Q1 2021 Unisys Corp Earnings Call

May 6, 2021

[music].

Good day and welcome to the Unisys Corp, first quarter of 2021 earnings call. All participants will be in a listen only mode should you need assistance. Please take note conference specialists my price and the stock he followed by Sierra After today's presentation will be an opportunity to ask questions to ask a question you bet price stars and one. Please note that this is being recorded.

I would now like to turn on the conference over to Courtney Hobin Vice President.

Patients. Please go ahead.

Thank you operator, good afternoon, everyone.

Holton President.

Yeah.

Thank you for joining yeah earlier.

Earlier today Unisys released it for 2021 financial.

Enjoying this afternoon.

Peter on staff or chair, Yeah, and nighttime R. C S.

Before we begin I'd like to cover a few details first today's conference call I need you any session on being webcast.

Master website.

Second you can find the orange actually on a presentation fine that we will be using this afternoon.

As well as other information relating to our first hard for me on a channel.

Last night between encourage you to visit.

Alright, today's presentation, which is complementary to their knees.

For me, please and non-GAAP financial measures and on that measures have been reconciled for the related calf address for me.

<unk> reconciliations within the presentation.

Although appropriate under generally that's for the county pencils.

<unk> results from that charges for the company believes are not in day care.

Operation and that can make it profitability illiquidity resolve difficult to compare <unk>.

And for the Peter future periods or to his competitors or solids.

These items consistent postretirement debt exchange next Englishman and cost reduction in other.

Management believe issues items can start the visibility of trends associated with the companies on the line for the appointment.

Management also believe that the valuation of the company financial performance can be enhanced by use of supplemental presentation I'll, let you go.

What is the impact that these items in order to enhance consistency in from Paris.

Prior or future period.

The following measures are often provided and utilized and help me finish.

Smith channel and the doctors to enhance comparability of your for your resolve as well as to compare results other companies in our industry.

Someone got operating profit non-GAAP diluted earnings per share free cash flow and adjusted free cash flow EBITDA and adjusted EBITDA in constant currency from.

More information regarding the matrix related adjusted please see our earnings release and on form. Thank you.

From time to time Unisys may provide specific guidance for color regarding.

Get your financial performance.

That's information that is only on the date yet.

<unk> is generally will not update reaffirm or otherwise comment on any such information except for the answers.

Oh, sorry, and then only in a manner that complies with regulation FD.

And finally I'd like to remind you that I'll forward looking statements made during this conference call our subject for various room kind of certainties, that's a call with the actual results to differ materially from her vacation.

These factors are discussed more fully in the earnings release, and then the company SEC filings.

Copies of those as a fever parts are available from the S. P C and along with the other materials I mentioned earlier on the Unisys industrial website and.

And now I'd like to turn the call over to Peter.

Good afternoon, everyone and thank you for joining us to discuss Ah first quarter results.

At our Investor Day in January 2021, we laid out goals related to further strengthening our balance sheet.

Credit forming of organizational structure.

Improving margins and cash flow enhancing and expanding our solution portfolio.

Growing revenue and enhancing our associates experience during the first quarter, we made progress on each of these.

I will provide some detail on the organization or solutions and associates experience and Mike will discuss the rest of these points, including the significant improvement from profitability on cash flow that we made during the quarter.

In the first quarter of 2021, we transition to our new segment structure, which targets digital workplace services for D. W. S.

Cloud and infrastructure or see a die and.

And clear pet forward or C. P F.

This was a key step to implementing the strategy, we do <unk> developed in 2020 and laid out you know investor day.

Went out running the business and reporting our financials on this basis.

We have also built out the leadership team of these businesses and the company overall we.

We hired me on Gilbert our new head of D. W. S. In February and brought on gene show, a new head of clarifies forward in April.

Wendy Reynolds dogs joined a new D E I need her in March and she will also co lead hour E. S. G. Edwards Duane Allen, our new Chief Technology Officer joined US in April and will partner with our business unit leaders to innovate new solutions that expand and enhance our portfolio.

Finally last week Marine Sweetie, a new Chief revenue Officer came on board Marine would work across our businesses to leverage capabilities identify key opportunities and help drive growth.

More information on each of these leaders is available on our website.

With a <unk> significant strengthening of our balance sheet last year, we now have the lepers to fully execute on our strategy. These new leaders and the team already in place are doing just that.

As we discuss it or Investor day, our plan over the next three years is to grow margin cash flow and revenue.

We expect to achieve this is part two R. D. W. S transformation, including expansion and enhancement of are offering portfolio and shifting to experienced based solutions.

Additionally, we expect to continue on momentum and C N I with a focus on higher margin cloud offerings.

Within C. P. F. We are targeting growth and C. T F services, which is the highest margin services because the company.

Supporting all of this or improvements to operational efficiency.

While we will maintain a focus on revenue margin and cash flow at all times as we execute on the strategy. We have expected to see early your progress with margin and casual.

These metrics are already benefiting from efficiency improvement and reduced pension contributions have further improved cash flow.

We expect their D. W. S transformation in growth and cloud and T. P. L for services to drive further profitability and cash flow improvement as well as increasing revenue growth rates in 2022 and 2023.

Within dws during the quarter, we improved deficiency and margin by reducing our total cost of labor and with automation and artificial intelligence.

As <unk> as of the beginning of April we have moved all of our service does clients onto our a I enabled cloud based and tell us serve contact center platform.

We expanded our solution management and experienced based talent and offerings within D. W. S, which will help drive revenue growth.

In the quarter, we signed a contract with a global publishing company and EMEA for service to support field services and asset management, and which we will automate and streamline global user support to help improve the user experience for our clients associates.

Within C. N I, we are helping clients and their journey to private public and hybrid clubs with a particular emphasis in the public and highly regulated sectors. This.

This is higher margin business and I'd like to see infrastructure work and we have begun to see the benefits of this you know improved segment profitability.

We are also pursuing increase cloud operations management and monitoring as well as development and modernization our clients cloud based applications.

These represent opportunities for additional profitability improvement and revenue growth.

As an example, we're migrating significant U S State government I T services agency to the Oracle, Microsoft assure at E. W. S clouds as part of an initiative to modernize services to citizens at a lower cost and improve reliability cyber security and cost effectiveness.

Keith State administrative operations.

During the first quarter of 2021, we sign seven contracts for additional work associated with these transformation efforts and have several more opportunities in the pipeline with this quiet.

Similarly during the quarter, we also side, a new scope contract with California State University or C. S U.

The nation's largest higher education system.

As part of this new contract Unisys will be providing financial security and cloud operations to offer the client greater agility to execute digital cloud strategy that better serve the campuses and improve the student experience for nearly 500000 students.

For sure about forward, we have a slightly different approach than with dws and see it on credit.

Credit that forward is already operating that attractive margins with license and credit back toward services, representing the highest modern revenue on the company.

So our strategy here is focus more on growing C. P. F services revenue, while maintaining disability, we have seen in the clear pet for would license space to do this we are implementing a coordinated strategy to better leverage our technology solutions, while utilizing our deep client relationships to identify areas where.

Those clients can benefit from additional career path forward services, specifically, we're targeting Rosen, both managed services and applications services revenue.

As contracts renew we're also of lighting maintenance pricing to market.

An example of our expanding relationship without an existing cleared that for quite to provide nuclear pet forward application services.

During the first quarter, we began work on a new scope contract with a European National Government agency that manages processing and payment for public pensions for about 2 million people.

[noise] Unisys is now ultra providing credit that sword consulting services to make their clarify for just a more scalable and more interoperable with other systems.

Within the framework of our new business unit structure and based on the strategies I just described.

Evolving our solutions portfolio is very specific areas to complement our current capabilities and enhance our margin profile and future revenue growth.

