Q3 2023 Unisys Corp Earnings Call

[music].

Good morning, and welcome to the Unisys third quarter 2023 financial results and conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by.

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After todays presentation, there will be an opportunity to ask questions.

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Please note this event is being recorded.

Now I'd like to turn the conference over to Micaela Borski Unisys' Investor Relations. Please go ahead.

Thank you operator, good morning, everyone. Thank you for joining US yesterday afternoon, Unisys released its third quarter financial results I'm joined this morning to discuss those results by Peter outside our chair and CEO Mccann, our CFO and Mike Thomson, our president and CFO.

Who will participate in the Q&A session.

As a reminder, certain statements in today's conference call contain estimates and other forward looking statements.

The security is what we.

We wish to caution list the merits of this call that the current expectations assumptions and beliefs, forming the basis of our forward. Looking statements include many factors that are beyond our ability to control estimate precisely which could cause results to differ materially from our expectations.

These items can also be found in the forward looking statements section of today's earnings release furnished on form 8-K and in our most recent forms 10-K and 10-Q as filed with the SEC.

We do not by including this statement assume any obligation.

Jason to review or revise any particular forward looking statements referenced herein in light of future events.

We will also be referring to certain non-GAAP financial measures such as non-GAAP operating profit or adjusted EBITDA that excludes certain items, such as post retirement expense and cost reduction activities and other expenses. The company believes are not indicative of its ongoing operation as they may be unusual or nonrecurring.

We believe that these measures provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP.

non-GAAP measures have been reconciled to the related GAAP measures.

Provided reconciliations within the presentation.

The slides accompanying today's presentation are available on our website with that I'd like to turn the call over to Peter.

Thank you Michele good morning, and thank you for joining us to discuss units. This is third quarter 2023 results.

<unk> had another quarter of solid revenue and profit results, allowing us to raise guidance across all our guided metrics, notably this was our third consecutive quarter of year over year growth in our ex Ellen has solutions rubbing.

During the quarter revenue from expansion and new scope with existing clients contributed to the growth of our cloud applications and infrastructure solutions and digital workplace solutions segments within our enterprise computing solutions segment.

And consumption trends and good support volume generated upside in license and support revenue.

New scope and new logo T. C V increased 22% sequentially during the quarter was approximately 60% of these signings in next generation solutions, demonstrating gains with existing clients and within the market and higher value areas.

While total third quarter signings were impacted by lower newer levels due to timing overall, we have already signed 60% more T. C D and the month of October than we did in the entire third quarter.

We expect the fourth quarter to be our highest T C V quarter, even 2023.

Our pipeline is robust up 18% from a year ago with our next generation pipeline up 50% year over year.

Our sales strategy partner ecosystem, and analyst and advisor recognition of driving higher value opportunity that are supporting our expansion into faster growing areas of the it services market.

Looking at our topline performance third quarter revenue increased 7% year over year as reported and declined one 4% in constant currency.

Excluding license and support or X L. S. We had another solid quarter grow revenue by six 2% year over year or 4.1% in constant currency.

Excellent solutions, primarily consist of digital workplace solutions segment, our cloud applications and infrastructure solutions segment as well as our specialized services and Nextgen compute solutions within our ECS segment.

All three of these areas, we achieved mid to high single digit growth.

Revenue from license and support was 67 million in the third quarter was significantly better than the 15 million third quarter expectation. We had discussed on our last call outperformance was primarily due to additional consumption and support revenue with some existing clients as a reminder, the vast majority of <unk> revenue.

Is from license sales and support services related to our clear path forward operating system, our technology powers a range of mission critical functions, such as travel reservations financial transactions and mortgage processing and.

And digitalization in these areas has led to consumption growth at many of our largest clients.

Turning to contract signings aggregate, new logo and new scope T. C. P was up 22% sequentially with a 60% next generation solutions mix as a reminder, new scope represents the purchase of additional offerings by existing clients, while new logo signings with new clients the growth and mix of these.

Signings demonstrates increased client and prospect willingness to partner with Unisys further up the value chain.

Total company T. C V declined 31% sequentially driven by lower renewals in the quarter. However, this was a timing issue with some third quarter renewals slipping just outside of the quarter, our renewal rate remains strong at 96% year to date.

And our X LNR solutions D. C. D was down 30% sequentially again due to renewal timing expansion T. C D and R X LNR solutions also declined modestly on a sequential basis. After a strong first half of expansion signings.

While renewals were low in the third quarter, we continue to expect a strong back half of renewal bookings.

We have already closed multiple large multiyear renewals in October and both are L. N S and X LNR solutions.

