Q4 2020 Unisys Corp Earnings Call
[music].
Good day and welcome to the Unisys Corporation fourth quarter and full year of 2020 earnings Conference call.
All participants will be in a listen only mode.
Do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Courtney Holben Vice President Investor Relations. Please go ahead.
Thank you operator, good morning, everyone from Courtney Holben, Vice President of Investor Relations.
Thank you for joining us.
Yesterday afternoon. The this is released in the fourth quarter and full year of 2000, Twenty's nationals as well.
I'm joined this morning to discuss those results by Peter <unk>, our chairman and CEO and Mike Thomson our CFO.
Before we begin I'd like to cover a few details first today's conference call on the Q&A session are being webcast via the use of Investor website.
Second you can find the earnings press release and the presentation slides that we will be using this morning. The guide our discussion as well as other information relating to our fourth quarter and full year performance on our Investor website, which we encourage you to visit.
Third day presentation, which is complementary to the earnings press release includes the non-GAAP financial measures the.
Non-GAAP measures have been reconciled to the related GAAP measures and we've provided reconciliations within the presentation.
Although appropriate under generally accepted accounting principles. The company's results reflect charges of the company believes are not indicative of its ongoing operations and that can make up the profitability and liquidity results difficult to compare to prior periods anticipated future periods or two of the competitors' results.
These items consist of pension debt exchange and extinguishment cost reduction and other than <unk>.
Management believes each of these items can distort the visibility of trends associated with the company's ongoing performance.
Management also believes that the evaluation of the company's financial performance can be enhanced by use of supplemental presentation of the true bolt that ex.
Blues the impact of these items in order to enhance consistency and comparative net with prior or future period results.
Following measures are often provided and utilized by the company's management analysts and investors when he owns the comparability of year over year results as.
As well as the compare results to other companies in our industry non.
Non-GAAP operating profit non-GAAP diluted earnings per share free cash flow on adjusted free cash flow EBITDA and adjusted EBITDA from constant currency.
In addition, the quarter, we will be continuing to report non-GAAP adjusted revenue and related measures of the results of certain revenue relating to reimbursements from the company's check processing JV partners for restructuring expenses included as part of the company's restructuring program.
For more information regarding these adjustments please see our earnings release on our form 10-K.
From time to time, Unisys may provide specific guidance or color regarding its expected future financial performance.
Such information and the fact of only on the day, Kevin Yes, it's generally will not update reaffirm or otherwise comment on any such information, except as unisys deems necessary and then only in a manner that complies with regulation FD.
And finally I'd like to remind you that all forward looking statements made during the conference call are subject to various risks and uncertainties that could cause the actual results to differ materially from our expectations.
These factors are discussed more fully in the earnings release and on the company's SEC filings copies.
Copies of those reports are available from the SEC and along with other materials I mentioned earlier on the Unisys Investor website.
And now I'd like to turn the call over to Peter.
Good morning, everyone and thank you for joining us to discuss our fourth quarter and full year 2020 results.
We enter 2020 in a strong position with improvements to our capital structure and liquidity.
2020 revenue of non-GAAP operating profit margin that exceeded our expectations.
It is an exciting time of Unisys as we have transitioned to a new business unit structure in 2021.
With a sharpened focus on higher growth higher margin markets and solutions.
We believe the changes we are implementing will better position the company to drive revenue growth and margin expansion over the coming years.
Yeah.
During the fourth quarter, we continued our progress from the earliest COVID-19 impacted quarters of the year with sequential services revenue growth supported by sequential growth in all segments.
With the ongoing strength in public sector.
Our cloud business and career paths forward services. We also had stronger technology revenue growth than expected based on higher volumes of clear path forward renewals that anticipate.
As a result, we returned to year over year revenue growth in the fourth quarter and our full year 2020 revenue exceeded our previously stated expectations.
Non-GAAP operating profit margin expanded year over year in the fourth quarter and full year 2020, non-GAAP operating profit margin also exceeded our expectations.
We continued improving our capital structure and liquidity during the fourth quarter about which Mike will provide more detail.
As a result, our leadership team is now able to dedicate their full focus to optimizing the business.
To this end, we undertook a number of initiatives during 2020 to better position the company many of which began contributing to results in the fourth quarter.
We refined and enhanced our strategy and we'll be reporting in three new segments effective as of the beginning of 'twenty to 'twenty one.
Digital workplace services or dws.
Cloud and infrastructure or C&I.
On a clear path forward for C. P F.
Our business platforms and services revenue and profitability will be reported as other in our results given the diversity of solutions included in that group.
We are targeting higher growth and higher margin markets and solutions with a particular focus on areas, where we are recognized as a leader and have a clear differentiation for instance, we are shifting our focus within dws from your.
End user services to the higher growth higher margin and user experience or you ex market, which has the three year expected industry CAGR of 7% to 10% versus a zero to 1% expect the CAGR for the rest of the dws market.
Within C&I, we're specifically targeting cloud, which typically comes with higher margins and within cloud. We are focused on public and the other highly regulated sectors, where we have a strong track record the expected three year industry CAGR for public excluding federal within the C&I is <unk>.
10% to 18% versus 11% to 12% for the rest of the C&I market.
Within C. P. F. As you would expect we already have significant share on license SaaS and warranty work, but we are focused on growing clear path forward services.
Which are the highest margin services the company.
The three year expected industry CAGR of four clear path forward services is 1% to 3% based on the $1 2 billion dollar market opportunity.
But we only had 13% of that market as of year end 2020, and we expect to grow that market share.
As I said, our financial reporting will track the segments, starting in 2021, and our new structure is expected to drive increased internal accountability for delivering results.
Yeah.
In addition to business unit initiatives. We are also continuing to implement change across the entire company. During 2020, we enhanced our go to market approach with a new digital sales platform.
<unk> training and a more proactive sales of approach and we are digitizing and industrializing, our delivery and the operations we.
We've instituted new workforce management initiatives and are implementing a new ERP system.
We provided more insight on all of this at a recent investor event, the slides and replays of which are available on our newly updated Investor Relations website, which we encourage you to visit.
The go to market improvements, we instituted in 2020 are gaining traction.
With T C V up 22% year over year in the fourth quarter and 8% for 2020 overall.
And we believe the other operational changes I highlighted position us to drive revenue growth and margin expansion going forward.
That said.
The T C V improved in the fourth quarter services backlog was down 10, 5% year over year to $3 4 billion at year end 2020.
Given the COVID-19 related disruptions to clay of purchasing decisions earlier in the year.
We're also still on the early stages of evolving our gws offerings to focus more on EU ex which will be a key driver of growth in that segment.
As a result, we are guiding to 2021 revenue growth of zero to 2%.
With the acceleration in growth expected in 2022, and 2023 as we emerge from the Covid impacted period and grow our EU ex offerings.
We expect cloud and infrastructure to be our fastest growing segment in 2021 day.
Dws is anticipated to grow more modestly in 'twenty and 'twenty, one with stronger growth in subsequent years as I've. Just noted the clear path forward segment is expected to grow slightly year over year in 2021.
Margin expansion is expected to be relatively consistent over the coming years with profitability improvements driven in part by operational efficiencies some of which are already benefiting us as the.
Labor as a percentage of revenue was down year over year again in the fourth quarter and for 2020 overall.
The transition to higher margin of end user experience and cloud revenue is expected to further benefit profitability.
We are guiding to non-GAAP operating profit margin of 9% to 10% and adjusted EBITDA margin of 17 of the quarter to 18 out of the quarter percent, both up approximately 200 basis points year over year at midpoint.
Our enhancements to our digital workplace services platform continued during the fourth quarter with the integration of new AI automation and analytics to provide more proactive detection and resolution of problems.
Aimed at improving end user experience.
We are offering cloud based virtual desktop as a service through our partnership with Vmware to allow enterprises to provide upstream and virtual desktops to workers as their primary workspace.
Through our partnership with tumor on group, we are leveraging virtue work to provide advisory services identifying infrastructure changes needed to allow clients to employees to work anywhere with the same security and effectiveness as when they are in the office. Additionally, the profitability of a number of key deals.
Ws contracts improved over the course of 2020.
As an example of our work in dws during the fourth quarter, we signed the contract with the global health care provider for Unisys and tell us of artificial intelligence and robotic process automation to improve the user experience for 39000 employees globally.
Also during the fourth quarter information services group or ISG recognized Unisys is a global leader in digital workplace services and their reports on the U S. The U K and Brazil I.
ISG highlighted our entellus serve digital workplace automation platform is the.
The strength for Unisys in addition to our industry focused consulting for the post Covid World. These recognitions come after being named again to the gardener of managed workplace services Magic quadrant in North America earlier in 2020.
We completed a number of development initiatives in the fourth quarter within cloud and infrastructure to enhance our cloud for taste solutions platform, including a new release of AI ops that helps optimize cloud infrastructure and improvements to our cloud management platform that accelerates deployments of <unk>.
Good resources with the appropriate security to reduce implementation efforts from several days to a few hours.
The new and updated capabilities increase automation of existing and new features leading to enhance productivity and greater flexibility and agility for our clients.
And we plan to continue evolving our cloud offerings over the course of the year.
As with Dws, we have also improved the profitability of a number of key CNI contracts over the course of 2020.
During the first quarter, we expanded our work for U S State government to support the state's workforce model that is quickly shifting to a remote first strategy.
We will provide cloud Forte is the foundation for a virtual infrastructure that will secure sensitive applications and regulated data by preventing users from printing copying or downloading data into unsecured devices.
In the fourth quarter as with Dws ISG also recognized us as the leader in public cloud solutions and services and its quadrant reports on the U S U K and Brazil, the specifically highlighted club fortune, noting that it provides a comprehensive delivery model leveraging automation.