This evolution will be the result build acquire and Parker activities.

In cases, where it is most sufficient to do so alright enhanced balance sheet gives us the flexibility to pursue it organic opportunities in a way we have not been able to in the past.

As we consider such opportunities within V. W. S. We initially expect to focus on relatively small scale companies that have solutions that would further enhance our experienced based on true.

Within C N I will look for opportunities that help us scaled the business and leverage our solutions more broadly.

As we drive all of these operational strategies forward. We're also aiming to enhance the experience of our associates.

In addition to being the right thing to do to support our people and to make Unisys a place. They are increasingly proud to call home. We believe that this can also help us achieve a number of other important goals, including accelerating recruiting bolstering retention and being a more attractive partner and supply.

Year in the quarter.

Non-GAAP operating profit increased 75% year over year to $51 million and non-GAAP operating profit margin increased 440 basis points year over year to 10%.

Gross margin improved in each of dws, C&I and clear path forward.

Dws gross profit increased 157% year over year to $19 million with dws gross margins up 860 basis points to 13%.

C&I gross profit increased from a negative $3 million in the prior year period to a positive $12 million with C&I gross margin up 1240 basis points to 10%.

Clear path forward gross profit was up 3% year over year to $103 million with clear path forward gross margins up 290 basis points year over year to 61%.

The margin improvements were driven in part by progress against our previously outlined goals for efficiency improvements in 2021.

We noted on our last call that we were targeting between $130 and $160 million and run rate savings exiting 2021, and we have completed a significant portion of the actions required to achieve this.

With a total of approximately $100 million on run rate savings in place as of the end of the first quarter.

We took additional charges related to these efforts in the first quarter of $8 million and we expect less than $10 million of additional charges throughout the remainder of the year to complete this program.

The improvements to non-GAAP operating profit also flowed through to adjusted EBITDA, which increased 30% year over year to $94 million.

Adjusted EBITDA margin increased 440 basis points year over year to 18%.

And non-GAAP EPS increased significantly to 46 from <unk> from the prior year period.

This margin expansion also contributed to significant year over year improvements in cash flow.

Cash used in operations improved $335 million year over year to $43 million and adjusted free cash flow improved $52 million to a negative $24 million.

A large portion of the improvement to operating cash flow and free cash flow was attributable to reduced pension contributions.

Capex was roughly flat year over year at $28 million and as a reminder, it is typical for us to start the year with a negative cash flow given the timing of our cash generation and usage.

We expect the momentum with cash flow to continue over the year, our expected capex spend for the year is between 120 and $130 million and we anticipate cash taxes to be approximately $45 million to $55 million.

Additionally, as we noted at our Investor Day in January working capital is currently at a run rate use of approximately $20 million to $30 million, which we expect to improve over time.

As a result of all this we expect free cash flow positivity for the full year of 2021.

We had expected profitability to be the key driver of improvement in the first quarter as we were anticipating a modest year over year revenue decline.

The total company revenue was down $5 6 million or one 1% year over year, driven by a decline of approximately $16 million in field services travel and transportation and bto processing activities.

Cloud and infrastructure revenue remained strong increasing 19% year over year to $123 million and the cloud aspect of this business increased 31% year over year. Additionally.

Additionally, C&I revenue in U S and Canada grew 24% year over year.

Clear path forward continues to demonstrate stability and opportunities for growth clear.

Clear path forward revenue was down 2% year over year, largely driven by currency and the divestiture of some low margin third party contracts, which contributed to the improvement in clear path forward gross profit and margin that I mentioned earlier.

The decline in field services that I noted contributed to the 12% year over year revenue decline in Dws, which was also in part due to the fact that this segment has a large base of legacy solutions, which have lower growth than we experienced based solutions to which we are transitioning Peter.

Peter highlighted a number of the key steps that we took in the quarter to progress our gws transformation and we expect over time to continue to see improved performance out of this segment.

Overall, our first quarter results were in line with or slightly ahead of our internal expectations and beat consensus on all key metrics.

Looking to the rest of the year, we would remind you that we expect clear path forward license revenue to be split, 55% and 45% between the first and second half of the year with the third quarter expected to be the lightest of the year and the fourth quarter expected to be the strongest.

This quarterly revenue timing will also impact profitability as clear path forward costs are distributed relatively evenly throughout the year.

As a result of this our first quarter results and our expectations for the remainder of the year, we're reaffirming our guidance ranges for the full year of zero to 2% year over year revenue growth.

Non-GAAP operating profit margin of 9% to 10% and adjusted EBITDA margin of <unk> 17 in the quarter to <unk>, 18.25%.

Total company backlog, which now includes license revenue given our new segment structure was $3 4 billion as of the end of the first quarter relative to $3 6 billion as of the end of the year.

Of the $3 4 billion, we expect $380 million to convert to revenue in the second quarter.

The company's legacy BPL businesses, and a clear path forward renewal schedules were the largest contributors to the sequential decline in backlog.

Additionally, the weighted average length of contract signed during the first quarter of 2021 has been shorter than the weighted average length of contract signed in 2020, which means that the backlog is expected to convert to revenue more quickly which is positive for near term growth.

We expect revenue in backlog to improve over the course of the year as we continue to implement our strategy to enhance our solutions portfolio with a particular focus on dws in the short term, which enables a gradual move up the revenue and margins day for <unk>.

Currently building out our segment go to market materials that support our strategy and we expect that new material will be in the market this quarter. Additionally.

Additionally, we expect an increase in demand for cloud transformation and increased opportunities in managed services application development and application modernization in both C&I and clear path forward to further drive improvement in revenue and backlog.

Turning to the balance sheet, we continued to make significant progress on our pension obligations as.

As we disclosed during the first quarter the signing of the American Rescue Plan Act in March has resulted in changes to our pension contribution requirements.

Based on our current calculations, we are not required to make any additional contributions to the U S qualified defined benefit pension plans in the future.

As a result, we no longer expect to make the 200 million voluntary contributions. We've previously discussed, leaving us with even stronger expectations for liquidity and near term cash flow than we had at year end.

We may in the future elect to make voluntary contributions in order to implement additional de risking opportunities or strategies.

As we've discussed we've been targeting a reduction in gross pension liabilities of $1 2 billion.

The domestic portion of this program has been completed with approximately $550 million of liabilities removed.

The final two actions to achieve our $1 $2 billion target related to transferring $650 million of gross pension liabilities from two of our international plans to multi employer collective foundations.

Our work to complete these transactions was done at the end of the first quarter and we expect to receive final approvals and complete these transactions in the second quarter instead of the <unk> at which point, we will have achieved our goal of moving $1 2 billion of growth pension liabilities.

As a reminder, we are required to recognize noncash settlement charges for each plan as we remove these liabilities the.

The amount of the charge related to the second quarter activity will be approximately $215 million.

Before I turn the call back to Peter I'd like to thank the Unisys team for their ongoing efforts to help implement our new strategy and continue on company's transformation, we're off to an exciting start in 2021 with strong profitability and cash flow and we look forward to continuing to drive results over the remainder of the year with.

That I will turn the call back over to Peter.

Peter.

Thank you, Mike very much and with that we'll open up the call to a discussion as well as questions. So on coal if you would open up the call and let's get to it.

Certainly.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

I think a speakerphone please pick up your handset before pressing the case for withdraw your question. Please press Star then two once again that is star then one to ask a question at this time, we will pause momentarily to assemble the roster.

Our first question today will come from Jon <unk> with CJS Securities. Please go ahead.

Hi, Good afternoon, guys. Thanks for taking my questions on a nice quarter.

Just wanted to clarify a couple of points.

Mike did you say you expect backlog to grow from here sequentially.

Sequentially or is that just over the course of the year at some point.

Yes, we're looking John Hey, Thanks for the question.