We also expect new logo T C b to be a strong driver in the fourth quarter with October signings already more than double the new logo T. C V sides in the third quarter and with several larger opportunities, we're working to convert before year end.

Turning back to the third quarter I want to discuss some notable new school contracts, we signed in our next generation solutions.

And our C&I segment, we signed the next generation new scope contract with one of the most populous states in the United States as part of this new scope, we will develop and manage a platform to help the states health and human services Department manage assistance programs that distribute crucial benefits to hundreds of thousands of recipients.

Each month.

We signed another new scope next generation solution engagement during the quarter was a prominent paint and coatings clients as part of this engagement Unisys will transition to the client to the cloud optimized its cloud environments and implement and manage security Operation Center.

Moving to pipeline, our qualified X L. N S pipeline is robust and high quality up 18% versus a year ago, and with 47% of pipeline T. E V. In next generation offerings up 37%.

Looking at some of the solutions contributing to our pipeline in more detail in dws, we're bringing new ideas and innovation to the market and our focus is on experience, which is resonating with clients prospects and the industry expert to advice.

Our portfolio is well aligned to market demand companies are settling into new workplace models and re prioritizing technology investments that improve the employee experience within our modern workplace portfolio inside dws, we are seeing significant interest in D. S. S. Our device as a service.

Sure.

Our DSS solution is differentiated and that it can integrate with our extra mile deployment persona mapping on boarding automation and smart PC refresh solutions all to provide next level insights into device performance and security.

Clients are particularly interested in the potential cost savings from using D. S S to optimize device capex.

This solution puts unisys at the center of our clients' workplace technologies and gives us an intimate understanding of their workplace technology stack, where.

We are optimistic that it will help us expand wallet share with our existing clients and provide us with more opportunities to deliver value to the large number of end users we already serve.

In our C&I segment, we are building out six core platforms increased standardization and our solutions development.

Our multi cloud data artificial intelligence applications security industry aligning our talent around these platforms is key to expanding our next generation solutions and penetrating the larger high value contracts in areas like fin ops hybrid infrastructure and digital transformation.

Which require complex solution orchestration.

And our applications layer, we have a number of specialized projects in the pipeline requiring our combination of public sector expertise and engineering capabilities. For example, we have several opportunities to out of state and local governments with complex challenges such as managing of licensing and permitting processes.

Our identity and access we've had good success in these high value areas already this year for.

For example in the third quarter, we signed a new logo contract with the city and Texas and partnership with clarity, we will build a digital platform to help of the city better managed commercial and residential development applications and we will provide managed services for the span of the five year contract.

We're in the process of building out an ecosystem of specialized public sector software partners, where we can provide complementary implementation and managed services, but also develop standardized you had variable application layers.

Across all our business units, we're seeing strong interest in AI, including generative AI and services related to supporting enterprise AI adoption, but beyond understanding use cases for January of AI, our clients want to help with strategies for planning and measuring their AI invest.

For example, one of our third quarter wins with a new scope with one of the world's largest quick service restaurant chains that turned to unisys to help map its strategy for evaluating and observing the performance of new technologies for its customer facing mobile ordering platform.

Across the company, we're collaborating extensively with clients to approach generative AI adoption in areas like content generation knowledge access security fraud detection and applications development.

We're also infusing generative AI into Unisys industry solutions, we're particularly excited about the launch of Unisys logistics optimization and industry solution that we believe has the potential to advance the multibillion dollar cargo logistics market.

This cutting edge solution enables faster and smarter business decisions that help airlines freight forwarders and ground handlers optimized capacity route and warehouse processes.

Solution Mary's AI advanced analytics, and the power of quantum computing, enabling near real time decision, making.

Solution incorporates proprietary optimized tools and pre trained models tailored for the cargo industry as well as quantum annealing capabilities.

Ahead of our launch we showcased our capabilities at a large industry conference and market reception has been positive with both existing air cargo clients and new prospects.

We're also seeing interest from global logistics providers and freight forwarders.

Our teams are already on the ground actively scoping and deploying our first full scale pilot.

With a large air cargo client in Asia, which we expect to go live sometime in the first quarter.

We believe Unisys logistics optimization will serve as a proof point of the significant value. Our ECS segment can help clients unlock with unisys industry solutions that combine quantum data AI and industry expertise.

Finally, just as we're partnering with clients on their AI journeys and infusing AI into our industry solutions, we are focused on accelerating internal adoption across our own delivery and SG&A functions.

