
These charges included items related to the cost efforts I noted as well as pension expense of 24.5 million and a one time $28.5 million charge related to the extinguishment of debt associated with the early repayment of our senior secured notes during that period.
Adjusted EBITDA margin was 11.4% relative to 16.8% in the prior year period.
Given by many of the factors I've already noted with respect to revenue and operating profit.
Non-GAAP diluted loss per share was 15 cents relative to non-GAAP earnings per share 52 cents in the prior year period.
As I've noted during the quarter, we made progress enhancing margins with key contracts that we had targeted for improvement. We've also underpinned the longer term reductions to SGN eight to further improve our cost structure.
Additionally, given our evolution in field services business and in part due to the impact of Cobot 19, we're targeting some cost reductions in third quarter to help make this revenue stream more profitable going forward.
As I alluded to earlier, we've been very pleased with how seamlessly our associates transition to a remote work environment, while still maintaining levels of efficiency consistent with what we've seen in recent quarters.
As a result of this and due to the fact that the health and safety of our team remain a top priority we've been reevaluating our real estate footprint.
As we believe we can operate successfully with a significantly more limited in person presence at our facilities.
It's also provides increased flexibility for our associates, which we believe has become increasingly important especially in the current environment, we limitations on child care options.
We did not provide profitability expectations at the end of the first quarter given the significant amount of uncertainty at the time, but everything I just highlighted provides us with more visibility on this now.
Given that most of the overall margin decline for the company was due to fix cost within technology, we expect to see operating profit margin improve in the second half of the year as technology revenue is expected to be higher in the second half.
With respect to the full year, then as we've noted last quarter, we expect 2020 profitability to be down more significantly than revenue.
Based on our increased visibility our modeling scenarios now indicate a low end scenario at approximately 250 basis points below the guidance range. We previously provided.
In a high end scenario at 200 basis points below the high end of that same range. As a reminder, the guidance range. We originally provided and subsequently read through for 2000, 27.7% to 8.7%.
All of these forward looking indications are based on current visibility that we had and should spikes in the virus result in material negative economic consequences. Our actual results may differ from our expectations.
We ended the second quarter with a strong liquidity position, having approximately 782 million in cash down less than 10 million relative to the end of the first quarter.
Given the repayment of our senior secured notes and our current cash position and cash contribution schedule. We have limited near term cash requirements outside of normal operational funny.
Adjusted free cash flow was a negative 37.1 million relative to 14.3 million in the prior year period.
As I noted with respect to profitability strong technology renewals in the second quarter of last year also contributed to a more significant flat cash flow that had been typical.
We have no negative impact on cash collections due to covert 19 and continued to be in line with historic norms.
Capex was 11% lower year over year, and we're currently targeting 150 million of Capex for 2020.
In addition to the operational and cost improvements that we've discussed we've also made progress during the second quarter in refining our capital structure plans.
With respect to our pension obligations first I'll note that based on market conditions as of June 30 required contributions through 2025 would have been reduced by 175 million relative to the calculations as of the end of the first quarter and the pension deficit would have increased by less than 60 million.
From a legislative perspective, there are elements included in the house version of the next phase of the economic stimulus package that are aimed at permanent pension relief.
These elements remained in the bill when finalized they'll have a significant positive impact on our future cash contributions in fact post our anticipated remaining contributions in 2020, we would not be required to make an additional contribution until 2026 and the magnitude of that contribution would be about one fifth of the value of our current annual.
No contribution schedule.
There are also discussions regarding the immediate monetization of certain us general business tax credits and depending on the specific details of companies could recognize significant cash benefits from these proposals.
Well continue to work towards a permanent solution for pension relief and the overall passage of this economic stimulus legislation.
We announced that our board of directors unanimously approved the early termination of our tax asset protection plan that we put in place in conjunction with the sale of our U.S. federal business, specifically to protect our deferred tax assets.
That plan has served its intended purpose and it no longer needed. So we're advancing expiration date from February 5th 2021 to August 4th 2020.