We're looking for growth in the second quarter, both in the quarter and the year to date and we're looking for a backlog growth for the full year as well.

I guess the answer would be both in the quarter and the year John.

Got it that's great to hear and I was just wondering how sustainable the margin. The operating margin is in your services business as we go through the year are there any.

Changes to the profile.

<unk> get through different projects with revenue will fluctuate.

Any color on that would be helpful.

Yeah look as you know John that the services margin aspect of our business is pretty solid right so with volume.

Cloud was at around a little bit is the technology aspect of that so as I noted in my prepared remarks in the third quarter, we will have a lighter tech quarter, but as far as the services margins go we feel pretty strongly that there.

They are very sustainable I think you've seen from us over the last three quarters consistent improvement on that and are in a big step up in this quarter and we expect to maintain and continue to grow those services margins along the lines of what we discussed in January at the Investor Day.

Got it and you usually give kind of like.

Ballpark percentage of revenue that you're expecting technology per quarter or per half. Good do you have that kind of.

Clarity at this point in time.

Yes, so recall for was 55% in the first half and 45% in the second half John with Q3 being the lowest quarter of Q4 being the highest.

And again, it's $55 45, and pretty flat for the year from a technology licensing perspective, just for modeling purposes.

Okay got it and then finally just high level.

<unk> benefited from the stimulus bill with the pensions.

Is there any benefit for your comment and the potential infrastructure Bill I know there's funding go into a variety of end markets that you serve I'm wondering if you have any insight as to whether that would that would flow to you guys at all.

Yes, maybe I'll take that for a minute on John I wanted to add my thanks to Mike and thanks for recognizing the quarter, we feel very good about the results. We had this quarter and we're on track for us for this year as well as the plan that we rolled out in January.

This infrastructure Bill is at least in its current form is defining infrastructure in a much broader way than in prior builds a bit silke so cyber security.

Broadband access are all front and center in this bill as active integral.

Parts, given our focus in the United States on the public sector, which we define as state and local you know anything other than federal we see opportunities around cyber security around <unk>.

Increased evolution to new platforms for state and local.

The debt that we think that the infrastructure Bill if passed in a fulsome way would help us given our public sector visibility.

Alright, Thank you Yep, John I know you didn't.

I ask this aspect of it and Peter gave the the.

For a piece of it but just wanted to maybe throw in the tax piece of it as well on <unk>.

This debt on your minor on the minus some of the other analysts here.

We do not expect any negative.

Issues in regards to any of the discussions from a tax perspective.

As you know we've got quite a bit.

We have about $1 billion worth of DTA settle that will shelter or about $3 $5 billion on.

Other income so we're not expecting really any fallout from any of the items being discussed whether it's the corporate tax rate the.

The guilty tax rate or the dialog on the beat taxes. So I think we're really no change in regard to that as well.

Got it that's good to know maybe one final one if I could the.

Well publicized supply chain issues on just on technology in semiconductors are on all of that is that limiting your ability to deliver a hardware associated with your services at all or is that.

Not much of an issue as much of an issue as it might have been just given migration to cloud and offloading that debt capacity.

Yes.

That's exactly right John It is not as much of an issue for us obviously certain sectors like the automobile sector are being hit very directly.

We have not seen significant.

<unk> ability issues in the hardware that we're providing to clients some but nothing significant.

Okay, great. Thank you.

Thank you.

And our next question will come from Joseph <unk> with Canaccord. Please go ahead.

Hey, guys. Good afternoon good results.

Just kind of looking at some other segments.

For the quarter on kind.

Thinking about the strategy moving forward.

Clearly.

C&I.

Doing well and looks like it's kind of emerging growth driver.

The new segment reporting.

How do you see kind of ROI on sales and marketing expense relative to the three segments now.

Where where are you prioritizing that and then I'll have a follow up thanks.

Yes, so Joe.

We take that to start and thanks very much for the congratulations again.

We feel very when we go back to our January strategy.

On the bulk of the revenue growth, we expect will come from dws from cloud and infrastructure and from the services segment of clear path forward.

I will tell you that we feel very good about all three of those a few months into this so you see some reduction in digital workplace services revenue year to year.

We expect dws revenue to pick up.

We expect it to be positive for the full year. In fact, we expect all three of those to be positive for the full year again relatively modest revenue, but we expect to pick up the losses from Gws, we expect the pipeline for dws to increase markedly over the course of the year, we have visibility of some large deals.

That will come out in the third and fourth quarter.

We feel very good about our positioning for those so I would tell you that piece of our strategy, which is that we really expect over time to have a larger and larger share of gws very much.

Very much in play.

On cloud infrastructure, we had a little bit of a head start in that compared to dws. So Leon Gilbert who is leading the dws team joined us in February.

Mike Morrison, who is leading cloud infrastructure has been here for several years and I think youre seeing a little more maturity in the cloud and infrastructure, particularly those cloud numbers of course this quarter on.

Their path forward I would tell you.

Again, a new leader, who I mentioned gene Chow started in March for Us.

Very very interesting perspective on the Cps business, we have a good view from January about where to take the services revenue.

Think gene is looking very hard at opportunities to increase the software revenue on a clear path forward early days on that.

But really like the vitality that he's bringing to that entire.

Segment for us So we really feel that we are on track, Joe with where we expect it to be at this point.

Got it thanks, Peter and then.

So if we think about kind of some other ongoing restructurings and what that move from margin combined with.

I guess, it kind of fair share.

$200 million that kind of quote on quote got freed up relative to.

Congrats on all American Rescue Plan Act.

How should we think about that cash deployment back in the business.

Feels like M&A may be the right place, but would love to hear your thoughts.

Well first of all it is not burning a hole in our pocket.

We do not feel any urgency to spend it because we have it.

Youre right with with the passage of the act as.

As Mike laid out we no longer expect to make the $200 million of contributions.

And we're very grateful for that so we really feel like as I said in my comments, we can really on active all levers now.

We have looked hard at the businesses that will change the most for us and that is dws and the cloud piece, a clouded infrastructure over time.

Some of the work we did last year with Mckinsey and then with Alix partners really kind of looked at how that business is where those two have to evolve over the next two years.

We've been very specific in terms of debt analysis, we actually have.

Created bundles of offerings in both dws and cloud and we're looking at how we get to complete those bundles over the next couple of years.

That is a classic <unk>.

Build by partner analysis, and I can tell you that we expect to do all three.

With respect to the bi analysis.

If we look at current pricing and the multiples of the different kinds of businesses.

I'd tell you the the pricing for dws businesses is.

A little less aggressive than the pricing for some cloud businesses right now.

That would be very consistent with our strategy, we're seeing some of the players in the industry day.

Emphasizing that a little bit.

We intend to rush into that void Thats, a very good business for us. So I think you'll see us focus in dws on specific acquisitions, probably smaller acquisitions that really will fill specific niche solutions for us, but we think those solutions will have a multiplier effect on.

On our ability to grow revenues and market share in dws. So given that multiplier effect. We think we're in a very good shape to be an efficient acquirer situations a little different in club.

The asking prices are a little higher.

And again, it's a little more mature in terms of our next generation offerings and cloud but.

But we do expect over time to make some cloud acquisitions those will largely be.

For.

Filling in scale, where we believe that we have sub scale in some of our offerings or some of our geography or some of our advisory services.

I think that's the way we'll approach the cloud acquisitions.

Great Thanks for that.

Makes sense.

Yes.

I could see unisys really kind of becoming a big scale player in what you call dws.

Perhaps that opportunity is one that others aren't focused on his months ago. Thanks, much for the color great results. Thank.

Thank you Joe.

Great. Thanks, Joe.

And our next question will come from Matthew <unk> with Sidoti. Please go ahead.