For instance, within our HR Department, we are leveraging talent marketplace and talent mobility AI platforms to speed sourcing and recruiting these platforms leverage industry, leading AI machine learning and natural language processing capabilities to improve talent mapping.

Visibility and workforce planning, which has significantly reduced certain talent acquisition costs.

Our HR teams are also beginning to adopt generative AI for job postings and high impact marketing campaigns.

Before turning the call over to Deb I wanted to touch on some of our initiatives to attract and retain talent and to provide an inclusive environment, where associates can grow in their careers.

In 2023, we have increased our investment in the learning and development of our associates bolstered our learning library with new courses and lodging cluster learning modules leadership events Tech talks and training boot camps, all to Upskill our talent.

We believe our talent initiatives are making units as a more attractive place to work.

As evidenced by our lower attrition rates and recognition from third party organizations.

Our trailing 12 month voluntary attrition rate of 13.3% is down significantly from 18, 9% a year ago.

During the quarter.

Four prestigious HR awards, recognizing our excellence in diversity hiring talent growth talent acquisition and leadership with that I'll turn the call over to Deb to discuss our financial results and full year guidance in more detail.

Thank you Peter and good morning, everyone. My discussion today will refer to slides in our third quarter earnings presentation posted on our Investor website. My commentary today will discuss financials as reported except for segment revenue growth rates, which we discussed in constant currency.

I'll also provide information, both including and excluding Ellen escalation to allow investors to isolate the portion of ECS and includes uneven revenue based on license renewal timing to evaluate the progress we are making in the business outside of that area.

As Peter highlighted we had another solid quarter of results in both our Allen ask NFL element solutions.

Looking at our results in more detail as you can see on slide six third quarter revenue was $465 million, an increase of <unk>, 7% year over year right, 1.4% decline in constant currency.

The constant currency decline was driven by the timing of license renewals in our ECS segment, which was better than expected at the beginning of the quarter.

Year to date revenue was $1.46 billion up two 5% year on year or three 1% in constant currency, excluding license and support third quarter revenue was $398 million up six 2% year over year or four 1% in constant currency year to date.

<unk> revenue is up four 3% or five 1% in constant currency. We are pleased with the growth we have been able to achieve in light of the uncertain macro economic backdrop and believe our axon is performance is evidence that our strategy is working.

I will now provide third quarter detail by segment with revenue growth in constant currency terms.

<unk> segment revenue was $141 million in the third quarter up six 2% year over year. The majority of growth came from expansion with existing clients and revenue from recent new logo wins C&I segment revenue was $134 million up eight 7% year over year.

<unk> revenue also benefited from expansion as well as new scope at existing clients, such as California State University, where we are delivering cloud security innovation as part of the contract win Peter discussed on our second quarter call. Additionally, the prior year C&I period included a nonrecurring $5 five.

Million dollar revenue impact.

Third quarter ECS revenue was $122 million a year over year decline of 14.2% within ECS, our nextgen specialized services and Nextgen compute solutions revenue growth was five 2% year over year, which was primarily due to expanded application services at large clients in Asia Pacific.

Latin America.

The remainder of our E C escalation or license and support where revenue declined 25, 3% in constant currency versus the third quarter of 2022.

Peter mentioned this is down year over year due to the timing of license renewals, but better than expected due to higher consumption and support revenue at our existing clients. This upside is not related to early contract renewals. So does not impact our future <unk> revenue expectations.

Third quarter backlog was $2 $4 billion versus $2 $7 billion at the end of the second quarter with the decline driven by the shift of some larger XL and astral renewals into the beginning of the fourth quarter, we expect backlog to rebound nicely next quarter, given our October contract signing and the opportunities we are working to come.

Start before year end.

Moving to slide seven gross margin was 25% for the total company and 14% in our XL and installation. The third quarter included a revenue reversal related to a contract me previously exited this will not impact our segment results, but will impact total company and excelling as financial and is not adjusted out.

If any non-GAAP measures.

This adjustment impacted third quarter gross margin by 160 basis points and accidental Alan S. Gross margin by 200 basis points adjusting for this reduction Exxon is gross margin would have been flat sequentially at approximately 16%.

Touching briefly on third quarter segment level gross margins dws.

Gws gross margin was 14, 8%, a 30 basis point decline year over year due to mix and 110 basis points sequential improvement driven by labor and delivery efficiencies.

Gws segment has a particularly compelling multi year margin expansion opportunity from increasing modern workplace penetration with our existing clients. Many of our most exciting dws pipeline opportunity have meaningful modern workplace components in our qualified modern workplace pipeline has more than tripled over the last 12 months.