AI and best practices.
We're also named a leader in the December Nelson Hall vendor evaluation for cloud infrastructure brokerage orchestration and management and the overall market segment, where the.
Were placed in the leader quadrant in all three areas evaluated overall cloud services cloud brokerage services and cloud orchestration services.
[laughter].
Going forward stealth will be included as part of our cloud and infrastructure business unit.
During the fourth quarter, we announced the latest version of stealth identity all of a biometric identity management software.
The new version includes enhanced features such as a managed identity interface. The cross references biometric results against records from the fingerprint readers scanners and other recognition methods to robust positive authentication and the mobile and web accessible software development kit that provides enhanced.
<unk> and an improved user experience.
Self core six dot O our micro segmentation solution, the serving as the security of foundation for the club.
<unk> solutions, we are leveraging for travel and transportation and hospitality clients related to Covid testing.
With respect to clear path forward the client demand for these solutions was highlighted again in the fourth quarter with higher than expected volumes on renewals and technology revenue as I mentioned.
As an example travel sky the leading provider of information technology solutions for China's air travel and tourism industry renewed its contract for clear path forward to process business critical transactions, including passenger reservations cargo bookings and load calculations.
During the fourth quarter, we extended the contract with our largest clear path forward managed services clients.
Providing more end to end managed services as part of our growth strategy in 2021 managing of clients full environment enables us to significantly increase the level of services penetration into an account.
In closing I would like to say that I truly appreciate all of the hard work from our associates under unprecedented conditions during 2020.
We ended the year in a strong position are implementing exciting change and are poised to drive improved growth and profitability going forward.
With that I will turn it over to Mike to provide more insight into our fourth quarter and full year financial results.
Mike.
Thank you Peter and good morning, everyone. My discussion today I'll refer to both GAAP and non-GAAP results.
As a reminder, reconciliations of these metrics are available in our earnings materials. Likewise information related to discontinued operations is available on our website.
We're reporting this quarter based on our of historic reporting segments of services and technology.
As Peter noted based on the changes outlined in our recent investor event, a reporting structure will align to our new business units starting in the first quarter of 2021.
Historical results will be reclassified to reflect our new segment reporting structure and be completed in the coming months.
I'm proud of how the Unisys team came together during the last year to enable us to emerge from 2020 and such a strong position we.
We made significant enhancements to our capital structure on liquidity and ended the year with better financial results than we anticipated.
The transition to our new business unit structure at the beginning of 2021 and are executing against our enhanced strategy.
We're excited about the opportunities this creates for driving revenue growth margin expansion and cash flow over the coming years.
I'll touch on some of these opportunities today, but first let me provide more color on our fourth quarter and full year financial results.
Starting with revenue, we returned to year over year growth in the fourth quarter with total company non-GAAP adjusted revenue up five 9%, which was also a 16, 5% sequential improvement versus the third quarter.
This resulted in year over year revenue and non-GAAP revenue declines of eight 8% and eight 2%, respectively, which exceeded our previously stated expectations for a 10% year over year declining revenue.
Services non-GAAP adjusted revenue was down two 6% year over year in the fourth quarter and nine 8% for the full year 2020, driven by Covid impacted businesses, including field services travel and transportation and <unk> as well as the expected declines in our U K check processing joint venture.
The COVID-19 impacted businesses continued to recover and stabilize in the fourth quarter and services non-GAAP adjusted revenue grew four 5% sequentially.
Technology revenue grew 51% year over year in the fourth quarter and was also up 96% sequentially driven by higher than expected volumes on clear path forward renewals.
This also drove full year 2020 technology revenue to exceed our expectations with year over year revenue growth of 1%.
Moving to profitability non-GAAP operating profit margin was up 790 basis points year over year in the fourth quarter to 14% driving full year 2020, non-GAAP operating profit margin to seven 5%, which was up 30 basis points year over year.
These results were supported by year over year services non-GAAP adjusted gross and operating profit margin expansion, both in the fourth quarter and in the full year.
Services non-GAAP adjusted gross margin was up 360 basis points year over year on the fourth quarter to 18, 4% and 90 basis points for the full year to 16, 4%.
Services non-GAAP adjusted operating profit margin was up 310 basis points year over year in the fourth quarter to one 6% and 50 basis points year over year for the full year to 70 basis points.
Technology gross profit margin was up 130 basis points year over year on the fourth quarter to 73, 2% and technology operating profit margin was up 460 basis points year over year to 54, 3%.
These improvements were helped by the stronger technology revenue in the quarter.
For the full year 2020 technology gross profit margin decreased by 400 basis points to 65% and technology operating profit margin decreased by 530 basis points to 48%.
These declines were largely driven by higher amortization charges and higher third party hardware sales, which come with lower overall margins.
Adjusted EBITDA margin expanded 770 basis points year over year in the fourth quarter to 21, 5% and 140 basis points in 2020 to 15, 8%.
These results lead us not only to beat our previously stated expectations, but also to outperform factset consensus estimates for 2020 on all key metrics with the exception of GAAP EPS. The estimates for which did not fully reflect the expected fourth quarter charges that we highlighted in our last earnings call.
In addition to the revenue and profitability results I. Just mentioned, we also continued improving our capital structure and liquidity in the fourth quarter.
Adjusted free cash flow was up 59, 6% year over year for the full year 2020 to $42 6 million.
This increase was supported by an 18, 6% reduction in Capex spent year over year in 2000 $20 million to $130 million.
Operating cash flow and free cash flow of comparisons were impacted by voluntary pension contributions that we made during the year.
We ended 2020 with a cash balance of $898 $5 million versus $538 8 million at year end 2019.
We also continued executing against our plans to reduce our pension obligations during the fourth quarter as.
As we talked about on our last call, we raised $485 million of senior secured notes during the quarter the.
The proceeds of which were used to reduce the pension deficit and make additional voluntary cash contributions.
Just on year end, 2020 calculations and pro forma for the additional $200 million of cash from the balance sheet that we expect to contribute in 2021, the global pension deficit would be approximately $840 million versus the $1 75 billion at year end 2019, and we would have just $11 million of expected remaining call.
<unk> the U S qualified pension plans versus $826 million as of year end 2019.
For all of their plans, we have approximately $190 million of required contributions through 2025.
Our net leverage at the year end 2020 inclusive of the $840 million deficit I. Just noted was two four times.
As we've discussed in addition to reducing the deficit and pension contributions we focused on reducing the gross pension liabilities themselves with the previously stated goal of $1 billion reduction by the end of the first quarter of this year.
During the fourth quarter, we made progress on this front by removing over $275 million in gross pension liabilities through of bulk lump sum offering.
In January we announced the removal of just under $280 million of additional liabilities by of transfer to mass mutual.
We're also targeting the removal of approximately $550 million of liabilities associated with our Netherlands plan and approximately $100 million of liabilities associated with our Swiss plan.
As a result of all of this we now expect to be able to remove approximately $1 $2 billion of gross liabilities by the end of the first quarter $200 million more than our original goal.
During the first quarter will also be retiring our remaining $84 million of convertible notes that are outstanding.
We will net settle the notes, which will result in approximately $3 4 million net shares being issued factoring in the capped call and based on the closing stock price as of February 18th the.
Final share count will be determined prior to settlement. The net settlement method results in significantly fewer shares being issued from the full potential dilution as the remaining principal will be paid in cash.
As we've mentioned we have transitioned to our new business unit structure as of the start of 2021, and our financial reporting will reflect those segments starting in the first quarter.
We believe that the new reporting structure will provide additional insight into the key drivers of the business going forward and will likewise increase internal accountability for driving results.
Additionally, within the newly defined business units will be shifting to higher growth and higher margin markets and solutions, which we expect to create significant opportunity for revenue growth and margin expansion over the coming years, which in turn should drive improved free cash flow.
We laid out our detailed expectations for the next three years as part of our Investor event, and we encourage you to visit our new Investor Relations website that was relaunched in January to review the slides and replace from this event.
Regarding near term expectations, we are providing 2021 guidance for revenue growth of between zero and 2% non.
Non-GAAP operating profit margin of between 9% and 10% and.
And adjusted EBITDA margin of between 17, and a quarter and 18 in the quarter percent.
As Peter noted our revenue growth is expected to accelerate in the years. Following 2021, as we progress in our transition and enhance our service offerings.
Margin expansion on the other hand is expected to be relatively consistent over the three year period, which is reflected in the guidance ranges we are providing.
In 2021, our clear path forward segment will include both licenses and services revenue generated by this franchise.
We expect total clear path forward license revenue to be roughly flat year over year and split roughly 55% and 45% between the first and second half of the year, respectively with the third quarter expected to be the lightest quarter of the year and the fourth quarter expect it to be the strongest.
Their path forward license revenue is expected to make up roughly 45% of the total clear path forward segment revenue in 2021, and overall clear path forward segment revenue is expected to be up low single digits year over year.
Services backlog was $3 4 billion as of the end of 2020 up 3% sequentially versus the third quarter.
We expect $375 million of this to convert into revenue in the first quarter of 2021.
Overall, we expect first quarter 2021 revenue to be down slightly year over year as our dws business is still returning to its pre COVID-19 levels.
Lastly, there are some sizable charges expected during 2021 associated with the pension liability of the work, we're undertaking as well as our initiatives to realign our segments and enhance our efficiencies.
As I noted during the Investor event, we're targeting $130 million to $160 million of run rate savings exiting 2021 from our efficiency efforts.
Of the $130 million to $160 million, we expect to recognize half of the savings during 2021 with restructuring cost to achieve the savings of approximately $40 million to $70 million.