As we've discussed the sale of the U.S. federal business significantly improved our leverage and liquidity now that we've reduced our leverage and addressed our near term pension obligations were focusing on optimizing our balance sheet and progressing towards a more normalized capital structure.
Positive step in our path to normalcy came this quarter as we've received a credit rating.
Rating agency upgrade from S&P, and we plan to utilize traditional debt to further mitigate our pension deficit, thereby reducing its variability.
However, since there are no contribution requirements for the U.S. planned for the next two years, we plan to be opportunistic and tapping the debt markets.
We've also begun executing our liability reduction program within our global pension plans, we're targeting approximately 1 billion dollars' worth of global pension liability reduction over the next eight months, which we intend to accomplish through a combination of bulk lump sum buyouts annuity purchases and transfers to multiclient multi.
Employer plans.
We started the process to begin executing against these targets with the intention that this round of liability reduction will be completed by the end of the first quarter 2021.
In conjunction with this in some other initiatives, we're expecting preki charges in the third quarter.
First a significant removal of pension liability along the lines of what we're considering would be construed from a GAAP perspective, as a settlement of that liability and could be accompanied by noncash settlement charges.
In this case, we're anticipating a charge that could be as large as $100 million, but this would allow us to fully removed one of our international plans and again would be noncash.
Currently modeling this as a third quarter action. However, there are processing delays it could slide into a later period.
The second charge, we expect is related to our EMEA optimization plan, which we previously discussed which requires the closing of certain entities, which in turn creates noncash currency translation adjustment write offs. This is also a onetime noncash charge and expected to be approximately $20 million in the third quarter.
Thirdly, we expect to take a cash charge associated with our reassessment of our real estate portfolio likely in the third quarter. The magnitude of this charge is expected to be between five and $10 million and is still being evaluated we expect the annualized run rate savings related to discharge to be between 20 and 30.
$9.
So between these three initiatives were expecting approximately $125 million to $130 million in charges in the third quarter, all of which would be one time and 120 of which would be noncash.
Overall, we're looking forward to the improvement in the second half of the year and progress on the initiatives, we've discussed with that I'll turn the call back over to Peter.
Mike Thanks, very much with that operator, we'll open up the cold acuity.
And we will now begin the question and answer session to ask a question that sort of Star then one on your Touchstone true.
If you're using a speakerphone please pick up your hands they prefer communicate.
To withdraw your question. Please press Star then too.
But our first question today will come from.
Rod Burger with deep dive equity research. Please go ahead I think that's yeah Ross. Thank you very much for being on the coal.
No problem guys, Hey, So first question about the demand environment and how it's impacting revenues. So clearly during the intense coded locked down we you saw demand disruption.
At the same time I would assume that there are parts of the business that should see increased demand due to cove. It and so my question is is it true that coated.
It is our can bring some benefits to demand.
And is it also true that that the benefits of covert demand are prone to occur at a lag certainly relative to the hits that you've already experience in other words are there. Some are there some benefits in demand from Cove, it better just prone to occur at a lag effect to win the locked.
Downs existed.
So so that's a great question you know figuring out one is that what is a benefit from co bid versus what would already have been a business going up is kind of tricky. What I can tell you is you know our non global workspace cloud infrastructure business.
Did well and increased over the quarter.
When we look at at that global Workspace business, you know as I said, you know if you take out depending Mike Mike and I gave two for different ways to explain the numbers I took out IP to sell for my calculation and when you take out IPO sell and look at the decrease in services revenue on a constant currency basis.
85% of that was a subset of global workspace just field services. So you know that 85% as is and that's clearly cobot 19 related. So I think yes, there are upsides and cloud that you see already I see going forward well, we don't see an.
Upside in field services I actually think Thats, we are reconfiguring, our business to permanently have a lower level of field services, but the rest of global workspace, which includes service desk.
It includes more of what you would call end user experience as opposed to just end user services. We expect all of that to be a gross driver coming out of covered 90, we expect that will be more of that on an absolute basis. So what I don't know if that completely answers your question, but I hope it does yeah I know that that's helpful.
And makes it makes perfect sense.