We've also identified several opportunities to capture incremental dws gross margin by enhancing automation are building proprietary capabilities for certain delivery assumptions, we carry out using third party technology.

Third quarter C&I gross margin was 15, 3% versus five 6% a year ago, we are continuing to unlock efficiencies by managing our contingent labor enhancing automation and capturing other non labor savings.

Additionally, the prior year C&I gross margin included adjustments associated with the contract.

For the full year, we continue to expect more than 250 basis points of aggregate margin improvement in our C&I and dws segment.

Third quarter ECS gross margin was 52% compared to 58, 7% a year ago due to lower software renewals.

Moving to slide eight third quarter non-GAAP operating margin was near a 0.1% compared to three 1% in the prior year adjust.

Adjusted EBITDA was $37 million or 8% of revenue compared to 11, 4% of revenue in the third quarter of 2022.

Year over year margin declines were largely the result of lower <unk> revenue and operating expenses were relatively unchanged.

Year to date non-GAAP operating margin was five 3% compared to three 3% last year, and we have generated $186 million and adjusted EBITDA, reflecting a 12, 7% adjusted EBITDA margin. This is an improvement from prior year period, despite the lower Alan S renewal levels.

2023.

Third quarter GAAP net loss of $50 million, which included a $4 million tax valuation allowance our expense compared to a loss of $40 million a year ago, which included a $10 million valuation allowance reversal or a benefit exclude.

Excluding $11 million and retirement expense and $17 million of cost reduction and other expenses net of tax our non-GAAP net loss was $22 million or a loss of 33 cents per share.

Touching briefly on our labor cost initiatives as Peter mentioned investing in our talent is resulting in more productive associates and lower attrition levels. We are also continuing to optimize our workforce and labor markets as part of our broader talent management strategy.

At the end of the third quarter, 61% of our associate base is in lower cost markets. Excluding field services. This is up from 59% a year ago.

We believe we are in the early innings of a multiyear margin expansion journey as we head into 2024, we will begin to see the full benefit of delivery and labor efficiencies captured in the third and now the fourth quarter.

Also expect SG&A reductions to begin to contribute to profitability growth.

As a reminder, we are targeting SG&A reductions that translate to bringing SG&A down to 16% to 17% of revenue by 2026, the savings coming primarily from real estate technology costs and in G&A functions outside of sales and marketing.

Turning to free cash flow on slide nine third quarter free cash flow was negative $26 million and negative $9 million for the first nine months. This is significantly higher than the first nine months of 2022, which were impacted by timing of technology collections. We now expect full year 2023 free cash flow.

To be in the vicinity of negative $25 million to negative $30 million compared to our prior expectation of negative $75 million. The improved outlook reflects upside from XL and its revenue and gross profit as well as significantly higher L. N S revenue due to client consumption and the extended contract signed in <unk>.

Tober half of which we expect to collect in the fourth quarter.

As a reminder, Elena collections could shift around year end based on the timing of renewal signings in the quarter.

Pre pension free cash flow, which we define as free cash flow prior to postretirement contributions was negative $16 million in the second quarter and positive 33 million year to date, which is a significant improvement over the first nine months of 2022 on pre pension free cash flow was negative $53 million.

As you can see on slide 10 cash balances were $385 million as of September 30th. This compares to $392 million at the end of 2022.

Our net leverage ratio, including all defined benefit plans with two times as of quarter end, our balance sheet and liquidity positions are strong with no near term maturities and our $145 million ABL facility remains undrawn.

I'll now briefly touched unexpected cash contributions to our U S qualified defined benefit plans as a reminder, once a year at year end, we provide detailed projections for 10 year cash contributions to these plans, which change based on financial market conditions funding regulations and actuarial assumptions.

Based upon market conditions as of September 30th we estimate contributions for the 10 year period from 2023 through 2032 are approximately 80 million to $100 million higher than our year end projections as of December 31, 2022 for.

For the first five years from 2023 to 2027 contributions are estimated to increase by $20 million and we continue to expect no cash contributions to our U S plans in 2023 and 2024.

$60 million to $80 million of the increase is spread over the last five years or the period from 2028 to 2032 it.

It is possible that additional contributions could occur in 2033 estimated to be approximately $40 million as.

As we discussed at our June Investor Day expected cash contributions are most sensitive to asset returns and estimated cash contributions, especially in these later years are expected to continue to fluctuate based on market performance in each quarter, while E earlier years shouldn't move to a lesser degree in managing the business in <unk>.

