Q1 2024 Unisys Corp Earnings Call

Ara: [music].

Operator: Good day, and welcome to the Unisys Corporation first quarter 2024 earnings conference call. All participants will be in SINOLI mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Michaela Pewarski, Vice President of Investor Relations. Please go ahead.

Good day and welcome to the Unisys Corporation first quarter 'twenty to 'twenty four earnings conference call.

All participants will be in a sudden only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

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

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

It was try your question. Please press Star then two please note. This event is being recorded.

Now I'll turn the conference over to Mccalip Hausky, Vice President of Investor Relations. Please go ahead.

Michaela Pewarski: Thank you, operator. Good morning, everyone. Thank you for joining us.

Mccalip Hausky: Thank you operator.

Mccalip Hausky: Everyone. Thank you for joining US yesterday afternoon, Unisys released its first quarter financial results I'm joined this morning to discuss those results by Peter <unk>, our chairman and CEO.

Michaela Pewarski: Yesterday afternoon, Unisys released its first quarter financial results. I'm joined this morning to discuss those results by Peter Altabef, our chairman and CEO, Deb McCann, our CFO, and Mike Thompson, our president and COO, 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 within the meaning of the securities laws. We caution listeners that the current expectations, assumptions, and beliefs forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to differ materially from our expectations.

Mccalip Hausky: Mccann, our CFO and Mike Thomson, our president and CFO, who will participate in the Q&A session.

Michaela Pewarski: These items can also be found in the forward-looking statement section of today's earnings release furnished on Form 8K and in our most recent Forms 10K and 10Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement 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 exclude certain items such as post-retirement expense, cost reduction activities, and other expenses the company believes are not indicative of its ongoing operations as they may be unusual or non-recurring.

Mccalip Hausky: As a reminder, certain statements in today's conference call contain estimates and other forward looking statements within the meaning of the securities laws.

Michaela Pewarski: We believe these measures provide a more complete understanding of our financial performance. However, they are not intended to be a substitute for GAAP. The non-GAAP measures have been reconciled to the related GAAP measures, and we have provided reconciliations within the presentation. The slides accompanying today's presentation are available on our investor website. And with that, I turn the call over to Peter.

Mccalip Hausky: Caution listeners that the current expectations assumptions and beliefs, forming the basis for our forward. Looking statements include many factors that are beyond our ability to control or estimate precisely this could cause results to differ materially from our expectations.

Mccalip Hausky: 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 to review or revise any particular forward looking statements referenced herein and.

Mccalip Hausky: The future of that.

Mccalip Hausky: He 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 cost reduction activities and other expenses. The company believes are not indicative of its ongoing operations as they may be unusual or nonrecurring.

Mccalip Hausky: We believe these measures provide a more complete understanding of our financial performance. However, they are not intended to be a substitute for GAAP.

Mccalip Hausky: non-GAAP measures have been reconciled to the related GAAP measures and we've provided reconciliations within the presentation. The slides accompanying today's presentation are available on our investor website, and with that I turn the call over to Peter.

Peter A. Altabef: Thank you, Michaela. Good morning, and thank you all for joining us to discuss the company's first quarter results. We had a solid start to the year with revenue and profits slightly ahead of expectations, keeping us on track to meet our full year financial guidance, and we are continuing to make progress towards our long-term cash flow objective. Growing xLNS solutions and expanding our xLNS gross margin are important elements of our strategy to enhance profitability and cash generation.

Peter: Thank you Michele good morning, and thank you all for joining us to discuss the company's first quarter results. We had a solid start to the year with revenue and profits slightly ahead of expectations keeping us on track to meet our full year financial guidance and we are continuing to make progress towards our long term cash flow objectives.

Peter: Growing X LNR solutions and expanding our extra on that gross margin are important elements of our strategy to enhance profitability and cash generation. We showed improvement on both fronts. During this quarter.

Peter A. Altabef: We showed improvement on both fronts during this quarter. XLNS revenue grew 4% year-over-year, and we expect growth to accelerate in the second half of the year as revenue ramps from new business signed over the past several quarters and based on the accelerated cadence of project work in our pipeline. First quarter XL&S gross margin expanded year over year as we continued to deliver on additional efficiencies while making near-term investments to achieve future delivery cost savings.

Peter: <unk> revenue grew 4% year over year, and we expect growth to accelerate in the second half of the year as revenue ramps from X L. N S. New business signed over the past several quarters and based on the accelerated cheated.

Peter: Work in our pipeline.

Peter: First quarter <unk> gross margin expanded year over year as we continued to deliver on additional efficiencies, while making near term investments to achieve future delivery cost savings.

Peter A. Altabef: During the quarter, we saw continued momentum in new logo and next-generation client signings, which is a positive signal of growing market demand for our solutions and bodes well for future XL&S revenue growth and profitability. We also believe we have the potential to accelerate growth through offerings that expand our addressable markets, such as Unisys Logistics Optimization. In addition to improving xLNS performance, increasing operational efficiency is another important element of enhancing our free cash flow.

Peter: During the quarter, we saw continued momentum in new logo and next generation client site, which is a positive signal a growing market demand for our solutions and bodes well for future revenue growth and profitability. We also believe we have the potential to accelerate growth through offerings that expand out.

Peter: Our addressable markets, such as UNICEF logistics optimization.

Peter: In addition to improving <unk> performance, increasing operational efficiency is another important element of enhancing our free cash flow during the quarter. We continued to streamline our general and administrative costs and we are working towards a meaningful reduction in SG&A as a percentage of revenue or.

Peter A. Altabef: During the quarter, we continued to streamline our general and administrative costs, and we are working towards a meaningful reduction in SG&A as a percentage of revenue over the next few years. Beginning next year, we also anticipate improving free cash flow conversion, in part as legal and environmental payments are expected to decline.

Peter: The next few years.

Peter: Beginning next year, we also anticipate improving free cash flow conversion and part is legal and environmental payments are expected to decline.

Peter A. Altabef: Looking more closely at first-quarter client signings, total company TCV declined 1%, and ex-L&S TCV declined 20% year-on-year, primarily due to the timing of the renewal schedule, given we had significantly more TCV for renewal last year. XLNS's New Business TCV, which excludes renewals, was down 2% year-over-year, but with a favorable mix of projects that will contribute to revenue this year, particularly in the second half of the year, New Logo TCV more than doubled in the first quarter on both a year-over-year and sequential basis.

Peter: Looking more closely at first quarter client signings total company T. C V declined, 1% and X L. N S. T E V declined 20% year on year, primarily due to timing of the renewal schedule, given we had significantly more T C be up for renewal last year.

Peter: Excellent that's new business T G D, which excludes renewals was down 2% year over year, but with a favorable mix of projects that will contribute to revenue this year, particularly in the second half of this year.

Peter: New logo T C D more than doubled in the first quarter on both a year over year at sequential basis.

Peter A. Altabef: New logos are expected to contribute more meaningfully to our 2024 new business signing. Adding new clients to our base is an important component for sustaining faster growth in the second half of the year and in future years by expanding our access to addressable IT spend and opportunities for expansion, new scope, and cross-selling. Within our go-to-market processes, we are continuing to see efficiency gains in lead generation, scoping, and proposal. I'll now discuss a few examples of XLNS's new business wins we secured in the first quarter.

Peter: Logos are expect to contribute more meaningfully to our 2024, new business signings, adding.

Peter: Adding new clients for our base is an important component for sustaining faster growth in the second half of the year and in future years by expanding our access to addressable spend and opportunities for expansion, new scope and cross selling.

Peter: Within our go to market processes, we're continuing to see efficiency gains and lead generation scoping and proposals I will now discuss a few examples of excellent new business wins, we secured in the first quarter.

Peter A. Altabef: In EMEA, we signed a large new logo contract integrating multiple segment offerings and including modern workplace and digital platforms and application solutions. This contract with a prominent UK infrastructure and construction company includes services such as device and experience management, service desk, security, and hybrid cloud. We also signed a new logo contract in the United States with a global B2B data storage provider for digital workplace solutions. Our new client was seeking to consolidate multiple vendors to streamline operations and attain cost-savings. This contract includes a significant opportunity to expand its initial scope, supporting internal employees, to services to support our clients. In CA&I, we signed an extension with a large state government in the United States.

Peter: In EMEA, we signed a large new logo contract integrating multiple segment offerings, including modern workplace and digital platforms and application solutions.

Peter: Contracts with a prominent in UK infrastructure construction company include services, such as device and experienced management service desk security and hybrid cloud. We also signed a new logo contract in the United States with a global <unk> data storage provider for digital workplace solutions, our new.

