Q1 2023 Unisys Corporation Earnings Call
Pardon me everyone. The Unisys Corporation call will begin momentarily we thank you for your patience.
[music].
Good morning, and welcome to the Unisys Corporation first quarter 2023 earnings call.
Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
I would now like to turn the conference over to Mike <unk>, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining US yesterday afternoon, Unisys released its first quarter 2023 financial results I'm joined this morning to discuss those results by Peter talked about Air and Sea Yep got Mccann, our CFO and Mike Thomson our CLO well.
The paint in the Q&A session before we begin I'd like to cover a few details first today's conference call and the Q&A session are being webcast via the Unisys Investor website second you can find the earnings press release and presentation slides that will be using this morning to guide our discussion as well as other information.
Relating to our first quarter performance on our Investor Relations 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 non-GAAP financial measures have been reconciled to the related GAAP measures and we've provided reconciliations within the presentation.
I would also like to remind you that all forward looking statements made during this conference call, including any references to guidance our expected future financial performance are subject to various risks and uncertainties that could cause 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 of those SEC reports are available from the SEC along with other materials I mentioned earlier on Unisys' Investor website.
This does not assume any obligation to update the information presented on this call, except as Unisys deems necessary and then only in a manner that complies with regulation FD with that I'd like to turn the call over to Peter.
We had a strong start to the year with a solid quarter of revenue growth and margin expansion, putting us on track to meet our full year financial guidance.
Genesis is continuing to focus on our next generation solutions and we are also seeing more interest from our clients in areas of growing importance to them such as artificial intelligence cyber security and data analytics. These conversations are leading to new growth opportunities, including land and expand.
Opportunities with the next generation solutions, which saw sequential pipeline growth of more than 30%.
We expect these higher margin opportunities to contribute to T. C V. In the back half of the year and set the stage for future growth and margin improvements in our solutions outside of license and support.
Which we call X L N S solutions.
Macroeconomic uncertainty persisted during the quarter with some clients be incrementally cautious of new investments and our financial services clients being cautious in general, although we are not seeing any impact.
Ill and S financial sector business.
Overall, our revenue base as resilient as our solutions are largely supportive of our clients' mission critical systems.
Our renewal rates remained strong and our revenue is benefiting from strong signings in the back half of 2022.
We also saw an increased volume of small and midsized new logo opportunities with faster sales cycles and ramp to revenue and healthy new scope signings with our existing clients.
Similar to last quarter I will focus on total company and X L. N S performance and provide an update on our next generation solutions and portfolio initiatives after which Deb will provide a more detailed discussion of our financial performance.
Looking more closely at our first quarter performance.
Total company revenue versus a year ago increased 19% on a constant currency basis, and 16% on a reported basis. Our strong growth was driven in part by a near doubling of license and support revenue due to the timing of license renewals concentrated during the first quarter as we.
Got it.
We also had a good quarter of growth in X L. N S solution.
Ex U S revenue was $380 million during the quarter, increasing 5% in constant currency versus the prior year period.
Growth was driven by strength in dws and double digit growth in assets and C. While C&I faced some headwinds from a higher mix of financial services clients, who were relatively cautious during the quarter.
Our leading indicators remain healthy during the quarter ex Ellen L. T. C V increased 9% year over year, although ACB declined 5% year over year due to the specific mix in the quarter.
Spirit's a modest slowing in new logo activity with incremental caution driven by ongoing macroeconomic uncertainty and sector volatility in financial services.
Excluding new logo contracts, our X L. N S. T C V increased 26% year over year, driven by solid expansion in new scope activity with existing clients.
We believe there is a growing appreciation of the marketplace and with existing clients for Unisys as an innovative partner, who can collaborate to solve the company's most critical challenges.
We're continuing to penetrate our existing client base with our next generation solutions of modern workplace within dws.
Digital platforms and applications within C. A N I specialized services and Nextgen compute within ECS and certain micro market solutions within business process solutions. These next generation solutions, so expansion and new scope T C V increases of 16%.
An ACB increases of more than 40% year over year.
There were exciting wins throughout the company in the first quarter and many of those highlight how we are expanding into new scope of work with our existing clients through a combination of nexgen and more traditional offerings and our dws segment Unisys signed numerous new scope engagement with an existing health care client. This.
Their client is a hospital system that provides critical care to underprivileged communities and more than 20 states as part of these new scope engagement Unisys will set up our largest service desk that we build a better technology experience for 195000 end users with VIP.
Service for physicians and nurses, we will also provide modern device management capabilities, including hardware and software asset management in partnership with service now.
And our C. A N ice segment, we signed two new scope engagements within existing technology services client cooperate infrastructure on behalf of state and local government as part of these contracts Unisys has expanded its footprint with Google cloud, allowing us to provide more of these services to the state.