Quiddity needs, we place a greater emphasis on our estimates of cash contributions we have to make in the next five years that we closely monitor trends in later years of our projections, we remain confident that our strategy and long term targets will allow us to meet our global pension obligations while on <unk>.

First thing in the future of our next generation solutions.

I will now discuss the changes we are making to our full year guidance ranges, which you can find on slide 11.

Our year to date revenue performance, we are raising our revenue growth guidance range and now expect to achieve full year constant currency revenue growth of zero percent to one 5%. This compares to our prior guidance range of negative 7% to negative 3%.

Our updated guidance reflects expectations for <unk> revenue growth of three to four 5% compared to prior guidance of negative one to positive 4% and assumed full year. Alan has revenue of approximately $420 million, which is significantly above our initial guidance of $350 million.

More than half of the $70 million increase to our 2023, Alan its outlook is related to higher consumption and support our existing clients, which has no impact on future Alan S revenue.

Additional upside is related to a multiyear license and support renewal signed in October with a client that had had historically renewed annually. The multiyear contract is larger than the future revenue, we anticipated with this client driven by consumption, which will lessen the impact on future year revenue. We are also.

In good trends and workloads that many other clear path forward clients for these reasons, we continue to expect $360 million of Alan S revenue per year on average for the three and five year period, beginning in 2024.

We are also raising our full year profitability guidance and now expect that 2023, non-GAAP operating margin of 5% to 6% compared to prior guidance of 2% to 4% and we expect an adjusted EBITDA margin of 12, 5% to 13, 5% compared to prior guidance of nine and a half.

11, 5%.

The improved profitability guidance reflects the flow through from high margin <unk> revenue and the solid growth in our axon Air solutions I.

I am pleased with the performance we've delivered this year across all of our segments and activity across our next generation solutions is strong.

Seeding our guidance ranges not only in our license and support solutions, but in the remainder of the beds that we are demonstrating that our strategy is sound.

I will now turn it back to Peter.

Thank you operator, you may now open the line for Q&A.

Okay.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys.

At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Rod bourgeois with deep dive equity research. Please go ahead.

Okay. Thank you operator.

Yeah, Hey, so I wanted to ask a question about the connection between T. C V. In your revenue outlook Youre upping your revenue guidance. Despite the optically week T. C V. This quarter others in the industry have been posting strong T C V, but actually reducing their revenue outlook. So.

Can you say a bit more about your revenue progression. Despite the recent law that you've had in T. C D. Thanks.

Yeah Ross. Thanks. This is Peter that's a really great question.

And I think it is.

Gives insight if I answer it correctly on a number of fronts. So first for us.

T C V is not directly related to current year revenue so.

Our increasing of guidance is not so much because we believe that we're going to have a good fourth quarter at T. C. V. In fact, we've already had a good fourth quarter October alone had more T. C V than any of the three quarters in this year.

But a lot it will take time for renewal T. C V does not necessarily change the.

The revenue picture at new business, and new scope T. C V really doesn't kick in immediately so there isn't too much of a direct connection between the fact that we expect to have a really strong <unk> quarter in the fourth quarter.

Uh huh.

And the fact that we're raising guidance the raise in guidance is really what we have seen over the course of the year and particularly what we saw in the third quarter. So we feel obviously good about our position versus our older guidance.

We thought it was appropriate to increase it now I hope that helps put the context is the question right.

Yeah for sure. That's helpful. And then you you talked in your commentary about the increased client consumption volume and your L. A N F. I meant and I just wanted to get your you shed a little color on it but I'd like more color on what drove the increase in client consumption and then.

What what's the outlook for those consumption levels going forward.

So let me start with that and then turn it over to Deb for a little more color on that it's really interesting so.

Some of the increase in revenue both for this year from what we originally thought would be in this year is our clients wanting to accelerate or sorry, you know long term contracts and as you know in L. N S. Unlike most of our other business.

Take that into revenue when we cited.

Pretty quickly.

On the terms of the contract. So some of what's going on is in fact people just deciding I want a long term contract now or a longer renewal.

But some of it is actually what we've talked about increased consumption Deb mentioned that in her comments, what we're seeing in probably three quarters of our largest clients.

L. A N S. As you know our ramping up of usage.

And I think what we're seeing with the advent of AI and the advent of Big data is you know we have some really incredible data sources for our clients and they're taking advantage of that.

And so we feel really good about that interestingly you know, we don't think that the increase in that kind of revenue. This year will detriment our revenue going forward. We just think that's an increase so we feel pretty good about that really across the board.

Yeah, I really don't have more to add I think that I think you've.

Covered it maybe.

Maybe one thing I would add Rod hey, good to hear from me it's Mike.