Peter: Client was seeking to consolidate multiple vendors to streamline operations entertain costumes. This contract includes significant opportunity to expand its initial scope supporting internal employees the services to support our clients' customers.

Peter: In C&I, we signed an expansion with a large state government in the United States.

Peter A. Altabef: We already provide digital identity and access management for many of our clients' citizen-facing services. This contract expands the offering to our client's internal employees, facilitating secure access to government records from any location. Within ECS, we had application modernization wins with two existing clients in the financial sector. This included a contract with one of the largest global financial services companies in Latin America for the modernization of a loan servicing application running on our systems.

Peter: We already provide digital identity and access management solutions for many of our clients citizen facing services. This contract expands the offering to our clients internal employees facilitating secure access to government brokerage from any location.

Peter: And ECS, we had application modernization wins with two existing clients in the financial sector. This included a contract with one of the largest global financial services companies in Latin America for the modernization of a loan servicing application running on our systems. We were also selected by one of the largest banks in EMEA tomorrow.

Peter A. Altabef: We were also selected by one of the largest banks in EMEA to modernize a part of their core banking application layer. While this project is relatively small in scale, Unisys was selected over an incumbent, and the win demonstrates the potential for our services to expand into our clients' application layers that surround our ECS platform. Turning now to an analysis of our pipeline.

Peter: And I as a part of their core banking application layer. While this project is relatively small in scale Unisys was selected over an incumbent and the win demonstrates the potential for our services to expand into our clients application layers that surround our ECS platforms.

Peter: Turning now to an analysis of our pipeline.

Peter A. Altabef: Total company pipeline grew 6% sequentially in the first quarter and 8% in xLNS solutions. Our clients are facing growing IT complexity, evolving cyber risks, and pressure to adopt AI and deliver cost efficiencies, and our solutions are well aligned.

Peter: Total company pipeline grew 6% sequentially in the first quarter and 8% in X L. N. S solutions, our clients are facing growing complexity evolving cyber risks and pressure to adopt AI and deliver cost efficiencies and our solutions are well aligned to these goals.

Peter A. Altabef: Moving to a discussion of pipeline in our segment, in digital workplace solutions, our pipeline was up 10% from the fourth quarter. We are continuing to see strong client interest in solutions that drive efficiencies, such as device subscription services, where our pipeline grew more than 50% sequentially. Our device subscription services now typically include higher-margin modern workplace services related to managing device performance and technology stacks and leverage service data and analytics to optimize.

Peter: Moving to a discussion of pipeline in our segments.

Peter: In digital workplace solutions, our pipeline was up 10% from the fourth quarter. We are continuing to see strong client interest in solutions that drive efficiencies such as device subscription services, where our pipeline grew more than 50% sequentially.

Peter: Our device subscription services now typically include higher margin modern workplace services related to managing device performance and technology stacks and leverage services data and analytics to optimize spend.

Peter A. Altabef: We also saw a sequential increase in DWS pipeline related to field services, where we see an opportunity to drive incremental margin by increasing utilization rates, as well as upsell and cross-sell opportunities. By remaining committed to excellence in field services, while some of our competitors may be deprioritizing these solutions, we have an opportunity to gain share and increase margins in a consolidating market. Managing services and devices places us at the heart of an organization's IT operations and employee experience and opens the door to numerous higher-margin ancillary services aligned with our modern workplace portfolio.

Peter: We also saw a sequential increase in detailed the U S pipeline related to field services, where we see an opportunity to drive incremental margin by increasing utilization rates as well as upsell and cross sell opportunities.

Peter: By remaining committed to excellence and field services, while some of our competitors, maybe deep prioritizing solutions, we see an opportunity to gain share and increase margins consolidated market.

Peter: Messaging service and devices places us at the heart of an organization to I T operations and employee experience and opens the door to numerous higher margin ancillary services aligned with our modern workplace portfolio.

Peter A. Altabef: In our cloud applications and infrastructure segment, our pipeline increased 6% sequentially. We're seeing clients continue to shift workloads into multi-cloud environments and view IT infrastructure as increasingly critical to the success of the broader enterprise. Our pipelines with public sector and financial clients both had double-digit sequential growth in the first quarter.

Peter: In our cloud applications and infrastructure segment, our pipeline increased 6% sequentially.

Peter: We're seeing clients continue to shift workloads into multi cloud environments and view it infrastructure is increasingly critical to the success of the broader enterprise, our pipelines with public sector and financial clients, both had double digit sequential growth in the first quarter and we are having more.

Peter A. Altabef: And we are having more strategic discussions with banking, education, and state and local government clients about their IT roadmaps and AI adoption strategies. Clients in these sectors require technology service partners that not only offer a range of modern digital capabilities but that have deep expertise within the systems they are transforming, the highly regulated environment in which they operate, and the evolving security threats they face. Our specialized services and next-gen compute pipeline within the ECS segment was up 7% sequentially, with momentum strongest in specialized managed services that address technology skills.

Peter: Discussions with banking education, and state and local government clients about their roadmaps and AI adoption strategies clients in these sectors, requiring technology service partners, but not only offer a range of modern digital capabilities, but that had deep expertise within the systems. They are transforming.

Peter: The highly regulated environments in which they operate and the evolving security threats they face.

Peter: Our specialized services and Nextgen compute pipeline within the ECS segment was up 7% sequentially with momentum strongest in specialized managed services that address technology skill gaps in the first quarter, we continued to innovate in the travel and transportation market.

Peter A. Altabef: In the first quarter, we continued to innovate in the travel and transportation industry, including within our suite of cargo industry solutions by improving the user interface in our cargo management system and adding functionality, allowing airlines to advertise on our cargo portal reservation system, which now includes a marketplace used by freight forwarders to search and compare routes and pricing and by airlines to list their available routes and capacity. During the quarter, we signed a new logo airline for our cargo.

Peter: <unk> within our suite of cargo industry solutions by improving the user interface and a cargo management system, and adding functionality, allowing airlines to advertise on our cargo portal reservation system, which now includes a marketplace used by freight forwarders to search and compare routes and pricing and buy.

Peter: Airlines to list their available routes and capacity.

Peter: During the quarter, we signed a new logo airline to our cargo book.

Peter A. Altabef: Our decades of innovating for the cargo industry and deep client relationships give us an advantage in scaling emerging offerings such as Unisys Logistics Optimization, our quantum and AI-infused industry solution for optimizing cargo capacity, inventory, and routing. We're actively building out our go-to-market channels for this advanced industry solution and have already onboarded sales and marketing leaders with deep industry expertise. We will provide Unisys logistics Optimization in several ways, including as a service in the cloud, as well as natively integrated into AI-ready servers sold by one of our largest alliance partners.

Peter: Our decades of innovating for the cargo industry deep client relationships give us an advantage and scaling emerging offerings, such as unisys logistics optimization or plateau in AI infused industry solution for optimizing cargo capacity inventory pendragon.

Peter: We're actively building out our go to market channels for this advanced industry solution and have already on boarded sales and marketing leaders with deep industry expertise.

Peter: We will provide unisys' logistics optimization in several ways.

Peter: <unk> as a service in the cloud as well as need to be integrated into AI ready servers sold by one of our largest alliance partners.

Peter A. Altabef: We're encouraged by the value proposition Unisys Logistics Optimization can deliver for our clients. More broadly, AI, including generative AI, continues to be front and center in most of our client conversations. Clients across our commercial, financial, and public sectors are continuing to face pressures to formulate adoption strategies and detailed programs.

Peter: We're encouraged by the value proposition units, just logistics optimization can deliver for our clients.

Peter: More broadly artificial intelligence, including Cheddar today I continues to be front and center in most of our clients have restrictions clients across our commercial financial and public sectors are continuing to face pressures to formulate adoption strategies and detailed roadmaps.

Peter A. Altabef: We have a wide portfolio of AI initiatives, prioritizing projects that matter most to our clients, as well as capabilities to accelerate our own efficiency, effectiveness, and performance. During the quarter, we increased our data, AI, and industry solution marketing and thought leadership through research, blogs, conference presentations, and event panels to build awareness for our AI capabilities with clients, prospective clients, industry analysts and advisors, and campus. One result of these efforts was our inclusion in Avasant's new radar view for applied AI services.

Peter: We have a wide portfolio of AI initiatives prioritizing projects that matter most to our clients as well as capabilities to accelerate our own efficiency effectiveness and performance during.

Peter: During the quarter, we increased our data AI and interesting solutions marketing and thought leadership to research blogs cartridge presentations and events.

Peter: To build awareness for our AI capabilities with clients prospective clients industry analyst and advisors and campus talent. One result of these efforts was our inclusion in episodes New radar view for applied AI services.