The agencies.
Unisys is partnering with Dell technologies to provide recovery services, including the Dell cyber vault solution to help catalog and securely store information.
During the quarter our S. S C team inside of ECS, let a significant managed services expansion win with a leading global life services company that will process millions of lab samples for patients around the world.
This engagement.
Strengthened our relationship with an important client who is interesting union is to manage the systems and data infrastructure on which their most critical applications Brian .
Notably this has been a 40 year L N S client relationship.
Writing the tenure and depth of our company relationships.
In addition to specialized managed services are assessed and see teams are leveraging decades of experience and data in the industries of the clients. We serve to provide data analytics application modernization and industry solutions for financial services and travel and transportation clients.
Among others.
Within ECS, we invest heavily in innovation for license and support clients that are already taking some of this IP and product typing it in areas, where we see broader market demand.
For example, our modular cargo offering which is available in the market today improves efficiency of air cargo operations with real time tracking and control from initial booking through warehouse and flight management.
As we engage with clients in collaborative discussions of their business challenges our pipeline activity has increased.
L. A N S pipeline increased 14% sequentially and is up 10% versus the prior year.
On a sequential basis, our extra Elena new logo pipeline increased 27% and is 60% higher on a year ago basis. We're also seeing an uptick in larger opportunities in the pipeline that if converted will benefit 'twenty 'twenty four revenue.
Our next generation solutions are providing strong points of entry and are well positioned to play a prominent role in helping C. I OS and C. T OS implement solutions and cyber security data analytics and artificial intelligence. These capabilities have led to a number of land and expand project engagements there are.
Proving our ability to contract on value rather than cost.
In the aggregate our pipeline for next generation solutions is more than 15% larger than a year ago.
Modern workplace remains an area of high priority for our clients at the end of the first quarter. The pipeline for these solutions has grown more than 100% sequentially.
As we move past the pandemic, providing an employee experience that can sustain more permanent hybrid and remote work models is one of the highest priorities of many of our clients, especially as they look to find efficiencies through decreasing real estate footprint, improving productivity and retaining talent.
We are leaning into our modern workplace offerings and making investments in the next generation of hours with our experienced management platform powered by artificial intelligence. These investments will improve the speed and ease of implementation and decrease the time to value realization for our clients.
Through native API integrations within our automation IP and artificial intelligence scripts, we will decrease the level of custom engineering work needed for our clients and ensure they get an immediate benefit from automation.
Our digital platforms and applications pipeline grew 15% sequentially limited by lower activity with some financial services clients in.
In addition to our application development and modernization capabilities. Our G. P. N. A teams are seeing an increase in client engagement in cyber security data analytics and artificial intelligence applications such as document Digitation.
Financial fraud detection and content intelligence.
This is allowing us to shift to higher growth areas of the market that are more aligned with cloud investment budgets. While some of this work is long term. Many of these engagements our scooter cycle project work was the potential to lead to larger digital information and transformation contract.
Efficiencies in our go to market operations are also driving pipeline growth opportunities are progressing through the pipeline at a faster pace.
Another driver of our pipeline is the broader distribution of our solutions that we are beginning to achieve.
Partner ecosystem, which is starting to support a variety of new selling motions and is allowing us to leverage relationships technology and development resources.
Orders, such as Dell technologies, Okta, Lenovo AWS, Microsoft and service now among others.
Moving to profitability, we delivered strong gross margins and our <unk> solutions, which expanded by 310 basis points to 14%.
Primarily as a result of delivery efficiencies and C. A N I N S. S C.
We are continuing to see gains from automation throughout the organization as we optimize our talent distribution.
As we continue to strengthen our business units, we're becoming increasingly selective of the margin profile of the work we choose to take off.
We continue to remain focused on right sizing margin dilutive legacy contracts as they came up for renewal and are optimistic we can continue to secure their price increases while preserving our long standing client relationships.
We are deploying our internal talent marketplace that Leverages machine learning and artificial intelligence, which will allow us to better utilize internal talent.
Reduced external hiring and ultimately lowered the cost of delivery.
Retaining talent is a key element of our strategy and we remain committed to delivering an exceptional associate experience as well as advancing our initiatives around diversity equity and inclusion last month, we were honored to be included on Forbes list of best employers for diversity for the first time.
In addition, we are executing both our own ESG strategy, and we're going to market with an innovative business process solution to help our clients with their ESG efforts, particularly in the area of supply chain, where government regulation is on the rise.
The units as ESG orchestration manager enables organizations to manage the whole ESG supply chain process when integrated modular platform.