Hey, Thanks for taking my question maybe.

Just as a follow up to the question around.

Supply chain and component shortages.

I realize for still on the early days of that but I'm curious if any macro push towards AMR extra macro push towards cloud migration.

From.

I was just customers on whether that could be.

Any catalyst for you.

On <unk>.

Uh huh.

And then any segment thanks.

Yeah, why don't I take that first Mike and then hand it over to you for your perspective as well if you don't mind share.

And it's.

It's one of several right so.

It's hard to imagine people need more push to the cloud at this point right. So COVID-19 already accelerated.

People, who really did not want to bear the cost or the people involved in managing their own data centers. So that was a push.

The work from home effort that came along with COVID-19 also acted to push people more towards the cloud.

Advances in what we're doing around digital workplace services, which.

<unk> is making.

The employees of our clients are.

At least as productive anywhere they are.

A lot of our dws work ultimately revolves around having capabilities for the client which has to be available anywhere with very very low latency around the world.

Debt largely means putting it into the cloud. So I think you've had a bunch of reasons why people were accelerating to the cloud already <unk>.

Supply chain issues I think do it on in two ways.

First obviously, you're not as concerned about the availability of servers et cetera, and secondly is around security.

There is obviously managing a secure environment.

Debt that is being hosted by AWS or azure or Google or someone else you still need to manage it very carefully and we obviously do for our clients.

But there's a second element of that which is kind of the core supply chain are you buying hardware that has the right provenance and how do you determine the right Providence of the hardware you buy and the software that needs to run it in a network environment.

I think what you are finding here is our willingness to let the big cloud public providers do that work.

And especially midsized companies not have to worry about worry about that Providence. So I do agree that over time, that's an added element.

Especially around the security side of that might be with us. Please.

Yes, and Matt Thanks for the question.

Look I think Peter you covered the may.

Elements there may be the only other component that we didn't cover is just the cost of the materials themselves right. We're seeing supply chain increases there from availability cost Peter talked about security and the complexity. So look Matt I mean from our perspective, we've been pursuing a capital light strategy for.

For probably three or four years now on this really just plays into that when we're having discussions with with clients that we're thinking about the cloud three five years out now those discussions are around one year out now or certainly in the near term. So I think all of the things.

That Peter mentioned in the prelude here are really just another catalyst to get folks on the cloud adoption or the Digitization path.

As you know that fits very nicely into our into our strategy on our business plan.

And I would just add exactly to what my what Mike just said our back in 2016, we decided that we were going to cut our.

One of the things that makes unisys distinctive is this area that we would have security built into all our solutions, obviously clear path forward as the most secure operating environment.

Stealth as a part of that security environment for us both internally as well as with clients directly but.

It even goes beyond that we really focus on making sure our clients have the most secure environment they have or they can have.

As youre seeing ransomware become.

Our pandemic plagued whatever word you want to use.

In the world, it's hard to overstate.

Where ransomware is going.

It's affecting local governments it affecting state governments, it's affecting private organizations around the world.

And so again.

When you have a where does the buck stops.

Having more of your environment in the public cloud doesn't protect you are 100% from ransomware, we know that ramps of where it can affect data wherever it is.

But it does allow individual companies to really focus on making sure that within the scope of their control. They have the best possible most secure systems. They have backup they have resiliency.

And they can really handle a ransomware attack. So I think again, the bigger cyber security claim and specifically about what unisys brings to the table I think you are seeing for.

Say I'm going to put this on the cloud I'm going to focus my ransomware.

Capabilities on what I am retaining as well as making sure I have it protected in the cloud that helps us and youre seeing some of that in the cloud growth that we showed this quarter.

Great well thanks for the.

The comprehensive answer there on a nice quarter.

Thanks, Matt Thank you Matt.

And our next question will come from Rod These way with deep dive equity research. Please go ahead.

Hey, guys, Hey, very nice progress on profitability and I should also say that I am liking the three new reporting segments. It seems to lay out your trends in a clear way and for me. It just ties your financials better to how I look at Unisys in the marketplace. So net.

Nice work on debt on the story there.

Hey, I have a question about the growth Revival plan and the digital workplace business, you mentioned rolling out some new material there and so on can you give us some flavor on the dws messages that you're taking to the market to revive its growth and income.

Nearly.

There is a plan to move to the end user experience value proposition here.

Talk about the messages that youre rolling out and the actual market.

Yes.

It's a great question Rod and thanks for being supportive of the segments.

I agree with you it's one of those things.

And I talked about it for a long time last year.

It's one of those things that when you finally do it it's kind of obvious right, but it wasn't obvious until he made the decision, but having done it really looks pretty obvious and.

And I do believe it gives investors more clarity into how to look at the company, especially as we become more normal as the pension obligation is further and further.

Kind of in the rearview mirror with respect to dws as as I mentioned earlier.

To Joe's question.

A very important part of our future.

We have.

One of the things Youre seeing in the margin uplift is the efficiencies and economies that we have gotten that really show up this quarter, but have not been at this quarter. Thanks.

We've been planning for those for a long time.

And certainly a lot of the work we did last year was in in preparation for the kind of numbers Youre seeing.

Back to the revenue side of that house as I said, we have really a very detailed map of exactly what capabilities that the market is changing things a year from now and that could be the same as they are now.

But we do think we have a lot of industry understanding of the marketplace. We do expect to be a full leader in the marketplace. Both inside both been effective of size as well as in geographic reach and as well as capabilities. So we feel very bullish about that space.

I believe as I mentioned also to Joes question, you'll begin to see us.

Yeah.

Take a leader roll in acquisitions, and dws, probably before we do it and cloud.

Because we are so focused on exactly what we need to grow revenues over time, and there's a very good pipeline for cloud for dws opportunities out there.

So we think our timing is very fortuitous, but we're bullish about the strength.

Got it.

Yeah sure I was just going to add a couple of little elements thereof, and thanks, so much for the question.

You know, how we feel about this space and as Peter mentioned, we've got people exiting the space and we think it is really an opportunity for us to be a dominant player there, but maybe specifically to your to your question.

We're talking about this messaging in the context of not only the U S to EU ex translation, which we've talked about quite a bit but it's really about the holistic view of where our clients can be a year from now three years from now.

And us being able to take them on that journey and it's about the deepening of our solutions, whether that's a new gas or VDI or <unk>.

Type areas, but but this is an area that we think is is really ripe for the taking and as you heard us say in the January Investor day materials, we want to be the dominant player in this space and we're putting a lot of focus on that.

Got it very helpful. Hey in a more general question about demand trends are you seeing an uptick in add on work at your existing accounts as particularly as we get through some of the COVID-19 crisis challenges are you just seeing a general uptick in an app.

Add ons and I know you mentioned that the duration was down in the backlog.

Could could cause additional add on work be part of that or is that a different dynamic that's driving the lower duration in the backlog.

Well I'll take that as it started and then and then again, let Mike finish absolutely. It is when you were talking for instance, about the segments of ours that had the most growth this quarter, which was our cloud and infrastructure and specifically cloud in cloud and infrastructure a lot of that work.

Came from existing clients some of them were migrating from.

Private clouds to public clouds, some of that we're setting up very vigorous hybrid clouds.

But not all of it was new logo. So I'm very much. So those deep relationships that we think that stronger during COVID-19 are playing out very specifically in what you call AD on our extension work.

And again, even in dws.

Go back to that question wrong. The fact that we have such a strong base and what we would call end user services.

Is a big advantage to us not all of the end user.

Experience work has to come from new engagements. It can come from that that installed base of clients. So when we think about seamless collaboration and Ucas work workplaces of service intelligent workplace modern device management all of the things that are really integral to end user.

Experience.

Those are things that we're doing in some way.