Peter A. Altabef: Internally, we're continuing to invest in upscaling our global associates and expanding our adoption of AI capabilities across our. At the end of the first quarter, 96% of associates had completed persona-based AI training. Providing all our associates with AI training, regardless of role, is an example of our ongoing commitment to developing our. Our trailing 12-month voluntary attrition was 12.1% in the first quarter, down 430 basis points year-over In the first quarter, we launched an enhanced career pathing framework that will provide more mobility and development opportunities for our associates while increasing visibility into our talent bench for better internal fulfillment.

Internally, we're continuing to invest in upscaling, our global associates, and expanding our adoption of AI capabilities across our company.

Peter: At the end of the first quarter, 96% of associates had completed persona based AI training.

Peter: Providing all of our associates, where they are trading regardless of role is an example of our ongoing commitment to developing our associates. Our trailing 12 month voluntary attrition was 12, 1% in the first quarter down 430 basis points year over year.

Peter: In the first quarter, we launched an enhanced career pathing framework, which will provide more mobility and development opportunities for our associates or increasing the visibility into our talent bench for better interval fulfillment.

Peter: We also enhanced our early career program for attracting training and retaining associates. This program strengthens demand planning campus hiring onboarding and training processes. We believe users can provide our associates with a wealth of experience and training and supporting career development is a central tenet.

Peter A. Altabef: We also enhanced our Early Career Program for Attracting, Training, and Retaining Associates. This program strengthens demand planning, campus hiring, onboarding, and training processes. We believe Unisys can provide our associates with a wealth of experiences and training and that supporting career development is a central tenet of our approach. With that, I'll turn the call over to

Peter: And our approach.

Peter: With that I'll turn the call over to Deb.

Debra Winkler McCann: Thank you, Peter, and good morning, everyone. My discussion today will reference slides from the supplemental presentation posted on our website. I will refer to revenue as reported and in constant currency, but I will discuss revenue growth discussed in constant currency only. I will also provide information excluding license and support revenue for XL&S to allow investors to assess progress we are making outside the portion of EPS where revenue and profit recognition is tied to license renewal timing, which can be uneven year-to-year and between quarters. As Peter discussed, the company has come a long way in transforming our portfolio, building market awareness for our digital capabilities, and opening up new addressable markets with innovations such as Unisys Logistics Optimization.

Deb: Thank you Peter and good morning, everyone. My discussion today will reference slides supplemental presentation posted on our website.

Deb: Deferred revenue as reported and in constant currency segment revenue growth in constant currency.

Deb: Also provide information excluding license and support revenue for X LNR to allow investors to assess progress we are making outside the portion of the ECS for revenue and profit recognition is tied to license renewal timing, which can be uneven year to year in between quarters.

Deb: As Peter discussed the company has come a long way in transforming our portfolio building market awareness of our digital capability.

Deb: Spinning up new addressable markets innovation, such as seamless as logistics optimization.

Debra Winkler McCann: Our profitability is moving in the right direction as well. We are maintaining our strong L&S growth margin while improving ex-L&S growth margin through delivery efficiency and solution mix. We are also streamlining SG&A and working towards lower legal and environmental costs and payments beginning next year, which will improve free cash flow conversion going forward. Continuing to improve and execute in these areas will increase our ability to achieve enhanced cash flow generation.

Deb: That ability is moving in the right direction as well we are maintaining our strong gross margin while improving.

Deb: Gross margin here's the library efficiency installation next year.

Deb: We are also streamlining SG&A and working towards lower legal and environmental costs and payments beginning next year.

Deb: Free cash flow conversion going forward.

Deb: Continuing to improve and execute in these areas.

Deb: First our ability to achieve enhanced cash flow generation.

Debra Winkler McCann: Looking at our results in more detail, you can see on slide four of our presentation, total company revenue of $488 million was down 5.5% year-over-year and 7.1% in constant currency due to the expected cadence of L&S renewals over time. First quarter XLNS revenue was $395 million, an increase of 4% and 3% in constant currency. As a reminder, components of XLNS solutions are our digital workplace solutions and our cloud applications and infrastructure segments, in addition to specialized services and next-gen compute solutions with NECS and business process solutions reported within all other. GWS revenue was $132 million, or flat to the prior period. The fourth quarter of 2023 and a particularly high concentration of new business scientists.

Deb: Looking at our results in more detail you can see on slide four of our presentation.

Deb: Revenue of $488 million was down five 5% year over year and seven 1% in constant currency due to the expected cadence of Allen that's really what the overtime.

Deb: First quarter external net revenue was $395 million, an increase of 4% and 3% in constant currency as a reminder, components of Exxon escalation, alright, digital workplace solutions and our cloud applications and infrastructure segments. In addition to specialized services and Nextgen.

Compute solution within ECS and business process solutions supported with and all other.

Deb: Gws revenue was $132 million or flat to the prior period, the fourth quarter of 2023.

Deb: I had a particularly high concentration of new business.

Debra Winkler McCann: We expect the segment to grow in the second half of the year as those contracts and our first quarter new logo signings begin to generate revenue. CA&I revenue was $129 million, an increase of 2.3%. Growth was led by our more modern, higher-margin solutions, including application development, particularly in the U.S. and Canada and within the public sector, including higher education, where we have deep expertise.

Deb: We expect the segment to grow in second half of the year.

Deb: This contract in our first quarter, new logos signing begin to generate revenue.

Yeah, you know I ran when you went to $129 million an increase of two 3%.

Deb: Right. It was led by our more modern higher barge installations, including application development, particularly in the U S and Canada and within the public sector, including higher education, where we have deep expertise.

Debra Winkler McCann: ECF's revenue was $147 million, down 24.4% due to the timing of L&S renewal. This was better than we expected due to the slightly higher license and support revenue than planned. Specialized Services and Next-Gen Compute Solutions, which are our Excel and S-Solutions in the ECS segment, grew 2.3%, led by specialized managed service growth with clients in Latin America.

Deb: You see us revenue was $147 million down 24, 4% due to the timing of Ellen asked me Neal This is better than we expected due to the slightly higher license and support revenue than planned.

Deb: Specialized services and Nextgen compute solutions, which are our XL and escalations in the ECS segment.

Deb: Two 3% led by specialized managed service grow with clients in Latin America.

Debra Winkler McCann: L&S revenue was $93 million in the quarter, which compares to the $75 million we had anticipated. The upside was due to a first quarter renewal signing that we had expected in the second quarter. Our full year of guidance continues to assume $375 million of license and support revenue, but with a more even distribution across quarters. Total company TCV declined 1% year-over-year, driven by a 20% decline in our XLNS solutions, largely due to renewal. This year, we have fewer TCV up for renewal.

Deb: Now, let us revenue was $93 million in the quarter, which compares to the $75 million we had anticipated.

Deb: Due to our first quarter renewal timing that we had expected in the second quarter or full year guidance continues to assume $375 million of license and support revenue, but with a more even distribution across quarters.

Deb: Total company P. C V declined 1% year over year, driven by a 20% decline in our axon escalations largely due to renewal timing. This year, we have less T V up for renewal if we signed the renewals we expect to close this year renewals will still be a headwind nearly 30 percentage points to total P. C D.

Debra Winkler McCann: If we sign the renewals we expect to close this year, renewals will still be a headwind of nearly 30 percentage points to total TCV. As Peter discussed, when excluding renewals, our new business TCV trends were solid.

Deb: As Peter discussed when excluding renewals or new business T. C V trends were solid.

Debra Winkler McCann: We found a similar amount of new business TCV as we did in the first quarter of 2023 due to good momentum with new logos and more than 60% year-over-year growth in next generation solution new business TCV. We exited the quarter with a backlog of $2.8 billion, roughly flat year over year. Backlog declined approximately $200 million on a sequential basis, largely due to the seasonal nature of project work and the growing mix of next-generation solutions in our CA&I segment, which are generally shorter-duration contracts. Trailing 12 months' book-to-bill was 1.1 times for both the total company and for our XLNS solutions.

Deb: And a similar amount of new business T. C D. As we get into the fourth first quarter of 2023 due to good momentum with new logos and more than 60% year over year growth and next generation solution New business T. C D.

Deb: We exited the quarter with a backlog of $2 $8 billion roughly flat year over year.

Deb: Backlog declined approximately $200 million on a sequential basis, largely due to the seasonal nature of project work and the growing mix of next generation solutions in our C&I segment, which are generally shorter duration contract.

Deb: Trailing 12 month book to Bill was one one times for both the total company and for XL and installation.