The other thing is I was interested that you cited well your your TCV was up year to year encouraging there, but your win rate seem to have improved quite a bit was that some lumpiness on select deals or or is there something more structural going on that's helping your.
Win rate, especially now that you're more focused business post the the you know that I'm getting rid of the the federal business is there something structurally that's maybe helping you on the win rate front.
So I think I think it's the latter and I think it will continue to go up so.
When we look at our sales focus and we look at what we did as a company really in 2018 in 2019.
We knew we were very well positioned in the federal market that was a combination of our cloud Forte and Intelliserv in particular and also still but mostly clubs 14 intelliserv in federal government.
Really exactly what the government needed and the government spending more time. The result of that is we really focused our sales dollars, we really focused our go to market in government.
That drove really high win rates and government and allowed it specifically federal and allowed us frankly to sell the federal business at a very large premium.
So subsequent to that.
We kind of starting in March wheeled around and said Okay. Now we have the non federal business. How do we apply that same level of focus over here and start really focusing on this and we're doing that two ways. So what you're seeing right now in those win rate increases is additional discipline additional.
Focus because that is the company, but what you will see starting in the September October timeframe is the launch of a new digital sales platform, which we had been working at for a while the predates March obviously.
And it's a very big deal, we think it's good to be an industry, leading sales platform. We think it's going to dramatically increase our ability to use automation in the sales process to allow our sales executives at our business development people to be more attractive.
And to increase margins as well as ultimately to drive up not only the win rate, but our pipeline because we'll be able to address more deals. So I would tell you. This this win rate increases a work in progress right now it is due to that focus after the sale the federal but come the ended this year, we're bringing more tools to that too.
Got it they'll pay rabbits, my two if I could just add to that you know clearly you know concerted effort around calling the pipeline a concerted effort around you know ensuring quality qualifying that pipeline at a much earlier stage and not chasing you know obviously a bunch of things.
That don't ultimately turn into TCV your revenue and I think that the part that Peter mentioned around public sector. You know as you know at the end of 18 in early 19, we signed a lot of large public sector deals. So the know how in muscle memory on what those governments or state and local and foreign governments are looking for.
Or is now starting to be part of our muscle memory on the next sale and obviously, having tremendous quals there a with our NPS scores is certainly helpful in that win rate as well.
Great and so one other question you you gave us numbers to make it clear that the the earnings challenge that you had in the quarter was primarily due to the timing and your clearpath forward renewals.
We've experienced that in the past, where you have upside because the timing is positive and other quarters, where the timing is negative in the second half do you feel like you have better visibility on the timing.
That would certainly increase the probability that your your earnings works out for the year. So how's the visibility in the next two quarters on the renewal timing at this point.
Yeah look I think the visibility for the year is always good but as you know of something slides, even a week sometimes a lot of these are scheduled to be at the end of a quarter. So it does have the lumpiness from quarter to quarter as I noted in my script. We had two that moved forward into Q1 and we had.
To that moved back into Q3, so we feel pretty good around you know again for us it's not a matter of if it's a matter of win and we feel good about the total renewal schedule and at this stage, we feel pretty confident around the timing of those in the back half and just a.
Reiterate when if you look at last year, we were about a 50 50 split front half back half. This year, we're looking more like 40 60, and then in the back half of the of the year. We're looking at like a 30 70 Q3, Q4, so given that level of insight into.
Per quarter should give you gain insight into how we feel about that timing of delivery of those renewals.
Yeah, and obviously like you.
You know when when he talks about the timing and we're talking about a couple of the deals that were delayed from the second to the third quarter. We have very high covenants as will be signed in the third quarter. We actually had some deals as he referred to that were accelerated we thought they were going to be second quarter deals and they were first quarter deals. So we really don't control the timing of these sometimes they come early summer.
They come late.
But you know from.
A number standpoint, when you have that kind of a shift you know it and the way that expenses are recorded in the technology line. It just has a very dramatic effect on the technology profit, which has a dramatic effect on the company. So that if we really think it's an important message for all of the analysts as you read.
We are spending time with US you know when when you see 90% of the of the decline in something that is inside the year.
We hope you take that into account.