Look it's been a recurring theme from our perspective of increased volume.

And really all of the client contracts, we see increases versus decreases.

I think youre aware already we have pretty good downside protection on the decrease I right. It's not volumes down it's really volumes up and I think Peter's spot on the data analysis to creation of these large models are really driving.

Further increases in consumption and again very very little risk on on kind of downside there, it's really all upside and you know.

This whole concept, even market wise, where youre seeing a lot more kind of repatriation to.

Legacy environments, I think just creates defense well have a lot of that activity.

Increasing the volume of usage, so pretty good trends from our point, yes, but I'll just add one thing to your prior question right about increasing guidance I think in the <unk>.

<unk> is one portion of it were happy to see this quarter you know as we're looking at the year as you know the Asheville.

Telenet portion it is really at the high end of the range. We had originally laid out but we're happy with the performance there well I think it's just an important point to note when thinking through the guidance change.

Yeah, Yeah, and then thanks for that clarification, and maybe a little more on the excelling at it could you share more about what you're experiencing and the employee experience market.

I'm wondering how you're feeling if you're feeling better about that market even in recent months due to.

The ongoing work from home experience that's out there and also AI related opportunities can you just share a little more about the employee experience market.

Hey, Rod, it's Mike again, yeah.

Look I think we're feeling stronger and stronger in relation to that market.

I've had the luxury of spending a lot of time with our clients both prospective and existing as we continue to deploy our solutions I think Peter mentioned during the call.

We'll series of things that we think are very distinctive in that case, but I will tell you. The dialogues we're having it it's no longer a commodity gushing, we're really talking about productivity, we're talking about value, we're talking about time to value.

Whole concept of proton is and how they impact security and deployment and procurement and smart refreshed I mean it is it is absolutely.

Real and its absolutely the gist of all of the discussions that we're having bolt on a renewal basis, even converting some legacy to what we'll say is experience and certainly on on.

All of the new prospective in fact, it's interesting we're seeing a lot more combined.

<unk> of experience right, it's not just experience in the employee experience from a digital perspective. It's also the experience on the cloud infrastructure and data side right. When you talk about the AI components. There. There are so intertwined that most of our discussions with new clients actually end up being cross sell opportunities.

For us and in multiple elements of both of those business units. So we're very pleased with the way it's progressing.

And Rob just to add to what Mike just said.

And I agree with everything he said.

It's an interesting space digital workplace.

You know there are some companies that kind of.

Go Hot and cold in terms of their focus on that space, We've never lost focus on that space.

And you know if you go to our website and look at our awards section on our website you will see current in the year Awards that we've received around digital workplace from ISG from Gartner Nelson Hall from Abbott Soccer IDC from Everest.

This has been a push for us for a long time we're.

We're happy to see some others focus a little more on this space. We think it's good for the industry, we think it's worthy for clients.

But as I said, we have established a really strong position.

We intend to keep moving forward.

Thank you guys.

Great. Thanks, Rob.

The next question comes from Joseph <unk> with Canaccord.

Please go ahead.

Hey, guys, good morning, and nice to see that our excellent organic growth just.

I wanted to drill down a little bit into this October.

Bookings activity it seems like a lot and you know I was just wondering if theres any read through there relative to the macro and you know, perhaps all of a sudden.

Clients wanting to sign for next year or was it really truly kind of just more company specific timing with there's kind of huge ramp up in award activity.

Hey, Bob.

Hey, Joe its Mike How're you doing thanks for the question look I think.

One of the things that we've learned over the course of the year is that the sales cycle for kind of the I'll say the experience offering is as bad as long as our legacy sales cycles, where they're really running about a year and so if you dial back a year and what we've done from a market.

<unk> perspective, the continual work we're doing on on the advisor side, Peter just mentioned a whole bunch of those were getting invited to.

A ton more deals in regards to that they see the value of the solutions that we've got and I think what Youre seeing is really just the output of the timing of the negotiation of those sales cycles right. So sitting at about a year.

Fourth quarter is kind of where they're at right. We're seeing strong activity already Deb mentioned the signings that we already had in October Peter talked about those being greater than from a TCE perspective. The prior three quarters individually right just the first month of October.

And we feel really good about the pipeline has grown throughout the year, it's growing in the areas that we wanted to grow it and we're seeing the nextgen solutions growing that pipeline and I think it's just the natural duration of time, it's taken to get these into production. So really happy with the progress we're seeing there really happy.

With how the markets are reacting to the offerings and and again.

You know that.

That's the basis for the raise in the guidance.