Debra Winkler McCann: Moving to slide five, first quarter gross profit was $136 million, representing a 27.9% growth margin. This compared to 30.8% in the prior year, with the decline resulting from lower LMS gross profit due to licensed renewal timers, but this was partially offset by improved gross margin in our XLNS solution. Exxon Escort's profit was 18% compared to 13.8% a year ago, for an increase of 420 basis

Deb: Moving to slide five first quarter gross profit was $136 million, representing a 27, 9% gross margin.

Deb: This compared to 38% in the prior year.

Deb: With the decline, resulting from lower Ellen asks gross profit due to license renewal timing. This was partially offset by improved gross margin in our XL and escalation.

Deb: <unk> gross profit was 18% compared to 13, 8% a year ago or an increase of 420 basis points. The improvement was primarily due to deliberate cost savings and margin accretion from new business contracts.

Debra Winkler McCann: The improvement was primarily due to delivery cost savings and margin accretion from new business contracts. The quarter also included 140 basis point one-time benefits related to the resolution of a contractual dispute for a former client, for which we previously recognized a revenue reversal in the third quarter of 2023. This benefit impacts total company and XLNS revenue and gross profit but does not flow through segment results. BWS Gross Margin was 14.4% in the first quarter, a 250 basis-point year-over-year improvement, reflecting results from ongoing cost initiatives. We continue to see significant long-term growth margin opportunities in the segment related to the Workforce Management Initiative.

Deb: The quarter included 840 basis, 0.1 time benefit related to the resolution of a contractual dispute with a former client for which we previously recognized revenue reversal in the third quarter of 2023.

Deb: This benefit impact total company and excelling this revenue and gross profit, but does not flow through segment results.

Deb: UWS gross margin.

Deb: With 14, 4% in the first quarter of 250 basis point year over year improvement, reflecting results from ongoing cost initiatives.

Deb: We continue to see significant long term gross margin opportunity in this segment related to work Force management initiatives, Inc.

Debra Winkler McCann: Incremental margins we are attaining on new business and utilization improvement in traditional solutions. CA&I growth margin was 16.6% in the first quarter, an expansion of 360 basis points year-over-year. In CA&I, we have achieved significant savings on labor costs by leveraging internal and early career hires to backfill open roles and improve our labor pyramid. We have also continued to focus on building our standardized but variable solution architectures, increasing automation, and reducing contractive costs.

Deb: Incremental margins, we were are attaining on new business and utilization improvement in traditional installation.

Deb: <unk> gross margin was 16, 6% in the first quarter, an expansion of 360 basis points year over year.

Deb: And see a and I, we have achieved significant savings on labor cost.

Deb: Leveraging internal and early career hires to backfill open roles and improve our labor pyramid.

Deb: We also continued to focus on building, our standardized but variable solution architectures.

Deb: Using automation and reducing contractor call.

Debra Winkler McCann: BCS's growth margin was 57.8% in the first quarter, which compares to 66.7% in the prior year. The decline was fully attributable to lower L&S revenue compared to the first quarter of 2023. As a reminder, our L&S cost base will be fairly consistent in the short and medium term, but the license portion of renewals is recognized in full upon renewal signing, which leads to fluctuations in our ECS growth margin. Lower gross profit from our L&S solutions was partially offset by a slight increase in gross margin from our FSMC solutions, primarily due to better labor utilization on new business specialized managed service contracts.

Deb: Tcs gross margin.

Deb: It's 57, 8% in the first quarter, which compares to 66, 7% in the prior year the decline was fully attributable.

Deb: Our <unk> revenue compared to the first quarter of 2023.

Deb: As a reminder, our eldest coffee will be fairly consistent in the short and medium term.

Deb: License portion of renewals is recognized in full upon renewal signings, which leads to fluctuations in our ECS gross margin.

Deb: Lower gross profit from Elena solutions was partially offset by a slight increase in gross margin from our assets and see solutions, primarily due to better labor utilization on new business specialized managed service contracts.

Debra Winkler McCann: Moving to slide six, our first quarter non-GAAP operating profit margin was 7.1%, or 5.7% after adjusting for the one-time benefit through the resolution of a contractual dispute with a former client. This was above the expectation we provided on our prior call of a low single-digit margin in the first quarter. Much of this is due to L&S revenue and profit from higher license and support revenue from the early contract signing I mentioned previously.

Deb: Moving to slide six now.

Deb: First quarter non-GAAP operating profit margin was seven 1% or five 7% after adjusting for the one time benefit due to the resolution of a contractual dispute with a former client.

Deb: This was above the expectation we provided on our prior call of a low single digit margin in the first quarter.

Deb: Much of this is due to <unk> revenue and profit from higher license and support revenue from the early contract signing I mentioned previously.

Debra Winkler McCann: First quarter adjusted EBITDA was $65 million, representing an adjusted EBITDA margin of 13.4% compared to 19% in the prior year period. The year-over-year non-GAAP operating margin and adjusted EBITDA margin declines are due to the impact of license and support renewal timing. GAAP operating expenses increased year-over-year, which included an increase in cost reduction and certain legal expenses, which we adjust for in our non-GAAP operating margin. We are continuing to streamline our corporate operations and took several actions during the quarter to outsource certain corporate functions, consolidate real estate, and centralize IT. We had a net loss in the first quarter of $150 million, or a diluted loss per share of $2.18.

Deb: First quarter, adjusted EBITDA was $65 million, representing an adjusted EBITDA margin of 13, 4% compared to 19% in the prior year period.

Deb: The year over year, non-GAAP operating margin and adjusted EBITDA margin declined due to the impact of license and support renewal timing.

Deb: GAAP operating expenses increased year over year, which included an increase in cost reduction and certain legal expenses, which we adjust for in our non-GAAP operating margin.

Deb: We are continuing to streamline our corporate operations and took several actions during the quarter to outsource certain corporate functions consolidate real estate and centralized I T.

Deb: We had a net loss in the first quarter of $150 million or diluted loss per share of $2 18 seven.

Debra Winkler McCann: This was almost exclusively due to a $132 million non-cash settlement loss we incurred related to a group annuity contract purchased in one of our U.S. qualified defined benefit plans. This transaction removed approximately $200 million in pension liabilities for a similar amount of planned assets. This compares to a net loss of $175 million in the first quarter of 2023, which included a non-cash settlement loss of $183 million related to a similar pension plan annuity purchase. Neither annuity purchase had any impact on the company's cash balance.

Deb: This was almost exclusively due to a $132 million noncash settlement loss, we incurred related to a group annuity contract purchased in one of our U S qualified defined benefit plan. This.

Deb: This transaction removed approximately $200 million in pension liabilities for a similar amount of plan assets.

Deb: Compares to a net loss of $175 million in the first quarter of 2023 switching.

Deb: Which included a non cash settlement loss of $183 million related to a similar pension plan annuity purchase.

Deb: Neither annuity purchase had any impact on the company's cash balances.

Debra Winkler McCann: These annuity purchases are expected to reduce the volatility in our GAAP pension deficit and our projected future cash contributions. They also reduce the future cost of a full risk transfer of our U.S. qualified defined benefit pension plans, should we choose to do so, as they lower the annuity purchase premium that is based on total liability. Looking ahead, we do not anticipate any additional annuity purchases for the remainder of 2024. First quarter adjusted net income was $3 million, or $0.04 per share, compared to $35 million in the prior year period, or $0.51 per share.

Deb: These annuity purchases are expected to reduce the volatility in our GAAP pension deficit and our projected future cash contribution. They also reduce the future cost of a full risk transfer of our U S qualified defined benefit pension plans should we choose to do so as they lowered the annuity purchase premium that is based on total.

Deb: Looking ahead, we do not anticipate any additional annuity purposes for the remainder of 2024.

Deb: First quarter, adjusted net income was $3 million or four cents per share compared to $35 million in the prior year period for 51 cents per share.

Debra Winkler McCann: Turning to slide 7, capital expenditures totaled approximately $20 million in the first quarter, relatively flat on a year-over-year basis. As a reminder, we have a capital aid strategy, which is focused on limiting the capital intensity of the business, and a portion of our capital expenditures are related to research and development for our technology platform. First quarter free cash flow was $4 million, up from negative $8 million in the prior year period.

Deb: Turning to slide seven capital expenditures totaled approximately $20 million in the first quarter relatively flat on a year over year basis.

Deb: As a reminder, we have a capital light strategy, which is focused on limiting the capital intensity of the business and a portion of our capital expenditures are related to research and development for our technology platform.

Deb: First quarter free cash flow was $4 million up from negative $8 million in the prior year period. The improvement was mainly due to working capital dynamic as well as lower international pension contributions, which are primarily based on pre negotiated funding plans.