This is just one example of the types of innovation, we will speak more of our App at our upcoming Investor Day on June 15th in New York and I look forward to seeing you in person there.
With that I'll turn the call over to Deb to discuss our financial results in more detail.
Thank you Peter and good morning, everyone. In my discussion today I will refer to both GAAP and non-GAAP results. As a reminder, reconciliations of these metrics are available in our supplemental earnings materials posted on our Investor Relations site.
He used to provide information, both including and excluding license or installation to allow investors to isolate that portion of the ECS, which includes lumpy revenue recognition based on the timing of license renewals to valley.
The progress we are making in the business outside of this arena my commentary will continue to discuss our segment digital workplace solutions cloud applications and infrastructure solutions and enterprise computing solutions.
Peter mentioned it was a solid start to the year driven by strong renewal rates and revenue growth from new business secured during 2022 and price increases secured within our axon installations as we can.
To strengthen the unisys value proposition for our clients.
While client sentiment is mixed largely due to macroeconomic uncertainty youre seeing pallet sentiment and dws and increased engagement around certain installations, such as cyber and integrations work with N C. A night our pipeline remains healthy and we are seeing solid new scope G. C D and E C D with existing clients, which will convert to revenue as we move through the year.
Sure.
For the first quarter company revenue totaled 516 million and 18, 9% increase on a constant currency basis, and 15, 6% as reported a double digit growth as large largely driven by the timing of license renewals have been Elena which was expected to have a high concentration in the first quarter.
Woody Allen that's revenue constant currency revenue growth for the first quarter, It's four point X percent and one 7% as reported driven by high single digit growth in dws and especially.
Shall I service and Nextgen compute portion of ECS.
Now for some segment detail. Please note that as I think about the segments I won't be discussing revenue in constant currency.
Digital workplace solutions revenue in the first quarter or seven 7% as the benefit from recent strong new business wins and expansions with existing clients began to convert to revenue.
Additional benefit was seen from improved pricing on several large renewals negotiated in the back half of 2022.
We are past any material year over year impact from the 2021 exiting non strategic contract in dws and the first quarter is more reflective of the underlying mid single digit constant currency growth, we have been achieving in the segment.
Revenue in our cloud applications and infrastructure solutions segment declined one 4% year over year. When we saw some caution around volumes and cloud investments, particularly with financial services clients, which account for more than 15% of the segment's revenue during.
During the quarter, we saw an uptick in shorter cycle sales and systems integration software licensing and permitting.
And cyber security advisory around attacking threat discovery.
We had another solid quarter in terms of pipeline activity, let's see AI pipeline, increasing 17% sequentially, but nearly half our segment pipeline comprised of V. P N a nextgen opportunity.
Enterprise computing solutions revenue, which include licenses and support and S doesn't see increased 61% year over year.
Specialized services of Nextgen compute which are our next Gen solutions and ECS grew revenue 11, 9% year over year driven by application services, we are continuing to make investments in our passenger and cargo transportation industry solutions as well as our quantum logistics offerings to grow our recurring SaaS revenue streams.
From assets and see these.
These SAS offerings already account for more than 10% of assets and see revenue and leverage the significant data and decades of experience. Our ECS teams have within financial services travel and transportation.
Alan its revenue grew 99% year over year.
Driven by clear path forward license renewal that occurred in the first quarter.
Our <unk> client base has a large concentration of clients in the financial services, who run mission critical applications and.
Compute on our clear path forward operating system with them.
In Illinois, we are not seeing any material impact from volatility in the financial sector. As we mentioned last quarter, we have a high level of visibility into elements revenue on a multiyear basis.
Though the timing of license renewals are driven by our clients and can be difficult to predict with precision. However, we continue to expect Elena it's revenue of 350 million for the full year, the second quarter, Alan its revenue expected to be approximately 75 million.
Recently, there has been no changed our outlook for low single digit Elena its revenue growth in 2024, and low double digit growth in 2025.
That timing of license renewals, it's difficult to predict with precision and can shift between quarters or clients may choose to renew early based on budgeting processes or upon reaching consumption limit of existing pricing among other reasons.
Moving to leading indicators total contract value or T. C. D grew 2% year over year, driven by strong renewal rates and expansion at existing clients offset by lower new logo T. C D.
S. T V declined 18% year over year, driven by the mix of license renewal bookings in the quarter, excluding the impact of license and support G. C. D was up 9% and AC D was down 5% on a year over year basis due to the mix of renewals that occurred in the quarter relative to the prior year.
Our trailing 12 months particular ratio is one time.
Total company and our XL in isolation, our pipeline grew 15% sequentially and 6% year over year.