We took charges related to this of approximately $30 million in the fourth quarter of 2020, and expect $10 million to $15 million of additional charges in the first quarter of 2021.
With respect to the pension liability of removal work, we expect approximately $375 million of one time noncash settlement charges during the first quarter of 2021.
This would complete phase one of our pension liability removal program and remove approximately $1 2 billion of gross pension liability.
We will of course continue to look for opportunities to remove additional pension liabilities in the future.
The wrap up I would like to again, thank our Unisys associates for all of their efforts throughout 2020, your dedication and support helped US end the year with the strong liquidity position achieved better financial results than expected and position us for enhanced growth and margin expansion going forward. So thank you all and now I'll turn the call back over to Peter.
Yeah.
Yeah.
Thanks, Mike very much.
I think we're now ready for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on you touched on some of them.
You are using a speakerphone please pick up your handset before pressing the keys.
All of your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Okay.
Great.
John Kim of anything he can't Securities. Please go ahead.
Yeah.
Good morning, guys. Thank you for taking my questions and really nice end to 2020 of that was the rough year for everyone. So that was nice to see.
I was wondering if you could talk about your ability to drive signings in the services businesses.
In the first quarter I know COVID-19 spiked in a bunch of places around the world isn't the additional lockdowns.
Maybe first of all address that and number two when would you expect backlog to start increasing the services again as we go through the year.
That comes on line for that.
Yes, John Thanks.
Great questions.
Obviously, there's some uncertainty about the timing of silence I would tell you that our pipeline is up both the qualified pipeline and even the perspective pipeline.
We do expect over the course of the year on your second question to have backlog higher by the end of the year than it was obviously by the end of 2020, So we expect not only new signings, but accretive new signings to backlog.
Exactly how much of that comes in the first quarter is a bit I know.
Certainly in the EMEA and in the U S. We still have.
From <unk>.
Tough call.
Covid opportunities in terms of travel in terms of sales we have the new digital sales platform that started last year that is allowing us.
To remotely sell much better than we had before our T. C. V went up for the year, our HCV went up for the year.
But I would say the first quarter is still going to be a little tricky in terms of the amount of of sales done added to that and I think this is an industry question overall, when we look at the pipeline for 2021.
We see a pretty good amount of signings for the year.
That's not only true for us, but it's true for the industry one of the questions that I think we're all dealing with.
Is is there going to be a race to the bottom for the profitability of that business as people really look to rebound on the revenue over the course of the year from from the challenges of last year.
Thank you can see from our.
The forecast.
With a modest amount of revenue gain but a much higher amount of the of margin improvement.
We are focusing on margin improvement for the year, we don't have a real desire to do the rates for the bottom on selling business, that's not going to be long term accretive we've got very strong margin accretive goals for each of the next three years and so that's going to require us to be pretty disciplined on signing work.
That is consistent with that margin focus, but I would say that our focus really is margin first.
Revenue growth second John I hope that helps.
Hey, its Mike <unk>.
I can just add one little comment to that as well I mean, typically what we see from our clients are kind of the February March timeframe is when their budgets kind of get locked down and they start really infusing that into the marketplace. So so Q1 is probably a little early from a normalcy person.
<unk> as to when we see that but Peter spot on that we're anticipating the backlog to grow year over year.
We obviously have that happened throughout the year.
Yeah.
Got it Mike any thoughts on the pension reform language in the current release, though and if it's meaningful to you and all of this if it passes the weighted now.
Yes, I looked yet John we've been pretty consistent on this in the language. That's currently in the Bill Thats passed the house is consistent with what we've been talking about.
Essentially permanently pension relief and ultimately what it means to US is the bid passes and the way its currently constructed.
The $200 million that we were anticipating putting in this year, we wouldn't have to put in and we wouldn't have another pension contribution to make on the U S qualified plans until like 2027% of 2028, so from our perspective. It really just leaves a good amount of cash in the.
The coffers to continue with our growth strategy.
Outside of that really not a big change.
And as you know we're prepared regardless of of what Congress does to move.
Move forward on taking care of the pension from our perspective.
Got it just one more if I could it sounds like you've pulled them from tech renewals from 'twenty one into the fourth quarter I'm, just wondering how that impacts Q1.
In terms of yes. It wasn't the right now you gave some color on the year. So just if yes, it wasn't really a pistol.
Yes, John Thanks for that wasn't really a pull forward. It was actually just increased volumes on our renewals. So really no impact on on Q1 from our normal Tech renewal perspective. So so again it was just two client in particular had higher volumes in the renewals than we had anticipated.
The baby.
Got it that's great to hear thank you guys.
Sure. Thanks, John Thank you Joe.
The next question is from the.
The thing you can acquire please go ahead.
Hey, guys. Good morning, and congratulations on a on a great year of 2020, great great job.
Sort of a lot of credit for it. So just a question I know you've been doing pretty well in state and local governments recently.
And I think there was another win this quarter there but.
Perhaps what how does that pipeline look.
Deals for 2021, and then a quick follow up after that.
Yes, Joe Thanks. Thank you for the thank you and thank you for getting up so early this morning of a greatly appreciate it.
What what I would say is the the we call that our public sector.
No, which is U S state and local and then governments around the world, but I would say as we look at our public sector not only in U S, but around the world.
It's our strongest sector.
So we feel very good about U S state and local signings, we feel very good about our ability to grow outside the U S as well.
In the U S. Obviously, you have a budget constraints.
Given the Covid situation.
But you also have the realization that you know the can't do business the way they are the.
On the single biggest growth area for our state and local business in the U S is cloud based so that fits very very well.
With our business unit strategy in <unk>.
Focusing on on the cloud and focusing on public cloud So we're pretty bullish.
You know our value.
Value proposition to governments, particularly at the state and local in the U S. Always includes cost reductions from the current run rate.
We do expect to get them up and running in a more vibrant cloud environment than they have now and save money, while they do it because we think that's a formula for success. So we're bullish on the state and local pipeline.
Great. Thanks, Peter and then I know, Mike you Ya.
You mentioned some additional.
Of course any.
<unk> and 'twenty and 'twenty, one I was wondering if you could.
Perhaps the.
Sales strategy of where you know.
A little bit more of where that cost take.
Kick outs coming from and redeploying it I know you talked about margin expansion, but.
What's the tradeoff and an ROI that you're seeing now in the investing for growth versus.
Perhaps letting that flow to the bottom line on from a P&L perspective.
Yeah. Thanks, Thanks for that Joe.
So it's really coming across the board I think one of the major changes that we implemented in 2020, and we will see the full valuation come through in 2021 and beyond is our work Force management program.
The team has done a really good job of implementing some tools, having visibility to the work force.
Our cost of labor or cost of Cogs.
Is frankly, the lowest as a percentage of revenue since I've been with the company, which has come into my six year here.
So really it's really across the board its efficiency play Joe more than anything clearly that's that's coupled with the.
The <unk> platform the cloud <unk> platform that we continue to automate and enhance so that allows for some more efficiency as well. So I wouldn't say, it's one particular item in general its labor based and its real estate based we talked about on our last couple of calls that.
Post pandemic and our review of the real estate portfolio around the world.
We found that we could operate a lot more efficiency. So we're kind of giving back some space in certain areas are allowing leases to lapse and consolidating space and other areas. So I think those two are the primary.
Benefits for that.
And you saw from us on the Investor day that our expectation kind of exiting 'twenty. Three is about 600 basis points of margin improvement and we think that that's going to be pretty much straight line over the course of 'twenty, one 'twenty, two and 23 with the roughly two points of margin improvement per year.
Year, a good chunk of that is coming from those improvements that we've talked about I also would like to just illustrated and you've touched on it a bit in your question here.
There is of reinvest component here, we're looking between 20 and 30% of that saved to be reinvested as we continue to enhance our.
The skill sets enhance the training for folks hire more people in strategic areas and talk about other areas of improvement for all of the lines of business. So so I think Joe its more horizontal view, it's across the board and.
Pretty consistent in the.
The magnitude that we expect per year.
Yeah, and if I could just to follow on Mike's comment Joe and just to make sure you've got the numbers.
The reducing the cost of labor as a percentage of our revenue is the end product. It's not the beginning right you don't start saying Oh, let's go reduce the cost of labor. It's all of the work Force management all of the systems all of the leverage of all IP that we put into our solutions, but just to give you those numbers.
The cost of labor as a percentage of revenue was about 58, 3% of 19. It was 55, 6% in 'twenty.
By 2023, we expect it to be 51%. So that's a nice chunk of some of our margin increase over the course of that time, but again, there's a lot that goes into taking.
Enter into taking those cost out as a percentage of revenue and getting the margin increase.
Yes, maybe if I could too Joe just real specific on the numbers I mentioned that we took a charge in the fourth quarter of $30 million, we're anticipating between 10 and $15 million.
In Q1, and we said the overall program would cost between $40 and $70 million. So most of the charges frankly have already been incurred and so really it's about how much we reinvest in where we need that reinvestment.
So that's.
That's great. Thanks, that's helpful. Mike and then just.
I know that youre, not really providing it for 2021, but.
How should we think about cash flow of unlike the capital efficiency and Capex was a little lower in Q4.
Was that kind of timing or anything.
Anything notable we should be thinking about that thanks a lot.
Sure. Thanks again, Joe look of it wasn't for the voluntary pension contributions that we intend to make and we will see how the legislative.
Element brakes, we would be free cash flow positive in 2021 and.
Non adjusted free cash flow positive free cash flow positive the.
On the Capex number that we closed the year at about $1 30.
As you know is about $20 million better than we had anticipated.