Debra Winkler McCann: The improvement was mainly due to working capital dynamics, as well as lower international pension contributions, which are primarily based on pre-negotiated funding plans. Excluding environmental, certain legal, and restructuring and other payments, as well as post-retirement contributions, our adjusted free cash flow was $17 million in the first quarter, similar to the $20 million of adjusted free cash flow in the prior year period. Moving to slide eight.

Deb: Excluding environmental certain legal and restructuring and other payments as well as post retirement contributions our adjusted free cash flow was $17 million in the first quarter.

Deb: The $20 million of adjusted free cash flow in the prior year period.

Deb: Moving to slide eight.

Debra Winkler McCann: Our quarter and cash balances are $383 million compared to $388 million at U.S. Our net leverage ratio is 0.5 times, up slightly from 0.4 times at EURX. Including all defined benefit pension plans, our net leverage ratio is 3.3 times compared to 2.9 times at the end of 2023. The modest increase in net leverage was due to the impact of the LNS renewal timing, resulting in a decline in our last 12 months' adjusted EBITDA.

Deb: Our quarter end cash balances are $383 million compared to $388 million at year end our net.

Deb: Leverage ratio was two five times up slightly from four times at year end <unk>.

Deb: Including all defined benefit pension plans, our net leverage ratio of three three times compared to two nine times at the end of 2023.

Deb: The modest increase in net leverage was due to the impact of Alan S renewal timing, resulting in a decline in our last 12 months' adjusted EBITDA.

Debra Winkler McCann: Our liquidity is strong, with no borrowings against our revolver and no major debt maturities until our $485 million senior secured notes come due in November 2027. I will now provide an update on our global pension plan. Each year end, we provide detailed estimated projections for our expected global pension cash contributions and gap deficit, which change based on factors such as financial market conditions, funding regulations, and actuarial assumptions. Quarterly updates, as with this update, do not have the same level of detail. Based on market conditions, we estimate that cash contributions to our global pension plans for the five-year period beginning in 2024 will be approximately $485 million, essentially unchanged from our 2023 Based on recent asset returns and discount rates, we estimate, as of March 31, 2024, that our global pension deficit has not changed significantly from year-end 2023.

Deb: Our liquidity is strong with no borrowings against our revolver and no major debt maturities until our $485 million senior secured notes come due in November 2027.

Deb: I will now provide an update on our global pension plans each year and we provide detailed estimated projections are expected global pension cash contributions and GAAP deficit, which change based on factors such as financial market conditions funding regulations, and actuarial assumption quarterly updates as the.

Deb: This update do not have the same level of detail.

Deb: Based on market conditions.

Deb: Estimate the cash contributions to our global pension plans for the five year period, beginning in 2024 or approximately $485 million essentially unchanged from our 2023 yearend projections.

Deb: Based on recent asset returns and discount rates, we estimate as of March 31st 2024, our global pension deficit has not changed materially from year end 2023.

Debra Winkler McCann: Turning to slide nine, I will now discuss our financial guidance. We are reiterating our full-year financial guidance ranges. We continue to expect total company revenue growth of negative 1.5 percent to positive 1.5 percent in constant currency and a non-GAAP operating profit margin of 5.5 percent to 7.5 percent. Our revenue guidance range assumes growth in our ex-LNS solutions of approximately 1.5% to 5% and LNS revenue of approximately $375 million. We also continue to expect approximately $10 million of positive free cash flow for the full year, which embeds the following assumptions.

Speaker Change: Turning to slide nine I will now discuss our financial guidance ranges.

Speaker Change: We're reiterating our full year financial guidance ranges, we continue to expect total company revenue growth of negative one 5% to positive one 5% in constant currency and non-GAAP operating profit margin of five 5% to seven 5%.

Speaker Change: Our revenue guidance range assumes growth in our XL and installation of approximately one 5% to 5% and <unk> revenue of approximately $375 million.

Speaker Change: We also continue to expect approximately $10 million of positive free cash flow for the full year, which embeds the following assumptions.

Debra Winkler McCann: We expect capital expenditures of $90 million to $100 million for the full year in line with our CAPEX plate strategy. Net interest payments are expected to be approximately $20 million for the full year, and post-retirement contributions, primarily in our international pension plans, of approximately $20 million. We also continue to anticipate cash payments for environmental, certain legal matters, and restructuring and other payments of $75 million to $80 million in total. Our elevated legal payments in 2023 and now 2024 are primarily related to a matter in which Unisys is the plaintiff, and payments for certain legal matters are expected to decline beginning next year.

Speaker Change: We expect capital expenditures of 90 million to $100 million for the full year in line with our Capex light strategy.

Speaker Change: Net interest payments are expected to be approximately $20 million for the full year and postretirement contributions.

Speaker Change: Primarily in our international pension plans of approximately $20 million.

Speaker Change: We also continue to anticipate cash payments for environmental certain legal matters and restructuring and other payments of 75 million to $80 million in total.

Speaker Change: Our elevated legal payments in 2023, and now 2024 are primarily related to a matter in which units. This is the plaintiff and payments for certain legal matters are expected to decline beginning next year.

Debra Winkler McCann: We also expect to see declines in environmental payments in the coming years, during which we also expect an approximate $30 million partial reimbursement of certain costs once cleanup work has been approved and finalized. Lastly, cash taxes are expected to be approximately $50 million for the year. On slide 10, you will find an overview of the potential economic benefit of our tax assets. The majority of our tax assets are in the United States and EMEA.

Speaker Change: We also expect to see declines in environmental payments in the coming years during which we also expect an approximate $30 million partial reimbursement of certain costs. Once cleanup work has been approved and finalized.

Speaker Change: Lastly, cash.

Speaker Change: Cash taxes are expected to be approximately $50 million for the year.

Speaker Change: On Slide 10, you will find an overview of the potential economic benefit of our tax asset.

Speaker Change: You already have our tax assets are in the United States and EMEA utilization of these tax assets. This year and in future years is expected to limit the increase in our cash taxes, thereby improving our free cash flow conversion is the improved profitability in these geographies.

Debra Winkler McCann: Utilization of these tax assets this year and in future years is expected to limit the increase in our cash taxes, thereby improving our free cash flow conversion as we improve profitability in these geographies. Looking at the second quarter, we expect relatively flat total company year-over-year revenue growth, which assumes license and support revenue of approximately $90 million and XLNS revenue of $385 million to $390 million. For our XLNF solutions, this implies a second quarter year-over-year decline of approximately 2%.

Speaker Change: Looking at the second quarter, we expect relatively flat total company year over year revenue growth, which assumes license and support revenue of approximately $90 million and external revenue up 385 million to $390 billion.

Speaker Change: For our exon Escalations this implies the second quarter year over year decline of approximately 2%.

Debra Winkler McCann: The slight dip we expect, exclusive to the second quarter, is largely due to a stronger back-half weighting in expected third-party components and project work. This means that our full-year guidance ranges imply stronger XLNS growth in the second half of the year. The pipeline in shorter cycle deals is solid, and we have good visibility into a pickup in both DWS and CII revenues beginning later this quarter, with the fourth quarter typically being a seasonally strong quarter as budgets accelerate into year X.

Speaker Change: The slide deck, we expect exclusive to the second quarter is largely due to a stronger back half weighting and expected third party components and project work.

Speaker Change: This means that our full year guidance ranges imply stronger at selling us growth in the second half of the year.

Speaker Change: Our pipeline in shorter cycle deals is solid and we have good visibility into a pickup in both gws and C&I Rabbit is beginning later this quarter with the fourth quarter typically a seasonally strong quarter as budgets accelerate into year end.

Debra Winkler McCann: It is also important to note that 2023 included a lower level of new logo signings, which are an important component of revenue growth. We have already signed meaningful new logo TCVs in the first quarter, which are primarily larger managed service contracts that will largely begin to generate revenue in the third quarter. Finally, we expect a second quarter non-GAAP operating profit in the low single digits, which is expected to be our lowest quarter of non-GAAP operating profit. Thank you. I will now turn the call over to Peter for any closing remarks.

Speaker Change: It is also important to note that 2023 included lower level of new logos, signing which are an important component of revenue growth.

Speaker Change: We've already signed meaningful new logo T. C V. In the first quarter, which are primarily larger managed service contract that will largely begin to generate revenue in the third quarter. Finally, we expect second quarter non-GAAP operating profit in the low single digits, which is expected to be our lowest quarter of non-GAAP operating.

Speaker Change: Profit.

Speaker Change: Thank you I will now turn the call over to Peter for any closing remarks.