Given our solid first quarter performance strong renewal rates and expansion with existing clients. We are reiterating our full year guidance for total company revenue in the range of negative 3% to negative 7% year over year, which continues to assume excelling as revenue in the range of negative 1% to positive 4%.
License and support revenue boosted our growth in the first quarter as we expected, but we're neural levels are expected to be lower on a year over year basis for the remaining three quarters and this renewal timing dynamic is the driver of our overall revenue declined. Despite the growth we are expecting in the remainder of the business.
First quarter gross profit was $159 million, reflecting a 38% gross margin versus 19, 6% in the prior year the.
The strong expansion was due to higher license renewals and Elena. Additionally, the prior year gross margin include an impact from nonrecurring expenses associated with charges uncertain C&I contracts.
As a reminder, these charges were related to subcontractor underperformance and delivery installations, we no longer sub contract.
We are making progress on expanding margins in our external Ellen Escalations, where gross margin of 13, 8% versus 10, 7% in the prior year, we achieved incremental delivery efficiencies in C&I that margins were down on a sequential basis, primarily due to the nonrecurring benefit from surplus IP address sales.
In the fourth quarter of last year across the organization. Our teams are committed to bringing down the cost of delivery more efficiently allocating talent implementing cost of living adjustment clauses on existing contract and negotiating pricing that reflects the value of our solutions, we see an opportunity to deliver consistent long term gross margin expansion.
Through these processes, which are gradual by nature.
Looking at margins by segment Dws gross margin was 11, 9% contracted 90 basis points year over year due to advanced staffing to support work signed it in the back half of 2022, we expect margins to improve in this segment sequentially through the year as that revenue continues to ramp and we realized delivery efficiencies.
First quarter C&I gross margin was 13% expanding 760 basis points year over year.
The expansion was driven by the previously mentioned charges in the first quarter of 2022 as well as delivery efficiencies as we increased our use of automation and continued to increase our leverage of lower cost labor markets.
He see US segment gross margin was 66, 7% versus 52, 1% in the prior year quarter due to higher license renewals as well as revenue growth outpacing cost in the SMC portion of ECS.
Our non-GAAP operating margin was 11, 6% versus negative three 2% in the prior year. We are continuing to remain focused on diligently managing SG&A, which we held roughly flat year over year adjust.
Adjusted EBITDA increased significantly to $98 2 million versus $34 2 million in the first quarter of 2022, and our adjusted EBITDA margin expanded 1100, and 30 basis points to 19%.
First quarter GAAP net loss was $175 4 million, which included a one time noncash settlement charge of $183 $2 million. This charge is related to the purchase of annuity contracts totaling $265 million, which we executed in March because this purchase is made by the pension trust.
Our U S qualified defined benefit plan there was no impact on the company's cash position.
This purchase was part of our continued strategy to transfer the company's pension liabilities to third party insurers over time through annuity contract purchase plan asset.
Excluding the impact of the annuity purchase as well as an additional approximately $10 million of pension expense and $17 million in cost reduction and other expenses net of tax non-GAAP net income totaled $34 $7 million in the quarter compared to a loss.
At $27.3 million in the prior year.
non-GAAP earnings per share it was 51 cents versus a loss of 41 cents in the first quarter of 2022.
We are reiterating our full year profitability outlet for our non-GAAP operating margin of 2% to 4% and adjusted EBITDA margin of nine 5% to 11, 5%, while we significantly exceeded these levels in the first quarter. This is largely due to the timing of <unk> revenue in the first quarter, which is expected to be materially lower in the room.
Gaining quarters every year.
However, we continue to expect more than 250 basis points of aggregate gross margin improvement across our dws and see a nice segment and margins should improve throughout the year as price increases are implemented on existing contracts and renewals and as we see increasing benefit.
From centralizing delivery technology infrastructure and back filling roles where needed at a lower cost.
Capital expenditures totaled $20 million in the first quarter relatively flat on a year over year basis, and reflecting the ongoing execution of our Capex light strategy. We continue to expect full year capital expenditures to hold relatively flat year over year between $80 million and $90 million free.
Free cash flow was negative $7 $5 million in the quarter compared to negative $51.7 million in the prior year quarter, largely due to higher technology collections in the quarter.
The full year revenue decline, we expect due to license renewal timing, we continue to expect full.
Full year free cash flow to be in line with 2022 at approximately negative $75 million.
Adjusted free cash flow in the first quarter with $21 million, improving by $47 million year over year.
On March 31st 2023, our cash position of 391 $9 million was essentially unchanged from levels at year end our.
Our balance sheet and liquidity remains strong with a net leverage ratio, including all defined benefit pension plans of one seven times as of quarter end.