When you're talking about end user services, but not to the same extent as where the market is going and where we're going so we do think this idea of extending existing relationships is very much.

Part of our future.

Yes, Robin I would I would echo that and really just say specifically within public sector within our cloud infrastructure business, we've seen a quite quite a bit of that add on work as you call. It and in fact, a lot of the contracts that we're getting are really unsolicited opportunities right and that's the beauty of.

The long term relationships.

We've got with Blue chip clients and Youre, there youre walking the halls and.

And they need other work done so from our perspective.

More wholesome our solutions can be the.

More of that we think we will get right and that's really been a core tenet to our strategy really for a couple of years now.

Not necessarily new here, but as we expand our and deepen our solutions, we think theres a lot more of that right because they are paying others board at this point. So it's a good opportunity for us to expand our wallet with existing clients as well.

Good stuff thanks, guys. Thank.

Thank you Ross.

And this will conclude our question and answer session I would like to turn on the conference back over to Peter for any closing remarks.

Total thanks, very much I'd like to thank coordinate and Mike for joining me on the call today.

We really appreciate the level of questions. We've gotten we think those help explain what's going on in the business beyond our prepared remarks. We also think that what helps explain the business is the refreshed investor relations website that we have put up which actually went up after the investor call in February So we <unk>.

Hope that you spent some time on that we think you'll find that helpful and increasingly transparent which is one of our goals.

Also our available to you by phone.

And obviously through zoom calls and at some point in the year.

Through in person meetings, as well, which we also look forward to so I'd like to thank everybody.

On behalf of Mike Accordingly look forward to visiting with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines at this time and have a great day.

[music].

Good day and welcome to the Unisys Corporation first quarter 2021 earnings call.

All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one. Please note. This event is being recorded I would now like to turn the conference over to Courtney Holben, Vice President of Investor Relations.

Please go ahead.

Thank you operator, good afternoon, everyone. This is Courtney Holben, Vice president of Investor Relations.

Thank you for joining us.

Earlier today Unisys released its first quarter 2021 financial results I'm joined this afternoon to discuss such as.

Peter I'll step, our chair and CEO and Mike Thomson our CFO.

We began I'd like to cover a few details for today's conference call on the Q&A session are being webcast.

Investor website.

Second you can find the earnings press release on the presentation slides that we will be using afternoon.

Uh huh.

Well as other information relating to our first quarter performance on our Investor website, which we encourage you to visit.

Third today's presentation, which is complementary to the earnings press release includes some non-GAAP financial measures and on.

GAAP measures have been reconciled for the related GAAP measures and we've provided reconciliations within the presentation.

Although appropriate under generally accepted accounting for as well.

Companies results for net charges with the company believes are not indicative.

The ongoing operations and that can make its profitability and liquidity results difficult to compare to prior periods.

Peter future periods or to other competitors' results.

These items.

Post retirement debt exchange next day, our Schmidt from cost reduction and other.

Management believes each of these items can start 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. Other trickle that excludes the impact of these items in order to enhance consistency and for parents.

Yeah.

Prior or future period.

The following measures are often provided and utilized.

For the company's management analysts and investors to enhance comparability of year over year results.

Well as to compare results to other companies in our industry.

Non-GAAP operating profit non-GAAP diluted earnings per share free cash flow and adjusted free cash flow EBITDA and adjusted EBITDA in constant currency for more.

For information regarding these metrics on related adjustments, please see our earnings release and on form 10-Q.

From time to time Unisys may provide guidance for color regarding assets.

Future financial performance.

Such information assets only on the date yet.

Yes, it's generally will not update reaffirm or otherwise comment on any such information, except again, if necessary and then only in a manner that comply with regulation FD.

And finally I'd like to remind you that all forward looking statements made during this conference call are subject to various risks and uncertainties that could cause the actual results to differ materially from our expectations.

These factors are discussed more fully in the earnings release and on the company's SEC filings.

Copies of those SEC reports are available from the FCC and along with the other materials I mentioned earlier on the Unisys Investor website.

And now I'd like to turn the call over to Peter.

Good afternoon, everyone and thank you for joining us to discuss our first quarter results.

At our Investor Day in January 2021, we laid out goals related to further strengthening our balance sheet transforming our organizational structure.

Moving margins and cash flow enhancing and expanding our solution portfolio.

Growing revenue and enhancing our associate experience growth.

During the first quarter, we made progress on each of these.

I will provide some detail on the organization, our solutions and our associate experience and Mike will discuss the rest of these points, including the significant improvement in profitability and cash flow that we made during the quarter.

In the first quarter of 2021, we transitioned to our new segment structure, which targets digital workplace services or dws cloud and infrastructure for C&I.

And clear path forward, where C. P F.

This was a key step to implementing the strategy, we developed in 2020 and laid out on our Investor day.

We're now running the business and reporting our financials on this basis.

We have also built out the leadership team of these businesses and the company overall.

We hired me on Gilbert our new head of Dws in February and brought on GE and shell has a clear path forward in April.

Wendy Reynolds Dobbs joined as our new <unk> leader in March and she will also co lead our ESG efforts Duane Allen, our new Chief Technology Officer joined US in April.

We will partner with our business unit leaders to innovate new solutions that expand and enhance our portfolio for.

Finally last week Marine Sweeney, our new Chief revenue Officer came on board.

Maureen will work across our businesses to leverage capabilities identify key opportunities and helped drive growth.

More information on each of these leaders is available on our website.

With the significant strengthening of our balance sheet last year, we now have the levers to fully execute on our strategy.

These new leaders and the team already in place are doing just that.

As we discussed at our Investor Day, our plan over the next three years is to grow margin cash flow and revenue.

We expect to achieve this in part through our gws transformation, including expansion and enhancement of our operating portfolio and shifting to experience based solutions.

Additionally, we expect to continue our momentum in C&I with a focus on higher margin cloud offerings.

Within Cps, we are targeting growth in Cps services, which is our highest margin services in the company.

Supporting all of this our improvements to operational efficiency.

While we will maintain our focus on revenue margin and cash flow at all times as we execute on the strategy, we have expected to see earlier progress with margin and cash flow.

These metrics are already benefiting from efficiency improvements and.

Reduced pension contributions have for.

Further improved cash flow.

We expect our gws transformation and growth in cloud and Cps for services to drive further profitability and cash flow improvements as well as increasing revenue growth rates in 2022 and 2023.

Within gws during the quarter, we improved efficiency and margin by reducing our total cost of labor and with automation and artificial intelligence.

As of the beginning of April we have moved all of our service desk clients onto our AI enabled cloud based Intel has served contact center platform.

We expanded our solution management and experienced talent and offerings within Gws, which will help drive revenue growth.

In the quarter, we signed a contract with a global publishing company in EMEA for service desk support field services and asset management in which we will automate and streamline global user support to help improve the user experience for our clients associates.

Within C&I, we are helping clients in their journey to private public and hybrid clouds with a particular emphasis in the public in a highly regulated sectors.

This is higher margin business than our legacy infrastructure work.

And we have begun to see the benefits of this.

Improved segment profitability.

We are also pursuing increased cloud operations management and monitoring as well as development and modernization of clients' cloud based applications.

These represent opportunities for additional profitability improvements and revenue growth.

As an example, we are migrating significant U S state government. It services agency to the Oracle, Microsoft Azure and AWS cloud as part of an initiative to modernize services to citizens at a lower cost and improve reliability cyber security and cost effectiveness.

A key state administrative operations growth.

In the first quarter of 2021, we signed seven contracts for additional work associated with these transformation efforts and have several more opportunities in the pipeline with this client.

Similarly during the quarter, we also signed a new scope contract with California State University or CSU.

<unk> largest higher education system.

For clear path forward, we have a slightly different approach than was dws and C&I credit.