And the next question will come from Jon Tanwanteng with CJS Securities.
Go ahead.
Hi, guys. Thank you for taking my question the first one.
Just on the the renewals in the quarter. The two customers you referred to the pushed out can you give a reason why they delayed with something covered related or something else, maybe a change scope or contracts and just negotiations or any color would be appreciated. Thanks.
I do not have color on the delayed whether it was covered or not but again it. It. It is usually not it is usually related to specific circumstances at the client themselves. When we look at the two that were accelerated into the first quarter. They were actually accelerated before codeine.
Team really kind of hit in its current form so largely theirs are unrelated took over 90.
Got it and then just to piggyback on the prior question in terms of timing.
It seems to be a very large portion of the technology revenue flowing into Q4 is there any risk of that pushing into.
The next year.
So I'll start there was always risk of that especially when we tend to have these deals signed toward the end of the quarter, we deal with a risk every year.
You know is there more risk of that in this year than in the typical Gil year, yes, because it is not a typical year and but but if we don't see that is ultimately affecting the overall size of our renewals, but certainly some of them could if you will flop into early 2020 and 2021.
Sort of 20, Twond, it's always possible.
Got it Okay, and then just switching to.
Peter I think you mentioned that you had a partner selling stealth and a deployment I was wondering if you could was that I see I see or another one of your partners and you know if it wasn't as good how are they doing in the market compared to expectations have you seen inflows from them Oh sorry.
So one of the that's a great question. Thank you John So two points on that first that partner was not actually I see so one of the things we have been doing what stealth is expanding our distribution by so several organizations are out there now looking at working with us.
Dell for instance has now included stealth in its cyber volts capabilities offerings. So in this particular case. This is a if you will one of our distribution pipe clients that is actually moving style to 90 services company with our blessing and that IP services company is selling.
So inside there's offerings, which we think is a terrific development.
There's a big market out there and want to make sure we get it [noise] with respect to say I see in particular, they're an outstanding partner. So they have been extremely focused on cell the they're wins in the quarter or were relatively modest their pipeline going forward.
Looks very good, but we're not ever going to announce assess each field.
And we'll never get to categorize those we let them do it but I could tell you we are very happy with the level of engagement from FDIC.
And the next question will come from Joseph Vafi with loop capital. Please go ahead.
Hi, Joe Hey, guys, it's so Joe vastly over at Canaccord.
As we get just start a first on your <unk> could you I'm just.
Refresh us again on.
On a intelliserv and cloud Forte and the revenue model there versus kind, a you know kind of global workspace and in general and then I'll follow up.
Sure so.
If we think about the way industry uses terms global workspace is kind of the umbrella term used for the the interaction of an employee at a company with their employer and.
And how they get connectivity, how they deal with their hardware how they deal with their software how they deal with their applications. Initially in that space people used to talk about tilt. So think of global workspace as the umbrella term initially people used to talk about end user and end user largely was a combination.
One of field services, and so and support desk and those are kind of the key components.
As as end user has evolved is really evolved two ways. It's gotten a much broader so people like us tend to talk less about end user services and more about end user experience. It's not so much just you know do we have a help desk that we keep the lights on in terms.
Was running it but but how do we increased the productivity of the employee and when you think about that productivity now all of sudden you're looking much broader you're looking at how does that employee interact with the financial services platforms and financial services, how does that employee interact with HR, how does that employee into.
Direct with the business to make sure that whatever that person is doing so the company is most productive. So it's actually a significant expansion of what used to be end user sort of services. We think going forward that is going to be a growth engine for us and we think that's a growth opportunity as I said.
Given the quarter about a third of our revenues in this space.
But our revenues will migrate as you go more to end user experience from end users services under the umbrella of global workspace, you start evolving with a relatively smaller proportion of your revenue in field services and a larger proportion in doing things were.
Mostly in doing things on an automated way in using artificial intelligence and in using more of a consultative capacity. So that you can tie into the HR and the financial services and the business operations and Intelliserv is our way to do that.
Intelliserv is the way we use the glu that's trying all of these together in an automated artificial intelligence much more.