Looking ahead to the second quarter due to the cadence of Ellen as revenue during the year caused by renewal timing, we expect overall company revenue to decline in the low double digits year over year with second quarter. Alan S revenue expected to be approximately $75 million and excelling as revenue expected to be roughly flat on a sequential basis.
Relative to the first quarter.
We expect a modest non-GAAP operating loss in the range of 5 million to $10 million driven by the timing of <unk> renewals.
Our second quarter outlook puts us on track to achieve our full year guidance.
Please remember that the timing of contract signings is difficult to predict with precision and the upfront revenue recognition of license revenue in tiny of these contract signings in our ECS segment and have an outsized impact on our revenue and operating profit in a given quarter.
Briefly touching on our expected cash pension contributions to our U S qualified defined benefit plans, while there was volatility in estimates of pension contributions due to financial market conditions funding regulations, and actuarial assumptions, which are updated only once a year at year end, we estimate that the amount of our 10 year contribution forecast.
At first quarter end has modestly decreased to approximately $570 million to $590 million and the approximate $650 million forecast at 2022 year end.
This is due to a combination of positive asset returns and the impact of the annuity purchase executed in the first quarter cash contributions to our U S qualified defined benefit plans are still expected to begin in 2025 and continue through 2032.
With that I will turn it over to Peter for some final remarks before we open the line for questions.
Thank you Dave in closing, we are making progress on our key strategic portfolio go to market and cost efficiency initiatives and are successfully navigating the current market environment. We look forward to discussing our longer term strategy and the opportunities we see for the company to grow revenue and expand.
Margins at our upcoming Investor Day on June 15th in New York City.
Operator would you. Please open the call for questions. Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Rod burst raw from deep dive equity research. Please go ahead.
Okay. Thank you hey, so congrats on the Frontloaded progress toward our full year targets I want to start by asking about your license renewal pattern.
You clearly had early license renewals in Q4 and you've now also reported.
A year over year surge in licenses in Q1.
So is his unisys in an extended period of early renewals or was the Q1 licensing activity.
Somewhat more in line with what you had expected. So I'm just looking for any color on the latest licensing patterns, which would be really helpful. Thanks.
Rod This is Peter thanks, very much for the question I guess the answer is yes, and yes. So we had a slightly better quarter than we expected on the L. N S renewals, but it was largely in line with what we did expect so.
We went through last quarter discussing about what the illness progress was going to be over the year. We do would really lumpy. We knew the first quarter was in fact going to be our best quarter and it was our best quarter. It was a little better than we thought.
But not marginally so that's why our debit is being very careful to set expectations for the rest of the year. We do not think that the <unk> revenue as a whole is going to be any larger than what we laid out at the end of the last quarter for all of 2023 in terms of the of the rest.
Of the business.
And we really are working in a concerted way.
Two kind of separate L. N S from well, we call X L N S.
And the reason for that is that just the lumpiness of Illinois. So as you can tell we had a little better quarter than we expected this year.
A little better year in 2022 on LLS than we expected we simply don't have.
Control over those items.
And so they are going to be lumpy from year to year, they can be lumpy from quarter to quarter, we have some view.
We have a view that 'twenty four from Elena <unk> will be better than 'twenty, three and we have a view of the 25.
Lisa.
Sure.
But it is still you know.
Somewhat outside of our control.
L a N S.
Is the rest of the business and you know the driver in X L. N S. For US is what we call those Nextgen solutions, we had a good quarter in next Gen solutions, but we actually expect.
Better next Gen solution performance as the year gets stronger so just to give you an example.
We think about about the pipeline total pipeline growth for the company was up 6% year on year and.
And 15% sequentially, that's very good for us, but next Gen pipeline was not up 6% on year on year. It was up 16% year on year and next Gen pipeline was that up 15% sequentially. It was up 34% sequentially. So we really do believe that.
A an important way to look at the company is through that.
So it is and we expect to make continuous progress on that year over year quarters can still be a little lumpy.
That is where we think we will make.
The study advanced with the company and within X L N S.
Both efforts is really within the next generation piece. So broad hope that helps answering the question yeah, Yeah definitely and so my follow up is kind of a longer term question, which which probably is also a fitting topic for the analyst day, but I wanted to ask given that your outlook.
Is saying the next three quarters are expected to have soft license revenues just due to the timing and Lumpiness. There will you during that time be making special efforts to kind of lay groundwork for fundamental improvements for unisys. After 2023, so if any.
Color on what Youre, what youre doing in terms of longer term building up of the of the fundamentals.
Yes, so that's a great question to Rod I'm going to turn that over to Mike who is really working with all of our business teams to do exactly that great. Thanks, Rob for the question and good to speak with you again.
Yeah as you know I mean, this is something that we've been working on for a multitude of years and continue to work on.