Peter A. Altabef: Thank you, Deb. While we have shared a lot of information with you today, there are three important points I want to emphasize. First, we are continuing to improve performance of our ex-LNS solutions, and the momentum in our new logo signings is an important sign that recognition for our portfolio is growing in the market. Second, we have a number of opportunities to accelerate our growth by building on the success we're achieving with higher margin solutions, such as application development and modernization in CA&I and ECS, intelligent device refresh in DWS, and with newer quantum and AI-infused industry solutions, such as Unisys Logistics Optimization.

Peter: Thank you too well, we have shared a lot of information with you today. There are three important points I want to emphasize first we're continuing to improve performance of our <unk> solutions and the momentum in our new logo signings is an important sign that recognition for our portfolio is growing in the market.

Peter: Second we have a number of opportunities to accelerate our growth by building on the success, we're achieving with higher margin solutions, such as application development and modernization and C. A N I M. D. C. S intelligent device refresh dws and with newer quantum and they are infused industry solutions such.

Peter: Unicef's logistics optimization.

Peter A. Altabef: And third, we're on track to achieve our long-term targets, and we're continuing to progress toward enhancing our free cash flow generation, especially as we expect to see declining environmental and legal payments and improved profitability in markets where we have significant tax assets. With that, Operator, you may open the line for questions.

Peter: Third we're on track to achieve our long term targets and we're continuing to progress towards enhancing our free cash flow generation, especially as we expect to see declining environmental legal payments and approved profitability in markets, where we have significant tax assets.

Speaker Change: With that operator, you may open the line for questions.

Operator: Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the. If at any time your question has been answered and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble the roster, and the first question comes from Rod Bourgeois with Deep Dive Equity Research.

Speaker Change: Thank you.

Speaker Change: I will begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Speaker Change: You are using a speaker phone please pickup your handset before pressing the keys.

Speaker Change: Your question has been addressed and would like to withdraw it. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble the roster.

Speaker Change: Yeah.

Speaker Change: And the first question comes from Robert <unk> with deep dive equity research.

Rod Bourgeois: All right, guys. Good to connect here. Hey, it's encouraging to hear the update and the emphasis on lowering your environmental and legal costs. I wanted to see if you could elaborate on the potential magnitude of your plans to reduce those costs, especially as you move into 2025.

Robert: Alright, guys good to connect here, Hey, it's it's encouraging to hear the update and the.

Robert: Emphasis on lowering your environmental and legal costs I wanted to see if you could elaborate on the potential magnitude of your plans to reduce those costs, especially as you move into 2025.

Peter A. Altabef: Yeah, Rod, this is Peter. Thanks very much for the question. And thanks for attending the call. Deb, you know, kind of quantified both in part on the legal side. You know, I would say that by far the most significant legal expense we've had is an ongoing lawsuit where we are the plaintiff, and that is around IP defense work. And we, the trial date is not currently set, but we expect that in 2024.

Robert: Yeah Rod this is Peter thanks, very much for the question and thanks for attending the call.

Peter: Deb, you know kind of quantified both import on the legal side.

Peter: I would say the by far the most significant legal expense we've had.

Peter: It's an ongoing lawsuit where we are the plaintiff.

Peter: And that is around IP defense work and we ask the trial date is currently set that we expect that in 2024. So we expect that those legal expenses, which do represent the predominant amount of our outside legal expenses.

Peter A. Altabef: So we expect that those legal expenses, which do represent the predominant amount of our outside legal expenses, will basically taper off after 2024. So that's going to increase, you know, the remaining cash allowance that we have going forward. And then really two things on the environmental front. You know, we have one environmental cleanup situation where the majority of our current unexpected costs are being incurred in 2023 and 2024. So again, from a cash flow standpoint, we expect that not to be the case starting in 2025.

Peter: Well basically tail off after 2024, so that's going to increase.

Peter: The remaining cash.

Peter: The allowance that we have going forward and then really two things on environmental.

Peter: You know we have one to one environmental cleanup situations, where the majority of our current unexpected costs are being incurred in 2023 and 2024. So again from a cash flow standpoint, we expect that not to be the case starting in 2025.

Peter A. Altabef: And as Deb mentioned, it's actually going to reverse because we expect that we'll receive a partial reimbursement for that, and the expenses that we're paying up to about $30 million. We're not sure exactly when that will happen, but we think it may happen in 2026.

Speaker Change: And as Dave mentioned, it's actually going to reverse because we expected will receive a partial reimbursement for that and the expenses that we're paying up to about $30 million. We're not sure exactly when that will happen, but we're thinking that may happen in 2020 six so hope that helps Robert.

Peter A. Altabef: So I hope that that helps her out.

Rod Bourgeois: Yeah, definitely helpful. And then I want to go back to L&S, and the consumption volume of L&S climbed last year. Are you seeing follow-through on that trend in higher L&S volumes? And I wonder if that contributed some upside to your expectations in the quarter that you just reported.

Speaker Change: That's definitely helpful. And then I wanted to go back to L. A N F N b the consumption volume in L. A N S. Climb last year are you seeing follow through on that trend and heightened L. N F volumes and I wonder if that if that contributed some upside too.

Speaker Change: Your expectations in the in the quarter that you just reported.

Peter A. Altabef: Yeah, another great question. You know, I'll defer to Mike on that one, you know, but in general, you can see we have really been encouraged by L&S. As you will recall, we had more L&S revenue than we expected last year. We had a slight increase in L&S revenue this quarter versus expectations, but most of that was due to the timing of an L&S transaction.

Speaker Change: Rod. It's another great question, you know I'll defer to Mike on that one but in general you can we have really been encouraged a body of evidence as you will recall, we had Moore Ellen that's revenue that we expected last year, we have a slight increase in L. A N S revenue this quarter versus expectations.

Speaker Change: Or that was due to the timing of Enel in this transaction.

Speaker Change: But in addition, we have this consumption issue so Mike I thought about that please.

Peter A. Altabef: As you know, I think over the course of the last several years, we've seen kind of increased consumption. And just as a reminder, typically, when we see early renewal, it's a byproduct of consumption, right? So the client is ultimately trying to extend their contractual life because the consumption is higher than anticipated. I would say, Rod, just in general, for our larger clients, we've seen fairly consistent increases in consumption on a basis. And I can't think of a client over the course, at least of the last couple of years, where upon renewal, we actually saw reductions in that.

Michael M. Thomson: Sure Thanks, Peter and broad good talk to you.

Michael M. Thomson: As you know I think over the course of the last several years, we've seen kind of increased consumption and just as a reminder.

Michael M. Thomson: When you when we see early renewal, it's a byproduct of consumption right. So the decline is ultimately trying to extend their contract fuel light because the consumption is higher than anticipated I would say rod just in general.

Michael M. Thomson: For our larger clients, we've seen fairly consistent increase for consumption basis, and I can't think of a client over the course at least of the last couple of years that upon renewal, where we actually saw reductions in that so I.

Michael M. Thomson: It's been pretty consistent I think it's pretty consistent and what's going on in the world today with just larger data.

Peter A. Altabef: So I think it's pretty consistent. I think it's pretty consistent with what's going on in the world today with just larger data elements out there and that having a knock-on impact on consumption. But again, fairly consistent over the last couple of years, and the primary reason for

Michael M. Thomson: Elements out there and and that having a knock on impact to our two consumption, but again fairly consistent over the last couple of years and the primary reason for early renewal.

Peter A. Altabef: Yeah, and just to follow up on Mike's comment... Just to follow up on Mike's comment. Thanks.

Speaker Change: Yeah, and just to finish my question got it.

Peter A. Altabef: Last year, as I said, our LNS revenue was higher than expected. And as we thought about that consumption question that you're asking, Rod, one of the things we did was take another hard look at the three years beginning this year, where we had expected an average LNS revenue of about $360 million. We increased that to $370 million as an average for the three-year period, even in the face of higher revenue numbers last year than we expected. For 2024, we're currently expecting about $375 million, so a little bit above the three-year average, but all of that is frankly very encouraging. Deb, I'm sorry I spoke over time. No, no.

Speaker Change: Just a follow up thanks.

Speaker Change: The you know last year as I said, our L. A N S revenue was higher than expected.

Speaker Change: And as we thought about that conception question that you're asking run one of the things. We did was take another hard look at the three years beginning this year.

Speaker Change: Where we had expected an average revenue of about $360 million, we increased that to $370 million as an average for the three year period, even in the face of a higher revenue number last year than we expected for 2024.

Speaker Change: We're currently expecting about 375 million, so a little bit above the three year average, but all of that is frankly very encourage you Deb I'm sorry, I spoke over you.