Great. That's good color thanks, Mike It sounds like good progress on it.

You're seeing the results and then just back on the.

Just maybe a quick two parter there on the consumption volumes, how do those margins look versus kind of the base license sales and then I know Deb I think you said.

What are you seeing.

Larger contract renewals over longer periods of time.

What does that do maybe two evening out or making.

So, perhaps maybe more lumpy the.

The license sale part of.

That segment, Thanks, a lot.

Yeah. So the margin on the consumption is similar to our over our overall Ellen asses that.

But that that.

The answer to that as far as that that some clients coming to us.

Instead of a one year deal renewal.

Our multiyear that just.

We recognize the revenue upfront.

Martin assumption built into that kind of lessened the impact of the outer years. So its not you know in the past leasing where a client just renewed early for their four year deal. Instead of next year. This year and so then this year takes away from next year.

It's different than that.

When these happen when its just the client wanted to lengthen the deal, yes, I would say, Joe just to expand on that a little bit.

For at least three or four deals over the course of the last 12 months, we've seen extensions of those deals right. So.

For us, it's really solidifying the use of the clear path forward operating system right and the work that we're doing from an application development on top of that system and the managed service component of that system. So it's really strong belief and I think the efforts that we've put in over the course of.

The last four or five years to really future proof that that operating system and the fact that the fact that folks are signing from three to five or five to seven and extending those deals I think is a real testament to our aid.

The security and processing power of those systems and be their support.

In continued utilization of those systems and we're not really seeing.

No.

The impact to the overall contract price for the longer duration right. It's not like we're sitting here discounting these significantly because they're gone for a longer duration, it's been pretty consistent and we've been pretty consistently getting increases in pricing upon renewals, so again pretty happy with whats going on in that.

Space.

Right, Yeah, it sounds like.

Both platforms are perhaps becoming even more strategic done their work though.

Great. Thanks, very much guys.

Youre welcome Joe.

Peter just to follow up on your last comment I think that's true.

With the current environment, the advent of new technologies. It here I'm not just talking about artificial intelligence or regenerative AI I'm really talking about the beginning of the quantum here.

And then using both of those you know historically.

You haven't heard a lot of talk on this call about our enterprise computing solutions segment outside of clear path forward.

And Thats for a good reason that represents it still represents the vast majority of the revenue of that team it.

It is very high margin. It has very high cash flow, we're very proud of it.

But that team, which differentiates itself from for most of the rest of the company because it's steeped in units is proprietary.

Technology and IP not that the others don't have that but that ECS team has more of it proportionately.

It's kind of having a moment.

When you think about the importance of engineering when you think about the importance of thinking about quantity I'm thinking about AI, putting it together.

Recently announced.

Our new solution called Unisys logistics optimization, we issued a press release about that I made a reference to it in my opening remarks, it's in pilot with a client today, we're very excited about it that exists because of kind of the combination of our engineering talent, our knowledge of quantum and knowledge.

You have AI and really the deep industry knowledge, we have in specific industries, which travel and transportation and logistics is one.

We expect to talk more about ECS going forward.

It's very nice that it happens to be the highest margin and highest cash flow piece of the business.

But I think that whole team is having a moment for a good reason.

That's great looking forward to more on that.

As we move forward thanks, Peter Thanks.

Thanks, John.

The next question comes from Arun Seshadri with BNP Paribas.

Please go ahead.

Hello, everyone. Thanks for taking my questions and yes.

And great performance and good to see just wanted to specifically drill down on elena's.

Is there any way you could sort of give US you know in the prior guidance of 350 million for the year.

What was the I guess, the quarterly outperformance or what is your expected or I guess, what is the quarterly outperformance in Q3 and in the first half of the year and then I think typically around this time each year you develop a better view into <unk> performance for the following year.

I don't know if you could broadly share directionality versus the $420 million expected this year or do you expect to revert back to something kind of in the mid to high three hundreds.

And that'll be very helpful. Thank you.

Yeah, so as far as the outperformance.

Kevin.

A big portion.

About $70 million in Q3.

With that higher consumption than men.

For us going for that extended contract.

One of the ones in October so having visibility into that is what allowed us to.

We're comfortable in raising that as far as for future years for O&M. We don't see you know, we're kind of staying consistent with what we talked about in Investor day. So it wont change that as far as our expectations for the outer years of Allomap I think does that answer your question.

Sure.

Yeah, Yeah, partially Deb I mean, so the Q3 performance in <unk> revenue with somebody just inside of 70 million.

So so so that 70 million you would say what it would've been closed sorry go ahead.