We really have the underpinning laid and we are expecting to see continual improvement in margin you know frankly, not only just over the remaining portion of 'twenty three but beyond 'twenty three some of our major efforts there.
As we've talked about in some previous quarters is the continual development of AI and ml and the efficiency of delivery. We continue to work on right shoring in low cost locations in support of the organization, we continue to clean up and fix I'll say legacy.
Contracts.
And improve their margin profile and we continue as you know to push to a higher mix shift from a revenue point of view, which has knock on impact on the margin side Deb and I are partnering on SG&A reductions. So so all of those things in my mind are core tenants too.
The continual improvement.
The business fundamentals and we certainly will have some more dialogue and gave a little better and more detailed picture.
At Investor Day of how we plan to do that because it is a little bit different per per business unit and the company overall, but that's that has been the plan and continues to be the plan.
Okay, Great and just one final hopefully a quicker quicker one.
15% sequential pipeline growth I'm, just looking at that number.
And also knowing that theres been some macro impact in the last several months in the industry, what's driving that sequential pipeline growth.
And in the over the last three months.
You know what brought us another great question.
When I when I look at our performance and talk to both Deb and Mike into our leaders.
And you you're kind of getting into that pipeline growth.
Area of our pipeline growth that has been most accelerated is modern workplace.
And interestingly that is the area, where we had the most revenue uptick in the ex <unk> business. So dws driven by modern workplace clearly has the most pipeline growth for US now somewhat you might say somewhat disappointingly when you look at the profitability of dws.
The gross profit of Dws actually went down year on year.
And while that is a bit of a disappointment it is very understandable.
Revenue for that team increased over 7% year on year whenever you have revenue increasing you know you always have a little bit of a short term hit to profit, but I think even more than the revenue. They are really gearing up for that very very large increase in pipeline. So we're staffing up we want to we are a little bit.
Getting out in front of our headlights on that because honestly, we think we need to do that to get to the revenue portfolio that we're showing so I would say to you. It is that growth is in.
Next Gen solutions.
The next Gen solutions, a modern workplace looks very promising for us.
And it is already showing that in the revenue growth for the first quarter.
Brian if I could add if I could add a couple of things to that I guess, the first word I would say is volume right. We're not looking at situations, where there's some anomalous thing where there is one big deal driving that pipeline right that is pretty consistent volume across all of our businesses and we are starting to see some.
Real penetration from a cross sell perspective.
You know we have talked historically about our cross sell penetration being about a third bucket.
This quarter, we're actually closer to about 40%. So we are starting to see that penetration, which is driving expansion in new scope in and in some cases as Peter just mentioned.
<unk> focused on modern workplace so it's been.
Pretty good and as you know, it's kind of on the tail end of.
A lot of the marketing efforts that we've done we've launched our branding at the end of Q4.
Lot of marketing campaigns going on and you know the reality is they take a little while to take route right and start to see the benefits of those of.
Of those enhanced effort so.
We're thinking we're aligned pretty nicely to our strategy and continue to press forward they're.
Very helpful. Thanks.
The next question comes from Joe <unk> from Canaccord Genuity. Please go ahead.
Good morning. This is lance any on for Joel Thanks for taking my questions and thanks for all the color is really helpful.
Maybe I can I can start on the macro.
Nearly.
Neutral services outside of our Ellen S business. So the Lnr's does a good amount of financial services work and and that's you know running financial services.
You know back office to some extent front office and that did not change by when we're talking about the project work around financial services. You know it was later in the quarter, but it was pretty perceptive that whole industry has been distracted by whether his first republic or as V P or others and so I don't think it was a surprise.
To see our pipeline.
And level of activity somewhat distracted, we expect them to come back.
And we go back quickly, but it was distracted.
When we look at our business as a whole stepping out of that one piece of of a sector I would say that the big change over the past six months and what you hear more of in our discussion in mine and and Debs.
Is really a strengthening interest around data analytics and AI and you see is talking about data analytics and AI, but it shouldn't surprise anybody. So every one of our next Gen solutions has you know.
A good amount of data analytics nai embedded in it that's what makes them next Gen solutions.
So it's not as if we are new to that but I would tell you that clients want to hear about that more and so we're are focusing on it from Ah. If you will from a marketing standpoint, more you get to see about more of that on our website.
You also got to see a somewhat more focused concentration on that as we go forward, but again, it's not as if we don't do it today and haven't done a lot of it but I would say that that's probably the biggest change is.
Is really kind of up more and more of an emphasis on on data analytics Nai, but that's a change for like all of US as we read the paper every day.
Yeah, No I think I think pier covered it I mean I think that's in.
In my remarks.
And I probably saw the biggest.