Credit path forward is already operating at attractive margins with license and credit back toward services, representing the highest margin revenue on the company.

So our strategy here is focus more on growing Cps services revenue, while maintaining the stability we have seen in the clear path forward license space to do this we are implementing a coordinated strategy to better leverage our technology solutions, while utilizing our deep client relationships to identify areas where.

Those clients can benefit from additional career path toward services, specifically, we're targeting growth in both managed services and application services revenue.

As contracts renew we're also aligning maintenance pricing to market.

As an example of our expanding relationship with Eric and existing credit back toward quiet to provide new career paths forward application services. During the first quarter. We began work on a new scope contract with a European National Government agency debt.

Manages processing and payment for public pensions for about 2 million people.

Unisys is now also providing clear path toward consulting services to make their clear path forward system more scalable and more interoperable with other systems.

Within the framework of our new business unit structure and based on the strategies I just described.

Evolving our solutions portfolio in very specific areas to complement our current capabilities and enhance our margin profile and future revenue growth.

This evolution will be the result build acquire and partner activities in.

In cases, where it is most efficient to do so our enhanced balance sheet gives us the flexibility to pursue inorganic opportunities in a way we have not been able to on the past.

As we consider such opportunities within dws, we initially expect to focus on relatively small scale companies that have solutions that would further enhance our experience based strategy.

Within C&I, we will look for opportunities that help us scale, the business and leverage our solutions more broadly.

As we drive all of these operational strategies forward. We're also aiming to enhance the experience of our associates.

In addition to being the right thing to do to support our people and to make units. It's a place they are increasingly proud to call home.

We believe that this can also help us achieve a number of other important goals, including accelerating on recruiting bolstering on retention and being a more attractive partner and supplier for our clients.

We're actively working to create new opportunities to enhance diversity.

<unk> and inclusion in our workplace and dry dock likewise, our continuing efforts related to ESG are important to our clients associates partners and investors alike, and we will continue to develop and target ESG opportunities, which unisys has been doing income.

Quantifiable ways since 2006.

In conclusion, we're making progress towards the goals, we laid out at the beginning of this year, some shorter term and some longer term there.

There is an excitement at the company as we do so and I'd like to thank our associates for their ongoing enthusiasm and efforts to help us drive the business for with that I'll turn it over to Mike to discuss our financial results Mike.

Thank you Peter and good afternoon, everyone.

In my discussion today, I will refer to both GAAP and non-GAAP results.

As a reminder, reconciliations of these metrics are available on our earnings materials.

As Peter highlighted we made significant progress on both our strategic and financial goals during the first quarter.

Peter discussed a number of items on the strategic front and so I'll focus more on the financial accomplishments, including margin and cash flow improvements positioning the company for improved revenue growth and strengthening our balance sheet.

Starting first with margins, we saw significant improvements year over year in the quarter.

Non-GAAP operating profit increased 75% year over year to $51 million and non-GAAP operating profit margin increased 440 basis points year over year day to 10%.

Gross margin improved in each of dws, C&I and clear path forward.

Dws gross profit increased 157% year over year to $19 million with dws gross margins up 860 basis points to 13%.

C&I gross profit increased from a negative $3 million in the prior year period to a positive $12 million with C&I gross margin up 1240 basis points to 10%.

Clear path forward gross profit was up 3% year over year to $103 million with clear path forward gross margins up 290 basis points year over year to 61%.

The margin improvements were driven in part by progress against our previously outlined goals for efficiency improvements in 2021.

We noted on our last call that we were targeting between 130 and $160 million and run rate savings exiting 2021, and we have completed a significant portion of the actions required to achieve this with a total of approximately $100 million on a run rate savings in place as of the end of the first quarter.

The improvement to non-GAAP operating profit also flow through to adjusted EBITDA, which increased 30% year over year to $94 million.

Adjusted EBITDA margin increased 440 basis points year over year to 18% and non-GAAP EPS increased significantly to 46 from <unk> in the prior year period.

This margin expansion also contributed to significant year over year improvements in cash flow.

Cash used in operations improved $335 million year over year to $43 million and adjusted free cash flow improved $52 million to a negative $24 million.

A large portion of the improvement to operating cash flow and free cash flow was attributable to reduced pension contributions.

Capex was roughly flat year over year at $28 million and as a reminder, it is typical for us to start the year with a negative cash flow given the timing of our cash generation and usage.

Additionally, as we noted at our Investor Day in January working capital is currently at a run rate use of approximately $20 million to $30 million, which we expect to improve over time.

As a result of all this we expect free cash flow positivity for the full year 2021.

We had expected profitability to be the key driver of improvement in the first quarter as we were anticipating a modest year over year revenue decline.

Total company revenue was down $5 6 million or one 1% year over year, driven by a decline of approximately $16 million in field services travel and transportation and bto processing activities.

Cloud and infrastructure revenue remained strong increasing 19% year over year to $123 million and the cloud aspect of this business increased 31% year over year.

Additionally, C&I revenue in U S and Canada grew 24% year over year.

Clear path forward continues to demonstrate stability and opportunities for growth.

Your path forward revenue was down 2% year over year, largely driven by currency and the divestiture of some low margin third party contracts, which contributed to the improvement in clear path forward gross profit and margin that I mentioned earlier.

Peter highlighted a number of the key steps that we took in the quarter to progress our gws transformation and we expect over time to continue to see improved performance out of this segment.

Overall, our first quarter results were in line with or slightly ahead of our internal expectations and beat consensus on all key metrics.

This quarterly revenue timing will also impact profitability as clear path forward costs are distributed relatively evenly throughout the year.

As a result of this our first quarter results and our expectations for the remainder of the year, we're reaffirming our guidance ranges for the full year of zero to 2% year over year revenue growth non-GAAP operating profit margin of 9% to 10% and adjusted EBITDA margin of 17 in the quarter to <unk>, 18.25%.

Total company backlog, which now includes license revenue given our new segment structure was $3 4 billion as of the end of the first quarter relative to three 6 billion as of the end of the year.

Of the $3 4 billion, we expect $380 million to convert to revenue in the second quarter.

The company's legacy BPL businesses, and a clear path forward renewal schedules were the largest contributors to the sequential decline in backlog. Additionally.

We expect revenue in backlog to improve over the course of the year as we continued to implement our strategy to enhance our solutions portfolio with a particular focus on dws in the short term, which enables a gradual move up the revenue and margin stack.

We're currently building out our segment go to market materials that support our strategy and we expect that new material will be in the market this quarter.

Turning to the balance sheet, we continued to make significant progress on our pension obligations as.

As we disclosed during the first quarter the signing of the American Rescue Plan Act in March has resulted in changes to our pension contribution requirements.

Based on our current calculations, we are not required to make any additional contributions to the U S qualified defined benefit pension plans in the future.

We may in the future elect to make voluntary contributions in order to implement additional derisking opportunities or strategies.

As we've discussed we've been targeting a reduction in growth pension liabilities of $1 2 billion.

The domestic portion of this program has been completed with approximately $550 million of liabilities removed.

The final two actions to achieve our $1 $2 billion target relate to transferring $650 million of growth pension liabilities from two of our international plans to multi employer collective foundations.

As a reminder, we are required to recognize noncash settlement charges for each plan as we remove these liabilities the.

The amount of the charge related to the second quarter activity will be approximately $215 million.

That I will turn the call back over to Peter.

Peter.

Thank you, Mike very much and with that we'll open up the call to a discussion as well as questions. So coal if you would open up the call and let's get to it.

Certainly and we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two once again that is star then one to ask a question at this time, we will pause momentarily to assemble the roster.

Our first question today will come from Jon <unk> with CJS Securities. Please go ahead.

Hi, Good afternoon, guys. Thanks for taking my questions and nice quarter.