Inelastic or more much more or less Dick Wei, so we use less and less labor as a percentage of cost of sales one of the things we're doing across the company. We look at year to year, our labor as a percent of cost of sales a year ago was 60, excuse me 56 plus percent.
It's now down to I think 50.9%.
So we're gradually moving labor to a lower and lower percentage of course, the sales and that's part of this journey from U.S. Yoo X all under the umbrella of global Worksites.
That help on the global workspace Intelliserv answer.
Oh, yes, Sir Peter you I think that's helpful and then.
You know just I know a Mike you you mentioned the international efforts on pension and charges. There makes sense, but are there going to be or is there a cash or are there cash should we expect you know cash payouts or other things like that.
I guess you feel that's a good use of the cash right here on yeah turn data versus having yeah, Joe else <unk> just to be clear, Joe that the charges or or settlement charges. They are noncash right and I get that they don't and even when we do make the bulk lump sums and or annuities that cash comes out of the pension.
Not out of our our cash coffers rights so.
From our perspective removal of the volatility of that liability is really what we're after and so what we can supplement through public debt to make those contributions and fix that that interest expense as opposed to the floating volatility that comes with you know the.
The discount rate movement against those liabilities so.
So yeah, we think all day everyday that we want to make sure that we're addressing both sides of that coin, but again just to be clear none of those charges or cash charge.
In the next question will come from Frank jointly with Goldman Sachs. Please go ahead.
Great. Thanks for taking my questions guys I guess I'm just to start you mentioned in the slides that are that half. The revenue impact was was driven by cove. It but I wanted to see if we could dig into the travel and transportation channel a bit more I'm really just understand one you're offering there to sort of how to think about the revenue split.
And then three you know how we should be thinking about expectations for the ramp back up obviously, you know being aware that you've already given us the guidance for the full year. Thank you.
[noise] light you want to take that one I I guess I'll start by saying travel and transportation is a relatively small percentage of our business.
And I think it was.
Last year Woo well last year was about 4.5% of our business. So this year, obviously it is a lower percentage of that but at the end today, it's not a material part of the because of the business like thoughts on that [noise].
No I think that's spot on Peter and kind of the way we look at that Frank is really just some of the volume based contracts I can get impacted in that travel and transportation business.
But even when povich struck I think when we combine both our China business as well as the travel and transportation business. It was a sub 7% in total so relatively low impact from TNT on the types of things that we were talking about for full year guidance.
And I guess, the the volume component.
Would largely be predicated on the way bills and other items that Peter mentioned in his script.
Yeah. So weak right you expect we do expect that business to pick up.
During the second half of the year somewhat but just to put in context, it's down about 50% year on year.
Great. That's super helpful. Thank you and then.
Maybe one for you might just on the balance sheets. So so you made in your comments that you plan to to utilize traditional that and a and be opportunistic about tapping the debt markets and.
I look at your balance sheet today, you, obviously made a lot of progress with regards to deploying the proceeds to pay down the high yield notes you still like what do you have about 59 million trauma in your revolver, you've got the 84 million stepper converts and then you've got the pension contribution.
This year and then obviously you have some some time until 2026, so with that as context, just wanted to better understand.
You know, how you're thinking about being you know opportunistic I'm obviously the high of markets are relatively open right now and so wanted to to think about.
What your what your appetite is to you know to issue debt and be a little bit more proactive on the pension deficit here and then you know a further to that point, how should we think about your appetite for unsecured versus secured versus convertible debt.
At this point in the story.
Okay, well, great Frank a lot lot of good meet their so let me start by saying you know post the contributions to the pension one of the big factors in order for us to move forward with the quote opportunistic view of the debt market to waiting to see with the stimulus package and contains.
If it has the elements in it that were embedded in the house Bill there would be no cash contributions required until 2026, so when we're talking about getting into the to the public debt market. At this point, we're looking at unsecured and we were looking at it for the 2023 and 2020.
For contribution. So you know so were weighing want the pre colby rates were for unsecured debt and where they're at now and although it is open and it has been.