Throughout the year, we took it down to about $1 40 at the end of the third quarter and came in lower than that I think that is really more of byproduct of what you've seen from us over the course of the last three years or so that capex number just in the comparative purpose of three years ago was about from them. So our capital.
<unk> strategy continues to drive that number down we had talked about on Investor day that we're also moving to a cash on working capital neutrality view. So that's going to have some improvements in cash flow as well. So I think its just what <unk> seen from us Joe over the last couple of years.
It is just continual improvement and continual focus on driving down the capex number and enhancing our working capital profile.
Great. Thanks, very much Mike Thanks, Peter.
Thank you Joanne.
The next question is from Matthew Korn countless.
Please go ahead.
Hi, Thank you for taking my question.
Just a couple from me one being <unk>.
You touched on them higher third party hardware sales on the MX pressuring technique.
The technology market is a little bit this year, obviously, the reporting structure is going to be different going forward, but just curious.
Functionally how that is.
Is that sort of the normal.
Look going forward or does that continue to bounce around a little bit and create some volatility on that margin.
Yeah look it's really fairly normal.
Thanks for the question Matt.
Typically our hardware or on third party hardware is anywhere between 10 and 15%.
Of technology revenue in any given year, it's actually more of a byproduct of the renewal cycle. The refreshed schedules on the hardware and what the contracts stipulate. So I wouldn't say there is any true normalcy to it but when you look at it year over year compare again, depending on.
On our refreshed schedule you can have more in the year a versus b, but I think on average you should see that somewhere in the range between 10% to 15% of technology right.
Yeah, Matt. This is Peter you were higher towards the higher end of the range. This year, but I think you have to put in context, what was happening with technology and hardware sales globally.
You had a lot of work from home folks establishing.
Not everybody was prepared to do all of the work from home.
So that that that caused if if you will of bit of positive pressure on hardware sales for us as we helped our clients get established.
Got it that makes sense and then just I guess one.
One follow up from me.
And I guess, it's a follow up on the pension question.
You know I guess hypothetically if the really still does pass of kind of discussed on this call earlier.
You've talked about.
M&A opening up as an option for you. So I guess I'm. Just curious does does that 200 million start burning a hole in your pocket or do you think about your.
Outlook for the.
Deploying that capital internally or Inorganically, what how.
How do you think about that decisioning on most of it.
The course of 2021 of its something you can.
Can you see moving on M&A relatively quickly or is that not necessarily part of your.
How youre deciding on that thanks.
Matt This is Peter I guess I'll take it to start and then have Mike follow up and elaborate on.
The quick answer is it is not burning a hole in our pocket. It is not even in our pocket right now because we have allocated debt.
To the pension.
To the pension take down unless we don't need it for that because of the legislation.
That said as you look at our cash balance for the year, even without that $200 million. We're in a significantly better cash balance than we were before and that money is not burning a hole in out of pocket.
I know you are familiar Matt.
The most of the people on this call. This is of this is a hot market right now for mergers and acquisitions.
The price of of acquisitions is high.
And you have to really really believe in your acquisition models. The order to justify some of the pricing that said, we have an active M&A team.
But but the the goal of the team is modest but not looking for scale acquisitions. We're looking for some very specific capability acquisitions in our gws business unit and in our cloud business unit.
So we think we'll be able to do that.
We don't.
As I said, where we're not in any particular rush too.
On the size of those acquisitions are expected to be modest sort.
I think that there will be in good shape with or without the $200 million.
Mike.
Yeah look I.
You said it perfectly Peter I mean, we're in the market here looking to acquire and enhanced capabilities.
And frankly, that's happening with or without legislative relief.
We have $900 million ish.
On our balance sheet and cash and we have capacity to borrow if we needed to but the reality here is what we're looking for is the right deal and there is plenty of them out there and as Peter noted the the market's fairly hot but.
That doesn't mean, we won't be prudent and ensure that what we're getting not only helps us prospectively, but.
From our look back perspective, being able to take those competencies and play them back into our base of something that is important to us. So.
I would say Matt in general were looking hard at a whole bunch of different things and.
We're going to do the right thing by the company.
Alright, thank you.
Thanks Pat.
The next question is from Walter you all of these guys equity research. Please go ahead.
Oh, Hey, guys.
Thanks for the thorough and clear presentation on on all of these trends.
Very helpful stuff I have a question about digital workplace and then a follow up on clear path forward.
And digital workplace can you just talk about the latest state of how Covid is impacting demand.
I'm, especially interested in an update on the status of the field services portion of the business.
It does seem that your ability to accelerate growth from.
2021, and it into the next year is meaningfully contingent on how that business plays out so it'd be great to get an updated sort of view on that.
Yeah, So rod thanks, very much for the question.
What I would say on on field services is we had a marginal uptick in the fourth quarter in terms of demand.
We expect a slight uptick in 2021 in terms of field services, but none of our numbers anticipate a significant uptake in field services.
Not to say I think we are at.
Full run rate.
But I think we're not far from full run rate.
So we.
I would say, we're about 80% of.
Of the of our 2019 run rate on field services, we expect that to go up a little bit over the course of the year, but in general as we look to the future.
Our revenue increase is really going to come from our move to end user experience.
Not from increasing the field services revenues significantly.
It's really the added value when you hear us talk about our Intel of serve platform you hear US talk about outcomes you hear us talking about moving from SL as to really very objective customer value driven.
Means of compensation and all of that is because of the confidence we have in our end user experience. So I think that's going to be the biggest uptick for our gws business, but.
But I think we expect the marginal uptick in revenue from field service.
So, but I guess the follow up on on that is as field services prone to be stable from 2021 into 2022.
Or is there.
A possibility that with your plan to enhance margins and the shift into end user experience could field services actually erode some of our intentionally shrink in some ways.
Well it depends on whether you're talking absolute dollars or percentage of revenue.
In terms of absolute dollars no we don't expect it to be declining in absolute dollars.
Percentage of in percentage of revenue terms, we do because we expect the growth coming from areas other than the field service got it okay great.
And then on unclear path forward clearly cloud adoption is the mega trend and Covid is further adding to that trend so on.
One of the asking a clear path forward, how cloud related trends are impacting clear path forward Tech.
Technology demand what are the what are the puts and takes that are happening for clear path forward technology demand and in light of all of the cloud cloud adoption that's happening in the world.
Well that's of Great question.
I would say.
To be Frank it's not as it's not as.
Hurried.
As I thought it would be so you know we put a clear path forward on azure or actually in August of this past year.
That's a big effort.
What our MCP platform is already on Azure by the end of this year, we expect a <unk> 22 platform.
<unk> hundred platform, which would be <unk>, which will really complete our clear path forward on azure process.
We have a number of clients.
Net are either using the azure platform now or are looking at using the azure platform.
I think effectively what that has done it has given them the comfort that they know they have a public cloud environment. They can switch to if they wish to.
Over time more and more of them will we think that instead of people thinking about a five year journey.
About you know maybe of one to two year journey, but it doesn't mean that they're pulling the record right. Now is day the absolute has to be on the public cloud.
So I think we actually have been quite happy with that we're happy that we have the answer for them. We're happy that it works, we happy the clients are moving to it.
But if you know if we're talking about of large government and large financial institution that does not want to move to the cloud right now there's no reason for them to do so.
So we actually think we have the best of both worlds right now and we're very very happy with the progress about moving a clear path forward on tissue.
Our next question is from the Williams Williams, who can come from.
Go ahead.
Hi, Peter Congratulations on another good year on all of the progress that you've made.
My question relates to the SAIC.
About a year ago and could you comment at all about how that's going and if there.
I know there was an expectation that there would be of tail. There on some of that business could you comment on that on how that's developed.
<unk> developed.
Yes, Bill absolutely the this for.
First of all of them.
I think that has developed well.
After the sale, we really thought it would be two revenue streams of three revenue streams to us from SAIC.
First on on service levels for the transition and.
And that went according to plan.
Secondly on clear path forward renewals as you will recall, we retained all of the intellectual property related to clear path forward.
So let's.
I see I see us acting if you will as a distributor to the federal government for us that has gone exactly according to plan and the.
Then the third element is a is with respect to stealth.
And I would say that SAIC is one of our more active.
<unk> partners for sales so that too is going according to plan.
I referenced in my response.
Some of the progress we have made on stealth.
We really have two versions of that one is what we call stealth identity, which is the biometric capabilities on the other stuffs core which is the micro segmentation capabilities, we're really using both.
In terms of our current.
Client activities.
The activities.
And I would say that while the SAIC channel is important to us.
The bigger channel right now is with respect to health care.
To the travel and transportation, all with respect to Covid and Covid testing.
So we announced a partnership with the inspire health last year.
And we're quite active working with inspire as well as opportunities in both travel and transportation and health care. We think stealth is a very vibrant the solution.
For some of the testing opportunities that are upon us.
Okay, great. Thank you.
Thanks Bill.
Yeah.
This concludes our question and answer session I would like to just one of the conference back on where the Peter Osborne for any closing remarks.
Thanks, very much on this I would like to thank everyone for joining us.
The thank Mike for both of his presentation and commentary.
One item that I referred to in my remarks, which I would reckon.
Recommend to you again for those of you who were not able to join US on our Investor day in January we have a full set of the slides as.
As well as of the transcripts and the audio from that.
I hope that you will find that useful we didn't spend a lot of time today talking about the new business unit structure that we have put in place as of January.
With our business units, obviously, we will start reporting on them.
As of the end of the first quarter, but we really laid out the strategy of the rationale.
On the effect, we think that business unit approach will have on the company.
Our index Investor day presentations, and we would recommend them to you.
With that one of the again.
Again, thank you are.
Courtney Holben at our Investor Relations team, Mike and I on the rest of the leadership team.