Just wanted to clarify a couple of points Mike.

Mike did you say you expect backlog to grow from here sequentially or is that just over the course of the year at some point.

Yes, we're looking John Hey, Thanks for the question.

We're looking for growth in the second quarter, both in the quarter and the year to date and we're looking for backlog growth for the full year as well.

I guess the answer would be both in the quarter and the year John.

Got it that's great to hear and I was just wondering how sustainable the margin. The operating margin is in your services business as we go through the year are there any.

As to the profile as you get through different projects services revenue will fluctuate.

Any color on that would be helpful.

Look as you know John that the services margin aspect of our business is pretty solid right. So what was volume.

Classes that around a little bit is the technology aspect of that so as I noted in my prepared remarks in the third quarter, we will have a lighter cat quarter, but as far as the services margins go we feel pretty strongly that they are very sustainable I think you've seen from us over the last three quarters.

Consistent improvement on that in a big step up in this quarter and we expect to maintain and continue to grow those services margins along the lines as what we discussed in January at the Investor Day.

Got it and you usually give kind of like.

Ballpark percentage of revenue that you're expecting technology per quarter or per half get do you have that kind of.

Clarity at this point in time.

So we're calling for was 55% in the first half and 45% in the second half John with Q3 being the lowest quarter of Q4 being the highest.

And again, it's 50 545 and pretty flat for the year from a technology licensing perspective, just for modeling purposes.

Okay got it and then finally just high level.

<unk> benefited from the stimulus bill with the pensions.

Is there any benefit for your comment and the potential infrastructure Bill I know Theres funding go into a variety of end markets that you serve I'm wondering if you have any.

As to whether that would that would flow to you guys at all.

This infrastructure Bill is at least in its current form is defining infrastructure in a much broader way than in prior builds a bit silke so cyber security.

Other than access are all front and center in this bill as active integral.

Parts, given our focus in the United States on the public sector, which we define as state and local you know anything other than federal we see opportunities around cyber security around.

Increased evolution to new platforms for state and local.

The debt that we think that the infrastructure Bill is passed in a fulsome way would help us given our public sector.

<unk> ability.

Alright. Thank you Yep, John I know you didn't ask this aspect of it and Peter gave the VA.

That's a piece of it but just wanted to maybe throw in the tax piece of it as well on <unk>.

That's on your mind or on the minus some of the other analysts here, we do not expect any negative.

Issues in regards to any of the discussions from a tax perspective.

As you know we've got quite a bit.

<unk>, we have about $1 billion worth of DTA settle that will shelter or about $3 $5 billion of income so.

Not expecting really any fallout from any of the items being discussed whether it's the corporate tax rate the.

The guilty tax rate or the dialog on the beat taxes. So I think we're really no change in regard to that as well.

Got it that's good to know maybe one final one if I could the.

Well publicized supply chain issues on just on technology on semiconductors at all of that is that limiting your ability to deliver a hardware associated with your services at all or is that not.

On much of an issue as much of an issue as it might have been just given migration to cloud and offloading that debt capacity.

That's exactly right John.

Not as much of an issue for us obviously certain sectors like the automobile sector are being hit very directly.

We have not seen significant.

Availability issues in the hardware that we're providing to clients some but nothing significant.

Okay, great. Thank you.

Thank you.

And our next question will come from Joseph <unk> with Canaccord. Please go ahead.

Hey, guys. Good afternoon good results.

Just kind of looking at some other segment performance for the quarter on kind of thinking about the strategy moving forward in.

Clearly.

C&I.

Doing well and looks like it's kind of emerging growth driver of.

On the new segment reporting.

Well, how do you see kind of ROI on sales and marketing expense relative to the three segments now.

<unk>.

Where where are you prioritizing that and then I'll have a follow up thanks.

Yes, so Joe.

Probably take that to start and thanks very much for the congratulations again.

We feel very when we go back to our January strategy.

The bulk of the revenue growth, we expect will come from dws from cloud and infrastructure.

From the services segment of clear path forward.

I will tell you that we feel very good about all three of those a few months into this so you see some reduction in digital workplace services revenue year to year.

We expect dws revenue to pick up.

And we expect it to be positive for the full year. In fact, we expect all three of those to be positive for the full year.

Relatively modest revenue, but we expect to pick up the losses from Gws, we expect the pipeline for dws to increase markedly over the course of the year, we have visibility of some large deals that will come out in the third and fourth quarter. We.

We feel very good about our positioning for those so I would tell you that piece of our strategy, which is that we really expect over time to have a larger and larger share of gws very much.

Very much in play.

On cloud and infrastructure.

Had a little bit of a head start in that compared to dws. So Leon Gilbert who is leading the dws team joined us in February.

You know, Mike Morrison, who is leading cloud infrastructure has been here for several years and I think youre seeing a little more maturity in the cloud and infrastructure, particularly those cloud members of course this quarter on.

Clear path forward I would tell you.

Again, new leader, who I mentioned, Jean Charles started in March for Us.

Very very interesting for us.

<unk> on the Cps business, we have a good view from January about where to take the services revenue and I think Jean is looking very hard at opportunities to include increased the software revenue on a clear path forward early days on that.

But really like the vitality that he's bringing to that entire.

Segment for us so we really feel that we're on track Joe with where we expect it to be at this point.

Got it thanks, Peter and then.

So if we think about kind of some of the ongoing restructurings and what that move from margin combined with.

I guess that kind of debt.

Sure.

$200 million that kind of quote unquote got freed up relative to.

Congrats on all American Rescue Plan Act.

How should we think about debt cash deployment back in the business.

Feels like M&A, maybe the right place, but would love to hear your thoughts.

Well first of all it is not burning a hole in our pocket.

We do not feel any urgency to spend it because we have it.

Youre right.

With the passage of the act.

As Mike laid out we no longer expect to make the $200 million of contributions.

And we're very grateful for that so we really feel like as I said in my comments, we can really active all levers now.

We have looked hard at the businesses that will change the most for us and that is dws and the cloud piece, a clouded infrastructure over time.

Some of the work we did last year with Mckinsey and then with Alix partners really kind of looked at how that business is where those two have to evolve over the next two years.

We've been very specific in terms of debt analysis, we actually have.

Created bundles of offerings in both dws and cloud and we're looking at how we get to complete those bundles over the next couple of years.

That is a classic.

Build by partner analysis, and I can tell you that we expect to do all three.

With respect to the buy analysis.

If we look at current pricing and the multiples of the different kinds of businesses.

I'd tell you the debt.

Pricing for Dws businesses is.

A little less aggressive than the pricing for some cloud businesses right now.

That would be very consistent with our strategy, we're seeing some of the players in the industry.

Emphasizing that a little bit.

On our ability to grow revenues and market share and dws. So given that multiplier effect. We think we're in a very good shape to be an efficient acquirer situations a little different in club.

In that.

Asking prices are a little higher.

And again, it's a little more mature in terms of our next generation offerings and cloud but.

But we do expect over time to make some cloud acquisitions those will largely be.

For sure.

Filling in scale, where we believe that we have sub scale in some of our offerings or some of our geography or some of our advisory services.

That's the way we'll approach the cloud acquisitions.

Great Thanks for that.

Makes sense.

Yes.

I could see unisys really kind of becoming a big scale player in what you call dws.

Perhaps that opportunity is one that others aren't focused on his months ago. Thanks, so much for the color great results. Thank.

Thank you Joe.

Great. Thanks, Joe.

And our next question will come from Matthew <unk> with Sidoti. Please go ahead.

Hey, Thanks for taking my question, maybe just as a follow up to the question around.

Supply chain and component shortages.

I realize for still on the early days of that but I'm curious are there any macro push towards amara extra macro push towards cloud migration.

From.

It was just customers on whether that could be.