Peter A. Altabef: No, no, I was going to say similarly that we're still holding to that, you know, because Q1 was mostly an EARL, a timing thing, and we're holding to that 375 for the year and the 370 three-year average. That's all, that's what I was going to say.

Deb: No no I was gonna say similarly that we're still holding to that yeah. Because Q1 is mostly in URL, a timing thing and we're holding to that 375 for the year and the $3 70, a three year average I thought that's what I can say.

Speaker Change: Thank you guys.

Arun A. Seshadri: Thank you. And the next question comes from Arun Seshadri with BNP Paribas.

Speaker Change: Thank you and our next question comes from Arun Seshadri with BNP Paribas.

Arun A. Seshadri: Yes, hi, thanks for taking my questions. Just so I guess in terms of being able to quantify how much the legal and environmental payments would decline, I guess at this point, you're not willing to do that. But like, do you think it's more than a half, you know, half reduction of that expense over the next couple of years?

Arun A. Seshadri: Yes, hi, thanks for taking my questions. Just so I guess in terms of being able to quantify how much the legal and environmental payments would decline I guess at this point youre not willing to do that but I do think it's a it's it's more than a half half reduction of that expense over the next couple of years.

Speaker Change: Yes.

Peter A. Altabef: So this is Peter, if you're talking about external legal expenses, obviously, we have our own internal legal function, and also talking about environmental, Deb, I don't know if we can quantify that. I would expect it, by the way, to be less than half. But Deb, you may or may not be in a position to quantify that more than I just did.

Speaker Change: So this is Peter if if you're talking about external legal expense, obviously, we have our own internal legal function.

Peter: And also talking about environmental Deb I I don't know if we can quantify that I would expected by the way to be less than half but.

Peter: Deb, you may or may not be in a position to quantify that more than I just did.

Debra Winkler McCann: Right, I think that's probably about right. We haven't given the exact quantification just because there are, you know, still some uncertain things, but that's probably in the ballpark.

Deb: Right I think that that's probably about right. Yeah, we haven't given the exact quantification just because there are yes, that's still somewhat of a certain thing, but that's probably in the ballpark.

Peter A. Altabef: And one of the reasons we're bringing this up is because, you know, as we look at cash flow, and as cash flow, you know, changes over time, one of the, if you will, things that we've had to deal with is, you know, that lawsuit where we're the plaintiff, as well as those environmental costs. And so as those things fall away and decrease very significantly, that just increases our cash flow without, you know, increasing revenue or business, or without other cost initiatives. We're planning to do all three of those things. But, but, you know, losing that cash flow drain because of the lawsuit and because of the environmental is almost automatic.

Debra Winkler McCann: And one of the reasons, we're bringing yeah. One of the reasons is a great question. One of the reason we're bringing it up is because you know as we look at cash flow.

Peter Altabef: Cash flow changes over time, one of the if you will things that we've had to deal with is you know that.

Peter A. Altabef: The lawsuit, where we're the plaintiff as well as those environmental costs and so as those things you know fall away and decrease very significantly you know that just increases our cash flow without increasing revenue or business or without other cost initiatives.

Peter: We're planning to do all three of those things, but but you know losing that cash flow drain because of the lawsuit and because of environmental is is almost automatically.

Arun A. Seshadri: Got it. Thank you for that, Peter. And then just in terms of the two addbacks for adjusted EBITDA for this quarter, the other expense and net adjustment and the cost reduction linked together, they represented something like $24 million or so. How should we see that trend for the balance of the year?

Speaker Change: Got it thank you for that Peter and up and then just in terms of the it'd be the two add back for adjusted EBITDA for this quarter.

Arun A. Seshadri: Other expense net adjustment in the cost reduction linked together they represented something like $24 million or so is that how should we see that trend for the balance of the year.

Arun A. Seshadri: Jeff do you want to speak to that.

Debra Winkler McCann: Sure. So for the EBITDA add-backs, I think it's Q1, I think it's a little higher for the cost reduction. I don't think that should continue to be that high. And then for the other expenses, well, there was something, you know, more of a one-time thing.

Arun A. Seshadri: Sure.

Peter: So for the EBITDA add backs I think its.

Peter: The Q1, I think is a little higher for the cost reduction.

Peter: That should continue.

Peter: To be that high.

Debra Winkler McCann: And then for the other expenses well there was something you know more of a one time. So I think those are a little elevated.

Debra Winkler McCann: So I think those are a little elevated. But, you know, we haven't given out those exact numbers. But I would say those two are, you know, higher than you would expect for the remainder of the year.

Debra Winkler McCann: But you know we haven't given out those exact numbers, but I would say those two are are higher than you would expect for the remainder of the year.

Arun A. Seshadri: Got it. Thank you. And then, you know, broadly in terms of the business itself, the XLNST CV was, I think, excluding renewals, down about 2%, and you're expecting more back half, you know, waiting in project revenue. So would you say that, broadly speaking, what is affecting it? Is it just, you know, a broader slowdown, you think, in terms of just, you know, customers taking a little bit longer?

Speaker Change: Got it. Thank you and then in a broadly in terms of the business itself. The the XO and S. T. C. V was I think excluding renewals was down about 2% and you're expecting more back half.

Arun A. Seshadri: Waiting in project revenue. So what do you would you say that are broadly speaking you know.

Arun A. Seshadri: What would you say is affecting it is it is it just you know broader slowdown do you think in terms of in terms of just a you know in terms of just customers, taking a little bit longer.

Arun A. Seshadri: Or is it just all mechanical and related to renewables and just opportunities to actually convert.

Peter A. Altabef: Or is it just all mechanical and related to renewals and just opportunities to actually convert, you know, to convert into managed services? I just want to understand if there's any sort of change in, you know, change in the sort of trend line you're seeing, or this is all just mechanical and it's just the signings, the lack of signings in 2023, and just the timing of managed services ramp up in 2024. Thank you.

Peter A. Altabef: To convert into managed services just wanted to understand if there's any any sort of change and a change in sort of trend line, you're seeing or this is just all just mechanical and and and it's just the signings the lack of signings and in 2023 and in just the timing of managed services ramp in 24. Thank you.

Peter A. Altabef: Yeah, that's a great question. Let me take the beginning of that and then turn it over to Mike for the second half of that question. We're really happy with the new business signings as well as the new business pipeline. So your new business for us is extensions, it's expansions, a new scope of existing clients, and it's also a new logo. And, you know, last year we did well with the expansion, extension, and new scope of work with existing clients.

Speaker Change: Yeah. That's a great question, let me, let me take the beginning of that and then turn it over to Mike for the second half of that question.

Peter A. Altabef: We're really happy with the new business signings as well as the new business pipeline, So you're a new business for us.

Peter A. Altabef: Is extensions, it's expansions or new scope of existing clients and it's also new logo and you know last year, we did well on the expansion and extension and new scope work with existing clients.

Peter A. Altabef: But one of the things we are very, very focused on is making sure that the new logo component of that picks up and increasingly becomes a bigger part of our new business mix. That happened to a fare-thee-well in the first quarter, and we expect that to continue over the course of the year. So the negative 2% is, you know, really not significant one way or the other and largely due to timing.

Mike: But one of the things we are very very focused on is making sure that the new logo component of that.

Peter A. Altabef: It picks up and increasing and increasingly becomes a bigger part of our new business mix that happened to have fairly well in the first quarter and we expect that to continue over the course of the year. So the negative 2% is really not significant one way or the other and in larger.

Peter A. Altabef: Due.

Peter A. Altabef: But the more important number is the more than doubling of new logos, at least we think the more important number is the more than doubling of new logos. And we expect to have a very strong full year this year on new logos compared to last year. That, we think, is a really good harbinger for our ability to, if you will, land and expand and create more and increasing revenue over time. Mike, over to you for more details. Great. Thanks, Peter and Rune.

Peter A. Altabef: Timing.

Peter A. Altabef: But the more important number is the more than doubling at least we think the more important number is the more than doubling of new logos and we expect to have a very strong full year. This year on new logos compared to last year that we think is a really good harbinger for our ability to if you land in <unk>.

Peter A. Altabef: Span and create more in increasing revenue over time, Mike over to you for more detail on that.

Peter A. Altabef: Great, thanks Peter and Arun, thanks for the question. I think Peter answered it pretty, pretty well, but I'll maybe just add a little bit of color there.

Mike: Great. Thanks, Peter and thanks for the question I think Peter answered it pretty pretty well, but I'll, maybe just add a little bit of color there.