The stand ready to continue the dialogue with you.
Ever of appropriate so thank you guys very much and women.
The conference has now concluded that the.
And in today's presentation.
Moving now disconnect.
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Good day, and now from getting any of this corporation fourth quarter and full year of 2020 earnings conference call.
All participants will be in a listen only mode.
If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now.
Now, let's turn the conference over to Courtney Holben, Vice President Investor Relations. Please go ahead.
Thank you operator, good morning, everyone. This is Courtney Holben, Vice president of Investor Relations.
Thank you for joining them yes.
Yesterday afternoon, Unisys released in the fourth quarter and full year 2021 as well.
I'm joined this morning.
Thanks Peter.
Chairman and CEO and Mike Thomson our CFO.
Before we begin I'd like to cover a few details.
Today's conference call on the Q&A session of being webcast via the map.
Your line.
Second you can find the earnings press release and the presentation slides.
We will be using this morning, the guide our discussion as well as other information relating to our fourth quarter.
The performance on our Investor website, which we encourage you to the zone.
Alright, and presentation, which is complementary to the earnings press release includes the non-GAAP financial measures. The non-GAAP measures have been reconciled to the related GAAP measures and we've 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 the ongoing operations.
That can make it profitability and liquidity results difficult to compare to prior periods anticipated future periods or to its competitors' results.
These items consist of pension net exchange and extinguishment cost reduction and other zone.
Management believes each of these items and the start the visibility of trends.
The company's ongoing on it.
Management also believes that the evaluation of the company's financial performance can be enhanced by us.
Implement on presentation of the true bulk.
It is the impact of these items in order to enhance the.
And competitiveness with prior or future periods of zone.
Following measures are often provided and utilized by the company's management and on.
And investors on him.
Comparability of year over year result, as.
As well as the compare results to other companies in our industry.
Non-GAAP operating profit non-GAAP.
GAAP diluted earnings per share free cash flow on adjusted free cash flow EBITDA and adjusted EBITDA the constant currency.
In addition, this quarter, we will be continuing to report non-GAAP adjusted revenue and related measures of the results of certain revenue relating to the reimbursement from the company's check processing JV partners for restructuring expenses included as part of the company's restructuring program.
From our information regarding these adjustments please see our earnings release on our form 10-K.
From time to time, if this Nathan is the guidance or color regarding its expected future financial performance.
Such information and the fact of only on the date given yes. This generally will not update reaffirm or otherwise comment on any such information, except as unisys deems necessary and then only in a manner the compliance with regulation FD.
And finally I'd like to remind you that all forward looking statements made during the conference call are subject to various risks and uncertainties that could cause the actual results to differ materially from our expectations.
These factors are discussed more fully in the earnings release, and the company's SEC filings copies.
Copies of those assets bigger parts of our available from the SEC and along with other materials I mentioned earlier on the Unisys Investor website.
And now I'd like to turn the call over to Peter.
Good morning, everyone and thank you for joining us to discuss our fourth quarter and full year 2020 results.
We ended 2020 in a strong position with improvements to our capital structure and liquidity and 2020 revenue and non-GAAP operating profit margin that exceeded our expectations.
It is an exciting time at Unisys as we've transitioned to our new business unit structure in 2021.
With a sharpened focus on higher growth higher margin markets and solutions.
We believe the changes we are implementing will better position the company to drive revenue growth and margin expansion over the coming years.
Okay.
During the fourth quarter, we continued our progress from the earliest COVID-19 impacted quarters of the year with sequential services revenue growth supported by sequential growth in all segments with ongoing strength in public sector, our cloud business and clear path forward services.
We also had stronger technology revenue growth than expected based on higher volumes of clear path forward renewals that anticipate.
As a result, we returned to year over year revenue growth in the fourth quarter and our full year 2020 revenue exceeded our previously stated expectations.
Non-GAAP operating profit margin expanded year over year in the fourth quarter and full year 2020, non-GAAP operating profit margin also exceeded our expectations.
We continued improving our capital structure and liquidity during the fourth quarter about which Mike will provide more detail.
As a result, our leadership team is now able to dedicate their full focus to optimizing the business.
To this end, we undertook a number of initiatives during 2020 to better position the company many of which began contributing to results in the fourth quarter.
We refined and enhanced our strategy and we'll be reporting in three new segments effective as of the beginning of 2021.
Digital workplace services or dws.
Cloud and infrastructure or C&I.
On clear path forward or C. P F.
Our business platforms and services revenue and profitability will be reported as other in our results given the diversity of solutions included in that group.
We are targeting higher growth and higher margin markets and solutions with the particular focus on areas, where we are recognized as a leader and have a clear differentiation for instance, we are shifting our focus within dws from end user services to the higher growth higher margin.
The end user experience or you ex market, which has the three year expected industry CAGR of 7% to 10% versus a zero to 1% expect the CAGR to the rest of the dws market.
Within C&I, we're specifically targeting cloud, which typically comes with higher margins and within cloud. We are focused on public and other highly regulated sectors, where we have a strong track record the.
The expected three year industry CAGR for public excluding federal within the C&I is 15% to 18% versus 11% to 12% for the rest of the C&I market.
Within Cps as you would expect we already have significant share in license SaaS and warranty work, but we are focused on growing clear path forward services, which are the highest margin services in the company.
The three year expected industry CAGR for clear path forward services is 1% to 3% based on the $1 $2 billion market opportunity.
But we only had 13% of that market as of year end 2020, and we expect to grow that market share.
As I said, our financial reporting will track the segments, starting in 2021, and our new structure is expected to drive increased internal accountability for delivering results.
Yeah.
In addition to business unit initiatives. We are also continuing to implement change across the entire company.
During 2020, we enhanced our go to market approach with a new digital sales platform upgraded training and a more proactive sales approach and we are digitizing and industrializing, our delivery and operations.
We've instituted new workforce management initiatives and are implementing a new ERP system.
We provided more insight on all of this at our recent investor event, the slides and replays of which are available on our newly updated Investor Relations website, which we encourage you to visit.
The go to market improvements, we instituted in 2020 are gaining traction.
With T C V up 22% year over year in the fourth quarter and 8% for 2020 overall.
And we believe the other operational changes I highlighted position us to drive revenue growth and margin expansion going forward.
That said.
The T C V improved in the fourth quarter services backlog was down 10, 5% year over year to $3 4 billion at year end 2020.
Given the COVID-19 related disruptions to client purchasing decisions earlier in the year.
We're also still in the early stages of evolving our gws offerings to focus more on EU ex which will be a key driver of growth in that segment.
As a result, we are guiding to 2021 revenue growth of zero to 2%.
With the acceleration in growth expected in 2022, and 2023 as we emerge from the Covid impacted period and grow our EU ex offerings.
We expect cloud and infrastructure to be our fastest growing segment in 2021.
Dws is anticipated to grow more modestly in 2021 with stronger growth in subsequent years as I've just noted the <unk>.
The path forward segment is expected to grow slightly year over year in 2021.
Margin expansion is expected to be relatively consistent over the coming years with profitability improvements driven in part by operational efficiencies some of which are already benefiting us as labor as a percentage of revenue was down year over year again in the fourth quarter and for 2020 overall.
The transition to higher margin end user experience and cloud revenue is expected to further benefit profitability.
We are guiding to non-GAAP operating profit margin of 9% to 10%.
On adjusted EBITDA margin of 17 at end of quarter to 18 of end of quarter percent.
Both up approximately 200 basis points year over year at midpoint.
Our enhancements to our digital workplace services platform continued during the fourth quarter with the integration of new AI automation and analytics to provide more proactive detection and resolution of problems aimed at improving end user experience we are on.
Offering cloud based virtual desktop as a service through our partnership with Vmware to allow enterprises to provide upstream and virtual desktops to workers as their primary workspace.
Through our partnership with Timur on group, we are leveraging virtue work to provide advisory services identifying infrastructure changes needed to allow clients employees to work anywhere with the same security and effectiveness as when they are in the office of.
Additionally, the profitability of a number of key dws contracts improved over the course of 2020.
As an example of our work in dws during the fourth quarter, we signed the contract with a global health care provider for Unisys Intel of serve artificial intelligence and robotic process automation to improve the user experience for 39000 employees globally.
Also during the fourth quarter information services group or ISG recognized Unisys as a global leader in digital workplace services and their reports on the U S. The U K and Brazil, ISG highlighted our entellus serve digital workplace automation platform is the strength for Unisys.
In addition to our industry focused consulting for the post Covid World. These.
These recognitions come after being named again to the gardener of managed workplace services Magic quadrant in North America earlier in 2020.
We completed a number of development initiatives in the fourth quarter within cloud and infrastructure to enhance our cloud <unk> solutions platform, including a new release of AI ops that helps optimize cloud infrastructure and improvements to our cloud management platform that accelerates the deployment of cloud.
Resources with the appropriate security to reduce implementation efforts from several days to a few hours.
The new and updated capabilities increase automation of existing and new features leading to enhanced productivity and greater flexibility and agility for our clients.
And we plan to continue evolving our cloud offerings over the course of the year.
As with Dws, we have also improved the profitability of a number of key CNI contracts over the course of 2020.
During the first quarter, we expanded our work for our U S state government to support the state's workforce model that is quickly shifting to a remote first strategy.
We will provide cloud for day as the foundation for a virtual infrastructure that will secure sensitive applications and the regulated data by preventing users from printing copying or downloading data into unsecured devices.
In the fourth quarter as with Dws ISG also recognized us as the leader in public cloud solutions and services and its quadrant reports on the U S U K and Brazil, the specifically highlighted club fortune, noting that it provides a comprehensive delivery model leveraging automation.
AI and best practices.