Where we saw that declined 1.4%.
I think that was the sad largely given by.
Some caution in Zion.
And cloud.
Particularly as Peter mentioned with financial clients.
At least for now I hear about 15%.
I think we are seeing that.
Yeah, Paula I think there was a really great question and thank you for asking.
Hi, Thanks for the kind of Peter.
And maybe I can follow up on the next <unk>.
It's clearly very good strong pipeline gross there.
Maybe moving through the Python at a faster pace what.
What do you think is driving this this faster Sam cycle here.
Yeah, I'm gonna, let I'm gonna, let it might take that just a couple of quick comments, we I.
I said that and and it does appear that that's the case.
I will tell you I think Mike has led a brilliant effort on our team to get this to happen and the work. He has done on the process back office of just how we pushed through deals how we evaluate them sooner how we make decisions on them sooner is really strengthening the company and then a <unk>.
Of course, you know to some extent the deals as as you can see are a little smaller and that means they have to go faster, but Mike over to you.
Thanks file for the question very helpful. So.
Yeah, I think I think from our perspective velocity through we've done quite a bit in the back office to establish kind of Ah Ah rapid pricing, but if you think about it it's really more about not having to have the level of variability in all of the client right. So a little bit more of a standardized off.
Ring now that are are poor fall y'all has kind of evolved a bit right, we're able to leverage more of that and obviously that helps with our pricing. The other thing is a lot of our penetration, especially as I mentioned the increase in cross-sell and dip into some of the new logos are smaller bag.
Solutions and they typically come to revenue sooner and there are point of spirit types of solutions. So we talk about penetration in cyber security as an example that is something where we can price. It very quickly a lot of them are time and material based they go to revenue in in a sooner cycle and our goal is.
Really about landing and expanding right so getting in dealing with some apps modernization or migration as an example in the cloud space and then broadening that expansion into managed services and the rest of the infrastructure. So I think it's a little bit what we've done in the back office, it's a little bit about our <unk>.
Portfolios in general and their majority, it's a little bit about the size of the deals and the types of things that were actually pursuing in next gen. Just come to market quicker than the contract terms are a little shorter.
Alrighty. Thank thanks for all the clever, Mike and Peter and good luck this quarter.
Thanks, though.
The next question comes from <unk> from <unk>. Please go ahead.
Hi, Thank you for taking my question how problem on that.
Commentary around increased in the small to midsize opportunities is that something you deliberately I'm going ask you may have a fast decision cycle within their are gonna see you soon and and did you also see that those.
Contracts that are normal at the shorter.
Then then larger ideal.
Yeah. Thanks for that question. It's it's a phenomenon that we have been remarking on for years and and it just continues so and that is that you know as we measure contracts a new contract signings you know the average duration of the new contract is shorter.
Then the ones that had preceded it now there there's a lot to take away from that so in part that's an average number and you know you're dealing with a lot of contracts. So average as can be a little deceiving, but what what is underlying that which I don't think is deceiving is that our offerings have become.
Some more of the moment our offerings are more important.
To drive current revenue in current margin for our clients and that means our clients need them more urgently. So it's not a question of putting in a deal and doing it for three or five years those are fine, but it's like Hey, I want this done within a year and I Wanna be able to see the results and then if I like it I'll renew it and that's a challenge we're ready to live.
To so Mike over to you on that Yeah look I think it is intentional anya for sure. When we think about the types in size of the deals that we're looking at for for penetration purposes. We've had a renewed focus in mid market. As an example, which are you know companies from our perspective are the two to 5 billion dollar <unk>.
Change, it's quicker decision, making it's smaller type projects that that get to revenue sooner and those are areas, where we can ultimately provide kind of fullstack solutions to clients in that space. So I I think it has been very intentional and to a large degree. Some of these services are SAS based <unk>.
Models right. So they typically move into annual cycles as opposed to the historic models that were three to five years as Peter alluded to in their signing so some of it's a behaviour of decline in some of it is intentional in in our next Gen solutions.
Okay. Thank you I'm sorry, I missed this may be commented on it already but.
My newest helped by that illness. This corner well actually what we think about the gross magenta coming corner.
Hi on your staff.
Yeah, the coming quarters cause you're right Allen ask because it was a strong Elena regular quarter. After you have a lot of strength and what we think items to gain for Q tail is you know non-GAAP operating loss you know negative five to negative 10 million for Q tail.
And then you know in tow at all we talked about you know that that the <unk> yeah. The gross margin. We're expecting you know the credit 250 basis point. So there will be improvement kinda in that X M. A NASA over time that the the <unk> you're right, we'll be driving some of the the lumpiness in that profit you know over the next three quarter.
<unk>.