More favorable it's still not back to pre covert rates and so I think the first domino that would need to fall from our perspective as we need to see what the legislation provides as far as either its pension permanent relief or potential temporary relief in regards to that and then that would kind of lead itself into.
US being out in the public markets and again I think we'd be looking for unsecured and we'd be looking for something to deal with the 2023 and 2024.
Pension contributions and as I mentioned earlier, what that essentially would do from our perspective on the U.S. plans is they would be in a position.
Basically fully funded at that point and we'd be able to remove a lot of that volatility that we see a with the low interest rate environment that we've been living under for peace.
Probably eight years now.
And then next question will come from is stuck Baruch with Sidoti and company. Please go ahead.
Hi, guys. Good afternoon, guys couple of questions from me our first a follow on.
On the technology revenue side or might you you said that you know.
Do you expect maybe some bumps that comes from some of the transition service agreements that you guys have with FDIC. When you give outlook for the back half of this year. It does that factor any revenues from that or is that just organic.
Technology revenues from you about forward on stuff.
Okay spot how are you.
Yes, what's embedded in there is organic right, we're not anticipating in those numbers on a bump from Sai c., so that would be upside against.
What we've put out.
Okay, and just a follow up on the.
Are you guys.
Expecting me, maybe any any revenues from that.
From some of that the DS is there are not maybe in the and discovered.
You know dimes right now are maybe later on.
Well as Peter mentioned look I think we're very happy with the level of engagement that we've had with them.
The relationship has been excellent, we'll let them close their deals and announced their own sales and you know we're happy that they are.
Explicitly engage with us specifically in sale.
You know the we have us.
Federal Clearpath forward clients that were part of that transition. So those will come by way of normal renewal schedules from our perspective, so so really its.
Really their sale closing process that were kind of piggybacking on.
And on that too fast forward side.
They have been successfully renewing those deals obviously with our assistance. So we don't believe there's got to be any drop or lack of focus on clearpath forward.
Okay and to follow up Oh on different topic on the benches.
You know that.
As the legislation if it comes through and it just your maybe doesn't require any cash contributions on July 2026, I do you still expect to go forward with some of the international buyouts or do you think that will change maybe your game plan for maybe handling some of the issues.
Yeah look I don't think the liability reduction program changes at all right. They the legislative aspect is really purely on whether or not we need to make cash contributions in 2023 in 2024 on the U.S. plan I think in general our goal has been to solidify our balance sheet.
Which we've done reduce our net leverage which we've done and we're about a full turn beneath a industry averages at this point and we were expecting by the end of year that that's going to even get better so from a perspective of our balance sheet with firm and at this point, we want to start removing that liability.
The not just mitigating that cash contributions that need to be made a point to support those pension obligation.
So short answer is no it doesn't change our liability reduction program one bit.
[noise] as this will conclude our question and answer session I'd like to turn the conference back over to Peter for any closing remarks.
So first I want to thank everyone for.
Staying on the call I ER, we I was on a call about a half hour before we started here where someone from the east coast and their power went out during the call a and so I know you guys are dealing with some issues on the eastern Seaboard. Secondly, this was a complicated quarter for us and I really appreciate.
Each of you on the coal being on the coal to dig into it.
I I want to reaffirm some of the the items that Mike mentioned on the technology side, we really see this as an intra year timing some of it moved to the first quarter. Some of it is really to the third quarter.
On the services.
We when you take out a field services that is 85% of the non IPO sell related crop in a in our services revenue. So we think that really is unique to that part of the business Nonetheless with all of that.
We are consistent with our full year, 10% revenue drop with which we lead with an expectation last quarter.
We feel more confident about looking at expectations on profit and so we have given you a range of profit expectations for the year, which we couldn't do last quarter. So we think that isn't an improvement in our visibility as well.
We feel very confident about the company I want to reiterate what things, we're doing on diversity and inclusion.
And my thanks to the to all the associates at Unisys for really a sterling effort throughout covered 19, we do believe that the second quarter is the worst of the quarters for us and so we look forward to having a better discussion with you next quarter with that I want to thank you all for joining.
Have a lot of information in addition on our website and we remain available to you for follow on questions. Thanks very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.