We're also named a leader in the December Nelson of whole vendor evaluation for cloud infrastructure brokerage orchestration and management and the overall market segment well.
Replacement of the leader quadrant in all three areas evaluated overall cloud services cloud brokerage services and cloud orchestration services.
[laughter].
Going forward stealth will be included as part of our cloud and infrastructure business unit.
During the fourth quarter, we announced the latest version of stealth identity, our biometric identity management software.
The new version includes enhanced features such as a managed identity interface. The cross references biometric results against records from fingerprint readers scanners and other recognition methods to robust positive authentication as a mobile and web accessible software development kit that provides enhanced <unk>.
<unk> and an improved user experience.
Self core six dot O our micro segmentation solution the serving as the security Foundation from the cloud solutions, we are leveraging for travel and transportation and hospitality clients related to Covid testing.
With respect to clear path forward the client demand for these solutions was highlighted again in the fourth quarter with higher than expected volumes on renewals and technology revenue as I mentioned.
As an example travel sky the leading provider of information technology solutions for China's air travel and tourism industry renewed its contract for clear path forward to process business critical transactions, including passenger reservations cargo bookings and load calculations.
During the fourth quarter, we extended the contract with our largest clear path forward managed services clients.
Adding more end to end managed services is part of our growth strategy in 2021 managing of clients full environment enables us to significantly increase the level of services penetration into an account.
In closing I would like to say that I truly appreciate all of the hard work from our associates under unprecedented conditions. During 2020, we ended the year in a strong position on.
Committing exciting change and are poised to drive improved growth and profitability going forward.
With that I will turn it over to Mike to provide more insight into our fourth quarter and full year financial results.
Mike.
Thank you Peter and good morning, everyone. My discussion today I'll refer to both GAAP and non-GAAP results.
As a reminder, reconciliations of these metrics are available in our earnings materials Likewise.
Likewise information related to discontinued operations is available on our website.
We're reporting this quarter based on our of historic reporting segments of services and technology as.
As Peter noted based on the changes outlined in our recent investor event, a reporting structure will align to our new business units starting in the first quarter of 2021.
Historical results will be reclassified to reflect our new segment reporting structure and be completed in the coming months.
I am proud of how the Unisys team came together during the last year to enable us to emerge from 2020 and such a strong position we.
We made significant enhancements to our capital structure on liquidity and ended the year with better financial results than we anticipated.
The transition to our new business unit structure at the beginning of 2021 and are executing against our enhanced strategy.
We're excited about the opportunities this creates for driving revenue growth margin expansion and cash flow over the coming years.
I'll touch on some of these opportunities today, but first let me provide more color on our fourth quarter and full year financial results.
Starting with revenue, we returned to year over year growth in the fourth quarter with total company non-GAAP adjusted revenue up five 9%, which was also a 16, 5% sequential improvement versus the third quarter.
This resulted in year over year revenue and non-GAAP revenue declines of eight 8% and eight 2%, respectively, which exceeded our previously stated expectations for a 10% year over year decline in revenue.
Services non-GAAP adjusted revenue was down two 6% year over year in the fourth quarter and nine 8% for the full year 2020, driven by Covid impacted businesses, including field services travel and transportation and <unk> as well as the expected declines in our U K check processing joint venture.
The COVID-19 impacted businesses continued to recover and stabilize in the fourth quarter and services non-GAAP adjusted revenue grew four 5% sequentially.
Technology revenue grew 51% year over year in the fourth quarter and was also up 96% sequentially driven by higher than expected volumes on clear path forward renewals.
This also drove full year 2020 technology revenue to exceed our expectations with year over year revenue growth of 1%.
Moving to profitability non-GAAP operating profit margin was up 790 basis points year over year in the fourth quarter to 14% driving full year 2020, non-GAAP operating profit margin to seven 5%, which was up 30 basis points year over year.
These results were supported by year over year services non-GAAP adjusted gross and operating profit margin expansion, both in the fourth quarter and in the full year <unk>.
Services non-GAAP adjusted gross margin was up 360 basis points year over year on the fourth quarter to 18, 4% and 90 basis points for the full year to 16, 4%.
Services non-GAAP adjusted operating profit margin was up 310 basis points year over year in the fourth quarter to one 6% and 50 basis points year over year for the full year to 70 basis points.
Technology gross profit margin was up 130 basis points year over year in the fourth quarter to 73, 2% and technology operating profit margin was up 460 basis points year over year to 54, 3%.
These improvements were helped by the stronger technology revenue in the quarter.
For the full year 2020 technology gross profit margin decreased by 400 basis points to 65% and technology operating profit margin decreased by 530 basis points to 48%.
These declines were largely driven by higher amortization charges and higher third party hardware sales, which come with lower overall margins.
Adjusted EBITDA margin expanded 770 basis points year over year in the fourth quarter to 21, 5% and 140 basis points in 2020 to 15, 8%.
These results lead us not only to beat our previously stated expectations, but also to outperform factset consensus estimates for 2020 on all key metrics with the exception of GAAP EPS. The estimates for which did not fully reflect the expected fourth quarter charges that we highlighted in our last earnings call.
In addition to the revenue and profitability results I. Just mentioned, we also continued improving our capital structure and liquidity in the fourth quarter.
Adjusted free cash flow was up 59, 6% year over year for the full year 2020 to $42 $6 million.
This increase was supported by an 18, 6% reduction in Capex spent year over year in 2000 $20 million to $130 million.
Operating cash flow and free cash flow comparisons were impacted by voluntary pension contributions that we made during the year.
We ended 2020 with a cash balance of $898 $5 million versus $538 8 million at year end 2019.
We also continued executing against our plans to reduce our pension obligations during the fourth quarter.
As we talked about on our last call, we raised $485 million of senior secured notes during the quarter. The proceeds of which were used to reduce the pension deficit and make additional voluntary cash contributions.
Based on year end, 2020 calculations and pro forma for the additional $200 million of cash from the balance sheet that we expect to contribute in 2021, the global pension deficit would be approximately $840 million versus the $1 75 billion at year end 2019, and we would have just $11 million of expected remaining cash.
Contributions to the U S qualified pension plans versus $826 million as of year end 2019.
For all of their plans, we have approximately $190 million of required contributions through 2025.
Our net leverage at the year end 2020 inclusive of the $840 million deficit I. Just noted was two four times.
As we've discussed in addition to reducing the deficit and pension contributions we focused on reducing the gross pension liabilities themselves with the previously stated goal of $1 billion reduction by the end of the first quarter. This year.
During the fourth quarter, we made progress on this front by removing over $275 million in gross pension liabilities through of bulk lump sum offerings.
In January we announced the removal of just under $280 million of additional liabilities by of transfer to mass mutual.
We're also targeting the removal of approximately $550 million of liabilities associated with our Netherlands plan and approximately $100 million of liabilities associated with our Swiss plan.
As a result of all of this we now expect to be able to remove approximately $1 2 billion.
Of gross liabilities by the end of the first quarter $200 million more than our original goal.
During the first quarter will also be retiring our remaining $84 million of convertible notes that are outstanding we.
We will net settle the notes, which will result in approximately $3 4 million net shares being issued factoring the capped call and based on the closing stock price as of February 18th the <unk>.
Final share count will be determined prior to settlement. The net settlement method resulted in significantly fewer shares being issued when the full potential dilution as the remaining principal will be paid in cash.
As we've mentioned we have transitioned to our new business unit structure as of the start of 2021, and our financial reporting will reflect those segments starting in the first quarter.
We believe that the new reporting structure will provide additional insight into the key drivers of the business going forward and will likewise increase internal accountability for driving results.
Additionally, within the newly defined business units will be shifting to higher growth and higher margin markets and solutions, which we expect to create significant opportunity for revenue growth and margin expansion over the coming years, which in turn should drive improved free cash flow.
We laid out our detailed expectations for the next three years as part of our Investor event, and we encourage you to visit our new Investor Relations website that was relaunched in January to review the slides and replace from this event.
Regarding near term expectations, we are providing 2021 guidance for revenue growth of between zero and 2% non.
Non-GAAP operating profit margin of between nine and 10% and.
And adjusted EBITDA margin of between 17 in the quarter and 18 in the quarter percent.
As Peter noted our revenue growth is expected to accelerate in the years. Following 2021, as we progress in our transition and enhance our service offerings.
Margin expansion on the other hand is expected to be relatively consistent over the three year period, which is reflected in the guidance range as we're providing.
In 2021, our clear path forward segment will include both licenses and services revenue generated by this franchise.
We expect total clear path forward license revenue to be roughly flat year over year and split roughly 55% and 45% between the first and second half of the year, respectively with the third quarter expected to be the lightest quarter of the year and the fourth quarter expected to be the strongest.
Fair path forward license revenue is expected to make up roughly 45% of the total clear path forward segment revenue in 2021, and overall clear path forward segment revenue is expected to be up low single digits year over year.
Services backlog was $3 4 billion as of the end of 2020% of 3% sequentially versus the third quarter.
We expect $375 million of this to convert into revenue in the first quarter of 2021.
Overall, we expect first quarter 2021 revenue to be down slightly year over year as our dws business is still returning to its pre COVID-19 levels.
Lastly, there are some sizable charges expected during 2021 associated with the pension liability of work, we're undertaking as well as our initiatives to realign our segments and enhance our efficiencies.
As I noted during the Investor event, we're targeting $130 million to $160 million of run rate savings exiting 2021 from our efficiency efforts.
Of the $130 million to $160 million, we expect to recognize half of the savings during 2021 with restructuring cost to achieve the savings of approximately $40 million to $70 million.