17, one seven in Q3, and then there are big portion in Q4 and that October signage that we talked about got it.

Got it so the first half it was pretty much in line and then 17 outperformance in Q3 and then the remainder of the outperformance in Q4 I appreciate it.

Yeah.

And then as far as the your comments, we can take us to say that the.

The 'twenty 'twenty four for L. N S would be.

Yes at this point at least somewhat similar to your broader overall guidance of $3 52.

$3 50, plus.

Is that what you meant for 'twenty four.

Yeah. So at Investor Day, we had said approximately 360.

And so we're consistent with that let.

Let me come out when we report our Q4.

Give more precise guidance for 'twenty, four and going forward, but as of now it does not change our view that we laid out at investor day, but about $360 million.

Got it thank you.

Then the one question that I had from somebody's. Prior question was consumption did you talk about consumption as a percent of total <unk> revenue.

What it has run in prior years.

Yeah, I mean, I think it's just a we haven't given that number but it's really just part of the overall, it's all different right that consumption is part of what the elements. The older based on and so it's really just you know at some point throughout the year clients. They consume a lot more than we originally planned. So there is a true up and in some cases when there.

We're renewing deals they add more but it's a lot of the basis of.

The overall you know the actual deal we're signing so it's not that it's a percentage of it is it is the what they're purchasing away and just to add on that.

Yeah.

Does that clarify it.

Yeah that does thank you Deb.

It's all for me I'll step back in line Alright.

Alright, thanks, so much thanks, Eric.

Again, if you have a question. Please press Star then one.

The next question comes from Anja Soderstrom with Sidoti.

Please go ahead.

Hi, Thank you for taking my question, Yes, and did you have a follow up on <unk>.

And you mentioning the strong growth in that and the T V in October.

What what's driving that is that an outright lie around is that a new trend do you think.

Well as as I said earlier on your this is Peter by the way. Thank you very much for the question I'll start and then turn it over to Mike.

You know I think as we as we think about the year and the progression of the year. There have been a couple of things that have.

Kind of become apparent and one of them as Mike said is just the time it takes to close these deals.

And so you know we had been hopeful that some of these might have closed earlier in the year.

Especially around the new logo side or new scope, which is selling new things to existing clients.

And we really that.

It looks like it is stacking up for a very strong fourth quarter on new logo and new scope.

On the renewal side. It was just clipped simply a matter of when it happened. So you know it did not happen as strongly as we thought in the third quarter, but we don't control all of those things and we had a lot of that signing in October.

I wouldn't make too much of the timing within the year I think we expect by the time the year is over to have a good year around new logo, new scope renewals I think we'll have a good year across the board and that gives US you know as.

As Deb said in her remarks, we think that's a nice proof point toward kind of the long term.

Discussion, we had with you folks in June.

And Mike any thoughts on that yes look I think we've been talking all year about the increase in our qualified pipeline right and this is kind of a natural progression of increasing the quality of that pipeline and increasing the size of that pipeline increasing year over year from a nextgen perspective, ultimately the expectation is that.

Translates to bookings right and higher GCB, So I won't I, certainly wont say its an outlier and.

It's a little early to say its a new trend right because it's kind of a natural progression of conversion of pipeline.

Hopefully <unk> had three quarters from now we're seeing that trend continue in that direction, but again, we're very pleased with kind of the progress that we're making and what we're seeing this quarter.

Okay. Thank you and it gives them that new logo acquisition.

Is that picking up where you are.

Yeah.

Yeah, I think we're seeing.

Some of the what we expecting in Q4.

We are anticipating an uptick in that and then you know as we lay out for next year, we'll give it some thought but we are seeing you know to my point a lot of momentum in these marketing go to market strategy and investments that we've been making are starting to take hold.

And you. Thank you very much for your question.

Thank you that was all for me.

Yes.

This concludes our question and answer session I would like to turn the conference back over to Peter Alta Beth for any closing remarks.

Thanks, very much operator, and I really do want to thank all of the participants of this call both the pulp the folks listening that people asking the questions.

And then Mike you Deb, especially.

This has been an interesting year.

At the beginning of January I think very few people in our industry.

We would think that the year will unfold as it is it has both from the standpoint of technology and the standpoint of how global events or are affecting our industry I'm really really proud of the way the people of unisys have risen to the cadence and we look forward to continuing to calls with you.

You may have noticed that our website gets better and better and that's not just us saying that we received for very significant awards.

Transform within the last month.

So I hope you take advantage of all of the information we have on our IR site and really throughout the website.

Until the next time, we do these thank you very much.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Hum.

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