Any catalyst for you.

Yes.

And then any segment thanks.

Yeah, why don't I take that first Mike and then hand it over to you for your perspective as well if you don't mind.

And it's.

It's one of several right so.

It's hard to imagine people need more push to the cloud at this point right. So COVID-19 already accelerated.

People, who really did not want to bear the cost or the people involved in managing their own data centers. So that was a push.

The work from home effort that came along with COVID-19 also acted to push people more towards the cloud.

Advances in what we're doing around digital workplace services.

Which is making.

The employees of our clients.

At least as productive anywhere they are.

A lot of our dws work ultimately revolves around having capabilities for the client which has to be available anywhere with very very low latency around the world and that largely means putting it into the cloud. So I think you've had a bunch of reasons why people were accelerating to the cloud.

Already supply chain issues I think do it on in two ways.

First obviously, you're not as concerned about the availability of servers et cetera, and secondly is around security.

There is obviously managing a secure environment.

Debt that is being hosted by AWS or azure or Google or someone else you still need to manage it very carefully and we obviously do for our clients.

But there's a second element of that which is kind of the core supply chain.

Are you buying hardware that has the right provenance and how do you determine the right Providence of the hardware you buy and the software that needs to run it in a network environment and so I think what youre finding here is our willingness to let the big cloud public providers do that work.

And especially midsized companies not have to worry about worry about that Providence. So I do agree that over time, that's an added element.

Especially around the security side of that Mike Your thoughts please.

Yes, and Matt Thanks for the question.

Look I think Peter you covered the main element there may be the only other component that we didn't cover is just the cost of the materials themselves right. We're seeing supply chain increases there from availability cost Peter talked about security and the complexity. So look Matt I mean from our perspective, we've been per.

Assuming a capital light strategy for probably three or four years now on this really just plays into that when we're having discussions with with clients that we're thinking about the cloud for.

Five years out now those discussions are around one year out now or certainly in the near term. So I think all of the things that Peter mentioned in the prelude here.

Really just another catalyst to get folks on the cloud adoption or the digitalization path.

As you know that that fits very nicely into our entire strategy on our business plan.

And I would just add exactly to what Matt what Mike just said our back in 2016, we decided that we were going to cut our.

One of the things that makes unisys distinctive is this area that we would have security built into all our solutions, obviously clear path forward as the most secure operating environment.

Stealth as a part of that security environment for us both internally as well as with clients directly.

But it even goes beyond that we really focus on making sure our clients have the most secure environment.

Or they can have.

As Youre seeing ransomware.

You know a pandemic plagued whatever word you want to use.

In the world, it's hard to overstate.

Where ransomware is going.

Is it affecting local governments it affecting state governments, it's affecting private organizations around the world.

And so again when.

When you have where does the buck stopped.

Having more of your environment in the public cloud doesn't protect you are 100% from ransomware, we know that ramps of where it can affect data wherever it is.

But it does allow.

Individual companies to <unk>.

Really focused on making sure that within the scope of their control. They have the best possible most secure systems. They have backup they have resiliency.

And they can really handle a ransomware attack. So I think again in the bigger cyber security claim and specifically about what Unisys brings to the table I think you are seeing for.

Folks say I'm going to put this on the cloud I'm going to focus my ransomware.

Capabilities on what I am retaining as well as making sure I have it protected in the cloud that helps us and youre seeing some of that in the cloud growth that we showed this quarter.

Okay, well thanks for the.

The comprehensive answer right on a nice quarter.

Thanks for that thank you Matt.

And our next question will come from Rod Beach way with deep dive equity research. Please go ahead.

Nice work on debt on the story there.

Yes, I have a question about the growth Revival plan and the digital workplace business, you mentioned rolling out some new material there and so on can you give us some flavor on the dws messages that youre, taking to the market to revive its growth and <unk>.

<unk>.

Theres a plan to move to the end user experience value proposition can you.

Talk about the messages that youre rolling out.

And the actual market.

Yes.

It's a great question Rod and thanks for being supportive of the segments.

I agree with you, it's one of those things, Mike and I talked about it for a long time last year.

And it's one of those things that when you finally do it it's kind of obvious right, but it wasn't obvious until you made the decision, but having done it really looks pretty obvious and.

And I do believe it gives investors more clarity into how to look at the company, especially as we become more normal as the pension obligation is further and further.

Kind of in the rearview mirror with respect to dws as I mentioned earlier.

To Joe's question.

A very important part of our future.

We have.

One other things you're seeing in the margin uplift is the efficiencies and economies that we have gotten that that really show up this quarter, but have not been a this quarter. Thanks.

We've been planning for those for a long time.

And certainly a lot of the work we did last year was in in preparation for the kind of numbers you're seeing.

Respect to the revenue side of the house.

I said, we have really a very detailed map of exactly what capabilities that the market is changing things a year from now we're not going to be the same as they are now.

But we do think we have a lot of industry understanding of the marketplace. We do expect to be a full leader in the marketplace. Both inside both on effective of size as well as in geographic reach and as well as capabilities. So we feel very bullish about that space.

I believe as I mentioned also to Joes question, you'll begin to see us.

You know take a leader roll in acquisitions and dws, probably before we do it in cloud just because we are so focused on exactly what we need to grow revenues over time and there is a very good pipeline for cloud for dws opportunities out there.

So we think our timing is very fortuitous, but we're bullish about the strength.

Got it.

Yeah sure I was just going to add a couple of little elements thereof, and thanks, so much for the question.

We're talking about this messaging in the context of not only the U S. <unk> transition, which we talked about quite a bit but it's really about the holistic view of where our clients can be a year from now three years from now and.

And us being able to take them on that journey and it's about the deepening of our solutions, whether that's a new gas or VDI or <unk>.

Type areas, but but this is an area that we think is is really ripe for the taking and as you heard us say in the January Investor day on materials, we want to be the dominant player in this space and we're putting a lot of focus on that.

Add on and I know you mentioned that the duration was down in the backlog.

Could could could additional add on work be part of that or is that a different dynamic thats driving the lower duration in the backlog.

Well I'll take that as it started and then again, let Mike finish absolutely. It is when you were talking for instance, about the segments of ours that had the most growth this quarter, which was Todd on infrastructure and specific on cloud in cloud and infrastructure a lot of that work.

Came from existing clients some of them were migrating from.

Private clouds to public clouds, some of that we are setting up very vigorous hybrid clouds.

But not all of it was new logo, so very much. So those deep relationships that we think that stronger during COVID-19 are playing out very specifically in what you call AD on our extension work.

And again, even in dws.

Go back to that question, Rob. The fact that we have such a strong base and what we would call end user services.

Is a big advantage to us not all of the end user.

Experience.

Those are things that we're doing in some way.

When you're talking about end user services, but not to the same extent as where the market is going and where we're going so we do think this idea of extending existing relationships is very much in it.

Part of our future.

The long term relationships.

We've got with Blue chip clients and Youre, there youre walking the halls.

And they need other work done so from our perspective.

More wholesome our solutions can be the.

More of that we think we will get right and that's really been a core tenet to our strategy really for a couple of years now.

Good stuff thanks, guys. Thanks.

Thank you Ross.

And this will conclude our question and answer session I would like to turn on the conference back over to Peter for any closing remarks.

Hello, Thanks, very much I'd like to thank coordinate and Mike for joining me on the call today.

Hope that you spent some time on that we think you'll find that helpful and increasingly transparent which is one of our goals. We also are available to you by phone.

And obviously through zoom calls and at some point in the year.

Through in person meetings, as well, which we also look forward to so I'd like to thank everybody.

On behalf of Mike Accordingly look forward to visiting with you again next quarter.

Okay.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines at this time and have a great day.

Q1 2021 Unisys Corp Earnings Call

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