We took charges related to this of approximately $30 million in the fourth quarter of 2020, and expect $10 million to $15 million of additional charges in the first quarter of 2021.
With respect to the pension liability of removal work, we expect approximately $375 million of one time noncash settlement charges during the first quarter of 2021.
This will complete phase one of our pension liability removal program and remove approximately $1 2 billion of growth pension liability.
We will of course continue to look for opportunities to remove additional pension liabilities in the future.
To wrap up I would like to again, thank our Unisys associates for all of their efforts throughout 2020, your dedication and support helped US end the year with the strong liquidity position achieved better financial results than expected and position us for enhanced growth and margin expansion going forward. So thank you all and now I will turn the call back over.
Peter.
Thanks, Mike very much Alyssa I think were now ready for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on you touched on some of them. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Sure Joe Your question. Please press Star then queue at this time, we will pause momentarily to assemble our roster.
Great question is from John Kim of anything.
Can't Securities. Please go ahead.
Yeah.
Good morning, guys. Thank you for taking my questions and really nice thing to to 2020 of it was the growth year for everyone. So that was nice to see.
I was wondering if you could talk about your ability to drive signings in the services businesses.
In the first quarter I know COVID-19 spiked in a bunch of places around the world of additional Lockdowns.
Maybe first of all address that and number two when would you expect backlog to start increasing the services again as we go through the year.
It comes on the more after that.
Yeah, John Thanks, those are of great questions.
Obviously, there's some uncertainty about the timing of signing I would tell you that our pipeline is up both the qualified pipeline and even the perspective pipeline.
We do expect over the course of the year on your second question to have backlog higher by the end of the year than it was obviously by the end of 2020. So we expect not only new signings, but accretive new signings to backlog exactly.
On exactly how much of that comes in the first quarter is a bit I know.
Certainly in EMEA and in the U S. We still have.
Now from some tough.
Oh, good opportunities in terms of travel in terms of sales we have the new digital sales platform that started last year that is allowing us.
To remotely sell much better than we had before our <unk> went up for the year. Our HCV went up for the year, but I would say the first quarter is still going to be a little tricky in terms of the amount of of sales done added to that.
I think this is an industry question overall, when we look at the pipeline for 2021.
We see a pretty good amount of signings for the year.
That's not only true for us, but it's true for the industry one of the questions that I think we're all dealing with.
Is is there going to be a race to the bottom for the profitability of that business as people really look to rebound on the revenue over the course of the year from from the challenges of last year I think you can see from our.
The forecast.
With a modest amount of revenue gains, but a much higher amount of of margin improvement.
We are focusing on margin improvement for the year.
Don't have a real desire to do the rates for the bottom on selling business, that's not going to be long term accretive.
We've got very strong margin accretive goals for each of the next three years and so that's going to require us to be pretty disciplined on signing a work that is consistent with that margin focus, but I would say that our focus really is margin first.
Revenue growth second John I hope that helps.
Right.
I can just add one little comment to that as well I mean, typically what we see from our clients are kind of of the February March timeframe is when their budgets kind of get locked down and they start really infusing that into the marketplace. So so Q1, probably a little early from a normalcy person.
<unk> as to when we see that but Peter spot on that we're anticipating the backlog to grow year over year.
We obviously have that happen throughout the year.
Yeah.
Got it Mike any thoughts on the pension reform language in the current release doing if it meaningful to you and all of this if the passage of the weighted now.
Yeah look John we've been pretty consistent on this in the language. That's currently in the Bill that passed the house is consistent with what we've been talking about.
Essentially permanently pension relief and ultimately what it means to us of it passes and the way its currently constructed.
The $200 million that we were anticipating putting in this year, we wouldn't have to put in and we wouldn't have another pension contribution to make on the U S qualified plans until like 2027 of 2028, so from our perspective. It really just leaves a good amount of cash in the.
The coffers to continue with our growth strategy.
Outside of that really not a big change.
And as you know we're prepared regardless of of what Congress does to move.
Move forward on taking care of the pension from our perspective.
Got it just one more if I could it sounds like you've pulled in from tech renewals from 'twenty one into the fourth quarter I'm, just wondering how that impacts Q1.
In terms of yes. It wasn't real range you gave some color on the year. So just yeah. It wasn't really a pistol.
Yes, John Thanks for that wasn't really a pull forward. It was actually just increased volumes on our renewals. So really no impact on on Q1 from our normal tech renewal perspective.
So so again it was just two client in particular had higher volumes in the renewals than we had anticipated.
Got it that's great to hear thank you guys.
Sure. Thanks, John Thank you Joe.
The next question is from the South of <unk> with Canaccord. Please go ahead.
Hey, guys. Good morning, and congratulations on a on a great year of 2020, great great job.
Sort of a lot of credit for it. So just a question I know you've been doing pretty well in state and local governments recently.
And I think there was you know another win this quarter there but.
Perhaps what how does that pipeline look.
In deals for 'twenty and 'twenty, one and then all of a quick follow up after that.
Yes, Joe Thanks. Thank you for the thank you and thank you for getting up so early this morning of greatly appreciate it.
What I would say is the the we call that our public sector.
As you know, which is U S state and local and then governments around the world.
But I would say as we look at our public sector not only in U S, but around the world.
It's our strongest sector. So we feel very good about U S state and local signings, we feel very good about our ability to grow outside the U S as well.
In the U S. Obviously, you have of budget constraints.
Given the Covid situation.
But you also have the realization that you know the can't do business the way they are.
The single biggest growth area for our state and local business in the U S is cloud based so that fits very very well.
With our business unit strategy and.
Focusing on on the cloud and focusing on public cloud So we're pretty bullish.
As you know our.
Value proposition to governments, particularly the state and local in the U S. Always includes cost reductions from the current run rate. So we do expect to get them up and running in a more vibrant cloud environment than they have now and save money, while they do it because we think that's a formula for success. So we are in.
Bullish on the state and local pipeline.
Great. Thanks, Peter and then I know Mike you.
You mentioned from additional.
Cost of.
Initiatives in 2021, I was wondering if you could.
Detailed strategy of where you know a little bit more of where that cost take outs coming from and redeploying. It I know you talked about margin expansion, but whats the trade off in Rois that you're seeing now in the investing for growth versus.
You know, perhaps letting that flow to the bottom line on from a P&L perspective.
Yeah. Thanks, Thanks for that Joe.
So it's really coming across the board I think one of the major changes that we implemented in 2020 of them will see the full valuation come through in 2021 and beyond is our work Force management program.
The team has done a really good job of implementing some tools having visibility each of the work force.
Our cost of labor or cost of Cogs.
Is frankly, the lowest as a percentage of revenue since I've been with the company, which has come into my six year here.
So really it's really across the board its efficiency play Joe more than anything clearly that's that's coupled with the.
On the <unk> platform the cloud Forte platform that we continue to automate and enhance so that allows for some more efficiency as well. So I wouldn't say, it's one particular item in general its labor based and its real estate based we talked about on our last couple of calls.
Net postpaid.
Post pandemic and our review of the real estate portfolio around the world.
We found that we could operate a lot more efficiency. So we're giving back some space in certain areas are allowing leases to labs and consolidating space and other areas. So I think those two are the primary.
Benefits for that.
And you saw from us on the Investor day that our expectation kind of exiting 'twenty. Three is about 600 basis points of margin improvement and we think that that's going to be pretty much straight line over the course of 'twenty, one 'twenty, two and 23 with the roughly two points of margin improvement per year.
Year, a good chunk of that is coming from those improvements that we've talked about I also would like to just illustrated and you've touched on it a bit in your question here.
There is of reinvest component here, we're looking between 20 and 30% of that saved to be reinvested as we continue to enhance our.
The skill sets enhance the the training for folks hire more people in strategic areas and talk about other areas of improvement for all of the lines of business. So so I think Joe its more horizontal view, it's across the board and are pretty.
Pretty consistent in the magnitude that we expect per year.
Yeah, and if I could just to follow on Mike's comment Joe and just to make sure you've got the numbers.
Reducing the cost of labor as a percentage of our revenue is the end product. It's not the beginning right you don't start saying Oh, let's go reduce the cost of labor. The total of the work Force management all of the systems all of the leverage of all IP that we put into our solutions, but just to give you those numbers.
Cost of labor as a percentage of revenue was about 58, 3% of 19. It was 55, 6% in 'twenty.
And by 2023, we expect it to be 51%.
So that's a nice chunk of some of our margin increase over the course of that time, but again, there's a lot that goes into taking.
Into the end to taking those cost out as a percentage of revenue and getting the margin increase.
Yes, maybe if I could too Joe just real specific on the numbers I mentioned that we took a charge in the fourth quarter of $30 million, we're anticipating between 10 and $15 million in Q1, and we said the overall program would cost between $40 and $70 million. So most of the charges frankly have.
Already been incurred and so really it's about how much we reinvest in where we need that reinvestment.
Sure.
Great. Thanks, that's helpful. Mike and then just.
I know that you're not really providing it for 2021.
But how should we think about cash flow of unlike the capital efficiency and Capex was a little lower in Q4.
Was that kind of timing or was that something you know anything notable we should be thinking about the thanks a lot.
Sure. Thanks again Joe.
If it wasn't for the voluntary pension contributions that we intend to make and we'll see how the legislative.
Element brakes, we would be free cash flow positive in 2021.
And non adjusted free cash flow positive free cash flow positive the.
On the Capex number that we closed the year at about $1 30.
As you know is about $20 million better than we had anticipated.
Throughout the year, we took it down to about $1 40 at the end of the third quarter and came in lower than that I think that is really more of byproduct of what you've seen from us over the course of the last three years or so that capex number just in the comparative purpose three years ago was about from 10, So our capital.