And that's why I would have been.
Yeah, you're welcome agenda, and that's why we've done you know.
Such a you know focused work really starting last year at at giving you data that is both <unk> and X L. N S as well as total company because when it when one everybody to see how the pieces are put together, but we also want.
Everybody to see that that Ellen S. Number you know increases and decreases almost in unexpected ways. Although we have a general view as to how it will play out so, but but most of our focus on growth and focus on margin expansion as in the X Elena space and I should clarify.
250 basis point and for a minute <unk> dws because is that S. As in C. Part that already has higher margin. That's right just to clarify we just want more of it [laughter].
Does that clarification.
Yep.
The next question comes from Matthew Kalinka from Maxim. Please go ahead.
Mmm, good morning, and thanks for taking my questions.
Can you talk about any expectation for attrition from legacy lower margin contracts that are coming up in 2023, I know, we had the material impact a coupla years ago, but particularly in the environment. We're in today is there potential for for more of those to just <unk>.
And create a material headwind for unisys revenue or.
That's something that you're not concerned with this here.
Hey, Matt it to Mike good to speak with you again look I I I'll sum it up quickly and I'll give you a little bit of color. It is something that we are not overly concerned about for this year or frankly in in future years at a for this year because we really don't have any contracts that are up this year of the magnitude.
That would would be a concern, but more importantly, what we've actually seen over the course of the fourth quarter and the first quarter is our ability to get price increases on the contracts that we were concerned about and I think a lot of that has to do with the quality of service that we've been provide.
Heading for these clients for decades right. So it's a heck of a lot easier of a negotiation from a a price increase point of view when you're delivering gold glove service for multiple decades. So we've not had problem from a pricing perspective, and increasing knows we don't have any emanate ones that are coming due.
That we're concerned about and and that's actually an area of land and expand for us and we've seen that in a couple of instances already so I think we're in we're in pretty good shape. Unlike what we went through in 2021 with the the carryover of those exits in 2020.
Perfect. Thanks, and my follow up is.
The marketing investments and campaign I guess put should.
What should we be looking for.
And you know a gauger indicator that that those are having its desired impact and I guess, what time frame should we be looking at.
To be able to.
Some sort of impact you know what is this year or next year.
Yeah. So Matt that's a great question I think there's really almost two different ways to look at it you know from from our perspective in terms of operationally. We are looking at you know how many people are coming to the site and how often they're saying, but when you look at it you know just kind of an operationally it's doing.
Really well I I think people are saying I think today. It is almost four times as long and were getting you know twice as many people who are either we think clients or prospects. So operationally, we really we really making progress there when you think about how should you look.
At it you know it's pretty clear you know is it helping us get the revenue is helping us get the margin is it helping us develop pipeline and getting to win rates. So you know I I I think you know the proof is in the pudding as far as our shareholders are concerned and and and those have to get to you know revenue and profit.
But from our standpoint, we really are where we're seeing some success, Mike any thoughts of that yeah. No matter a great question and let's say that the easiest to answer as a front load of that is the pipeline, which we've already seen some expansion on that have the attorney into you know T C V and ACB based on higher when right. So.
<unk>, we were seeing not only the length of time people are spending on the site, but actually who is spending time on that site. We put in a new lead generation program on on the back of that which helps us further qualify some of those leaves we have some third party what you went <unk>.
Consider inside sales as a as a a back end of that to qualify those leads even further and so from our point of view, it's really the conversion of those leaves. The second piece of your question was time. The other thing there is we have to be a little bit have some patience here right now.
The type of thing where you you know you you put some new information on your website and that turns into a lead in a week or a month or quarter right. So it takes a little bit of time for that to happen, but I will tell you you know I speak to clients all the time prospective and current the view on the brand the view on our ability.
Ability to generate a breakthroughs an experienced breakthroughs the dialogue around the market awareness of our solutions. The number of people participating on our site to increase in pipeline that those are all attribute from our point of view that says it's moving in the right direction.
And just I I've found some of the data there just again March was the single highest months of web traffic. We've ever had we've had in the first quarter four times more clients and prospects visit our website than a year ago and those clients and prospects are staying longer so again from I think from them.
And Mike in my perspective, that's a lot of progress from your perspective. It has to show up in in new sales of new revenue in an increasingly right.
Perfect. Thank you.
This concludes our question and answer session.
I'd like to turn the conference back over to Peter out to best for any closing remarks.
I want to thank everybody for joining us again between now and the next quarter.
We will have our Investor Day June 15th in New York City, we are sending out invitations to people, but if you don't get an invitation that as an oversight. So please reach out to <unk> and she will get you invited so we're looking forward to seeing you all on June 15th and.
New York and thanks very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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