<unk> strategy continues to drive that number down we had talked about on Investor day that we're also moving to a cash our working capital neutrality views. So that's gonna have some improvements in cash flow as well. So I think it's just what you've seen from us Joe over the last couple of years.
Is just continual improvement and continual focus on driving down the capex number and enhancing our working capital profile.
Great. Thanks, very much Mike.
Peter.
Thank you Joe of axiom.
Your next question is from Matthew <unk> with.
Please go ahead.
Hi, Thanks for taking my question.
Just a couple from me one being <unk>.
You touched on them higher third party hardware sales on the MX pressuring.
Technology market is a little bit this year, obviously, the reporting structure is going to be different going forward, but just curious.
Functionally how that is.
Is that sort of the normal.
Look going forward or does that continue to bounce around a little bit and create some volatility on that margin.
Yeah look it's really fairly normal.
Thanks for the question Matt.
Typically our hardware our third party hardware is anywhere between 10 and 15%.
Of technology revenue in any given year, it's actually more of a byproduct of the renewal cycle. The refresh schedules on the hardware and what the contracts stipulate. So I wouldn't say there is any true normalcy to it but when you look at it year over year compare again, depending on.
On our refreshed schedule you can have more in the euro versus U b, but I think on average you should see that somewhere in the range of between 10% to 15% of technology right.
Yeah, Matt. This is Peter you were higher towards the higher end of the range. This year, but I think you'd have to put in context, what what's happening with technology and hardware sales globally. You had a you had a lot of work from home folks establishing.
And not everybody was prepared to do all of that work from home.
So that that that caused if if you will a bit of positive pressure on hardware sales for us as we helped our clients get established.
Got it that makes sense and then just I guess.
On follow up from me.
And I guess, a follow up on the pension question.
You know I guess hypothetically, if there really still does path of kind.
The cost on this call earlier.
You've talked about.
M&A opening up as an option for you. So I guess I'm. Just curious does does that 200 million start burning a hole in your pocket or do you think about your.
Outlook for.
Deploying that capital internally or Inorganically, you know what you know.
How do you think about that Decisioning over the course of 2021 of its something you can.
Can you see moving on M&A relatively quickly or is that not necessarily part of your.
How youre deciding on that thanks.
Matt This is Peter I guess I'll take it to start and then have Mike a follow up and elaborate on.
The the quick answer is it is not burning a hole in our pocket. It is not even in our pocket right now because we have allocated that.
To the pension.
To the pension take down unless we don't need it for that because of the legislation.
That said as you look at our cash balance for the year, even without that $200 million. We're in a significantly better cash balance than we were before and that money is not burning a hole in our pocket and I know you are familiar Matt as is most of the people on this call. This is of this is a hot market.
Right now for mergers and acquisitions.
The price of of acquisitions is high.
And you have to really really believe in your acquisition models the order to justify some of the pricing.
That said, we have an active M&A team.
But but the the goal of the team is modest but not looking for scale acquisitions. We're looking for some very specific capability acquisitions in our gws business unit and in our cloud business unit.
So we think we'll be able to do that.
But we don't.
As I said, where we're not in any particular rush to.
And the size of those acquisitions are expected to be modest.
So I think that there will be in good shape with or without the $200 million.
Mike.
Yeah look I think you said it perfectly Peter I mean, we're in the market here looking to acquire and enhanced capabilities.
And frankly, that's happening with or without legislative relief.
We have $900 million ish.
On our balance sheet and cash and we have capacity to borrow if we needed to but the reality here is what we're looking for is the right deal and there is plenty of them out there and as Peter noted the the market's fairly hot but.
That doesn't mean, we won't be prudent and ensure that what we're getting not only helps us prospectively, but you know.
From our look back perspective, being able to take those competencies and play them back into our base of something that is important to us. So.
I would say Matt in general were looking hard at a whole bunch of different things and.
We're going to do the right thing by the company.
Alright, thank you.
Thanks Pat.
The next question is from Walter you all in cash.
Equity income. Please go ahead of them.
Oh, Hey, guys. Thanks for the thorough and clear presentation on on all of these trends.
Very helpful stuff I have a question about digital workplace and then a follow up on clear path forward.
And digital workplace can you just talk about the latest state of how Covid is impacting demand.
I'm, especially interested in an update on the status of the steel services portion of the business. It does seem that your ability to accelerate growth from.
'twenty 'twenty, one and into the next year. She is meaningfully contingent on how that business plays out so it'd be great to get an updated sort of view on that.
Yeah. So rod thanks, very much for the question what I would say on on field services is we had a marginal uptick in the fourth quarter in terms of demand.
We expect a slight uptick in 2021 in terms of field services, but none of our numbers anticipate a significant uptake in field services.
Not to say I think we're at.
Full run rate.
But I think we're not far from full run rate.
So we.
I would say, we're about 80% of our of our 2019 run rate on field services, we expect that to go up a little bit over the course of the year, but in general as we look to the future.
Our revenue increase is really going to come from our move to end user experience.
Not from increasing the field services revenues significantly it's it's really the added value when you hear us talk about our Intel the serve platform you hear US talk about outcomes you hear us talking about moving from SL as to really very objective customer value driven.
Means of compensation and all of that is because of the confidence we have in our end user experience. So I think that's going to be the biggest uptick for our gws business.
But I think we expect the marginal uptick in revenue from field service.
So, but I guess the follow up on on that is as field services prone to be stable from 2021 into 2022.
Or is there.
A possibility that with your plan to enhance margins and the shift into end user experience could field services actually erode some of our intentionally shrink in some ways.
Well it depends on whether you're talking absolute dollars or percentage of revenue.
In terms of absolute dollars no. We don't expect it to be declining in absolute dollars in <unk>.
And the percentage of revenue terms, we do.
Because we expect the growth coming from areas other than <unk> got it okay great.
And then on unclear path forward clearly cloud adoption is is the mega trend and Covid is further adding to that trend. So I wanted to ask and clear path forward, how cloud related trends are impacting clear path forward.
Technology demand you know what are the what are the puts and takes that are happening for clear path forward technology demand and in light of all of the cloud cloud adoption that's happening in the world.
Well that's of Great question.
I would say.
To be Frank it's not as it's not as.
Hurried as I thought it would be so.
We put a clear path forward on Azure.
In August of this past year, that's the that's a big effort what our MCP platform is already on Azure by the end of this year, we expect <unk> 'twenty to platform or 'twenty 200 platform to be onshore, which will really complete our clear path forward on azure process.
We have a number of clients.
Net are either using the azure platform now or are looking at using the azure platform.
I think effectively what that has done it has given them the comfort that they know they have a public cloud environment. They can switch to if they wish to.
Over time more and more of them will we think that you know instead of people thinking about a five year journey.
About you know maybe of one to two year journey, but it doesn't mean that they're pulling the record right now and say the absolute has to be on the public cloud.
So I think we actually have been quite happy with that we're happy that we have the answer for them. We're happy that it works, we happy the clients are moving to it.
But if you know if we're talking about of large government of large financial institution that does not want to move to the cloud right now there's no reason for them to do so.
So we actually think we have the best of both worlds right now and we're very very happy with the progress of that moving it a clear path forward on tissue.
Our next question is from the Williams with volume.
Go ahead.
Hi, Peter Congratulations on another good year on all of the progress that you've made.
My question relates to the SAIC.
All of about a year ago and could you comment at all about how that's going and if there.
I know there was an expectation that there would be of tail. There on some of that business could you comment on that on how that's.
Develop.
Yes, Bill absolutely the this.
The first of all.
I think that have developed well.
After the sale of we really thought there would be two revenue streams, while three revenue streams to us from SAIC.
First on on service levels for the transition.
Well according to plan.
Secondly on clear path forward renewals as you will recall, we retained all of the intellectual property related to career paths forward.
And so SAIC is acting if you will as a distributor to the federal government for us.
It has gone exactly according to plan.
And then the third element is a as with respect to stealth than.
And I would say that SAIC is one of our more active.
Channel of partners for sales so that too is going according to plan.
I referenced in my response.
Some of the progress we have made on stealth and we really have two versions of that one is what we call stealth identity, which is the biometric capabilities on the other stuffs core which is the micro segmentation capabilities, we're really using both.
In terms of our current.
Client activities.
The activities.
And I would say that while the SAIC channel is important to us.
The bigger channel right now is with respect to health care.
To the travel and transportation, all with respect of Covid and Covid testing.
So we announced a partnership with inspire health last year.
And we're quite active working with inspire as well as opportunities in both travel and transportation and health care. We think stealth is a very vibrant the solution.
For some of the testing opportunities that are upon us.
Okay, great. Thank you.
Thanks Bill.
Yeah.
That concludes our question on the Intel Samsung I would like to just wanted to conference back on line of Peter.
Any closing remarks.
Thanks, very much on this I'd like to thank everyone for joining us.
The thank Mike for both of his presentation and commentary.
One item that I referred to in my remarks, which I would.
Recommend to you again for those of you who were not able to join US on our Investor day in January we have a full set of the slides as.
As well as of the transcripts and the audio from that.
I hope that you will find that useful we didn't spend a lot of time today talking about the new business unit structure that we have put in place as of January.
With our business units, obviously, we will start reporting on them.
As of the end of the first quarter, but we really laid out the strategy of the rationale.
On the effect, we think that business unit approach will have on the company.
Our index Investor day presentations, and we would recommend them to you.
With that one of the again, thank you Courtney.
Courtney Holben at our Investor Relations team, Mike and I on the rest of the leadership team.
Stand ready to continue the dialogue with you.
Ever of appropriate so thank you guys very much and one of them.
The conference has now concluded that the.
And then the today.
Now disconnect.