Peter A. Altabef: For starters, not necessarily any negative trends that we're seeing. I do think you're right, Arun, that there is this little bit of a pause from a market perspective. I think you're seeing that in the industry, certainly you know what we're seeing in general, but I think it's a little bit more to do with the mechanics of the deal signing. The pipeline is extremely encouraging, as we've talked about.

Mike: For starters, not not necessarily any negative trends that we're seeing I do think you're right around that you know there is this a little bit of a pause from a market perspective, I think you're seeing that in the industry. Certainly Oh, you know what we're seeing in general, but I think it's a little bit more to do.

Peter A. Altabef: With the mechanics of the deal signing up.

Peter A. Altabef: The pipeline is extremely encouraging.

Peter A. Altabef: We've increased significantly our new logo signings year-on-year and sequential. We expect that new logo signing to continue to enhance throughout the year and and that has kind of a knock-on impact right because the new logos being added give us another opportunity to to expand and pick up the new scope and and we traditionally see that after a new logo signing. So first it's the transition time to get to revenue you know typically if they're taking on work for incumbents it's a three to six month to get to transition into revenue which is why we're expecting some of the back half revenue improvements for the new logo signs that we had at the tail end of last year but but again very encouraged with market reception and looking forward to an accelerated back half both in signings and picking up some growth in the business.

Peter A. Altabef: We've talked about we increased significantly our new logo signings year on year and sequential we expect that new logo signing to continue to enhance throughout the year and that has kind of a knock on impact right because the new logos being out it gives us another opportunity to.

Arun A. Seshadri: Thank you, and once again, please press star then 1 if you would like to ask a question. And the next question comes from Anja Soderstrom with Sidoti.

Anja Marie Theresa Soderstrom: Do expand and pick up the new scope and and we traditionally see that after a new logo signings. So first is the transition time to get to revenue you know typically if they're taking all work for incumbents that are three to six months to get to transition into revenue, which is why we're expecting some of the back half.

Arun A. Seshadri: Revenue improvements for the new logo signings that we had at the tail end of last year, but but again very encouraged with our market reception and are looking forward to an accelerated back half both in signings and picking up some growth in the business.

Anja Marie Theresa Soderstrom: Thanks very much.

Anja Marie Theresa Soderstrom: Thank you.

Anja Marie Theresa Soderstrom: Thank you and once again. Please press Star then one if you would like to ask a question.

Anja Marie Theresa Soderstrom: And the next question comes from on your soda trauma Sidoti.

Anja Marie Theresa Soderstrom: Hi, Thank you for taking my question and some of them have been Atlas somebody, but how do you.

Anja Marie Theresa Soderstrom: Even in this sort of targets are for the gross margins for the new businesses.

Anja Marie Theresa Soderstrom: And it works the workforce to listen and C&I.

Anja Marie Theresa Soderstrom: Thanks, this is Peter. Great question. Again, I'll defer to Deb on this one, after I give a little start to that, you know, when we rolled out our multi-year plan last year, one of the things that we stressed, and you just hit on it, was really an expansion of gross margin. We're very encouraged by what we saw this quarter, with that business becoming more profitable, specifically on the majority of that business, which is in DWS and within CAM.

Anja Marie Theresa Soderstrom: Yeah. Thanks. This is Peter Great question, again, I'll defer or.

Anja Marie Theresa Soderstrom: Actually to Deb on this one after I do a little start to that you know when we rolled out our multiyear plan last year.

Anja Marie Theresa Soderstrom: One of the things that we stressed and you just hit on it is really an expansion of gross margin.

Deb: And that's really going to come in two ways. One is where we expect the gross margin dollars to expand.

Anja Marie Theresa Soderstrom: Because we expect growth in if you will that akzo and its business.

Anja Marie Theresa Soderstrom: Second because we expect that business to become more profitable. We're very encouraged by what we saw this quarter with that business, becoming more profitable spin.

Anja Marie Theresa Soderstrom: Specifically on the majority of that business wishes and dws.

Anja Marie Theresa Soderstrom: With within C&I, the second element of that.

Anja Marie Theresa Soderstrom: The second element of that, which is also important, and it's a little bit like the decreasing amount that we expect on external legal fees and on environmental. Some of this stuff is, again, built into our model, which we showed last year, but relatively automatic.

Anja Marie Theresa Soderstrom: Which is also.

Anja Marie Theresa Soderstrom: And it's a little bit.

Anja Marie Theresa Soderstrom: The decreasing amount that we expect on the external legal fees and all the environmental some of this stuff is again built into our model, which we showed last year.

Anja Marie Theresa Soderstrom: With relatively automatic and and that what I mean by that is as that business grows. It has more profit dollars as that business becomes more profitable. So is there more of a profit dollars per revenue.

Peter A. Altabef: What I mean by that is, as that business grows, it has more profit dollars, and as that business becomes more profitable, so there are more profit dollars per revenue, the majority of that revenue is in the U.S. and Canada and in EMEA, at least historically. In fact, we have 77% of our revenue in those two areas. And as you look at our tax situation, and Deb referred to our tax asset, we have very significant net loss carry-forwards in both the U.S. and Canada and in certain countries in EMEA. That is also detailed in a chart in the materials that we provided you.

Peter A. Altabef: The majority of that revenue.

Peter A. Altabef: As in the U S and Canada and in EMEA at least historically.

Peter A. Altabef: <unk> in fact, we have 77% of our revenue in those two areas and as you look at our tax situation and Deb referred to our tax asset we have very significant net loss carry forwards in both the U S and Canada and in certain countries in EMEA.

Peter A. Altabef: And that is also detailed in a chart in the materials that we provided you. So not only do we expect that to tick that profitability of the business increase but as we think about modeling and you know we do not expect to pay a typical if you will cash taxes on that increased profit b.

Peter A. Altabef: So not only do we expect the profitability of the business to increase, but as we think about modeling and, you know, we do not expect to pay typical, if you will, cash taxes on that increased profit because of the value of our NOLs. And so we think that, again, it's relatively automatic because those NOLs exist. And we expect that to help us as well in the model going forward. Deb, any further comments?

Deb: Cause of the value of our Nols and so we think that again, it's relatively automatic because those are the nols exist until we expect that to help us as well in the model going forward and any further comments on it.

Peter A. Altabef: No, I just think, I think, Anja, you had also asked about the target. Have we given an explicit gross margin target? I think you would maybe mention it.

Deb: No I just think I think I knew you had asked also about the target have really given an explicit gross margin target I think you would maybe mentioned I think we haven't given specifically by the segments, but we did say you know overall ex Alan asked about 150.

Debra Winkler McCann: I think we haven't given specific numbers by the segment, but we did say, you know, overall XLNS about 150 to 200 basis points this year is what we're saying. And I think you're seeing the progress of that with, you know, this quarter, DWS margin of 250 basis points and CINI at 360. So, all of the cost actions we're taking within those businesses are definitely taking hold, and we're sure.

Debra Winkler McCann: The 200 basis point you know this year is what we're saying and I think youre seeing the progress of that with you know this quarter dws margin up 250 basis points in C&I at 360. So that is all of the cost actions. We're taking it in those businesses are definitely taking hold and we're showing progress.

Peter A. Altabef: Hey Anja, if I could... Just to tie on to Deb's point, if you recall from Investor Day, we had talked about a targeted growth margin for our next-gen solution being in the 25% range. And so I think if you're looking from a modeling perspective, of course, we have internal targets for all of our solutions as we take them to market. But I think that's probably, well, A, we've already given it, and B, fairly consistent in that range at approximately 25% growth margin on the next-gen solutions, consistent with what we talked about at Investor Day.

Debra Winkler McCann: Hey.

Peter A. Altabef: Yeah.

Peter A. Altabef: Just to tie on to Debbie's point, if you recall from Investor Day, We had talked about a targeted gross margin in our next gen solution are being in the 25% range and and so I think if youre looking from a modeling perspective.

Peter A. Altabef: Of course, we have internal targets for all of our solutions as we take them to market, but I think that's probably a while a we've already given it would be a fairly consistent in that range at approximately 25% gross margin on the Nextgen solutions are consistent with what we talked about it.

Peter A. Altabef: Yesterday.

Anja: Okay. Thank you that was something for me.

Anja: Thank you Ed.

Operator: Thank you. And this concludes our question and answer session. I would like to turn the conference back over to Peter Altabef for any closing comments.

Anja: Thank you.

Peter A. Altabef: And this concludes our question and answer session I would like to turn the conference back over to Peter All the best for any closing comments.

Peter A. Altabef: Thanks very much, Operator. And I'd like to thank everybody for joining us. As I hope that Deb and Mike and I made clear in both the opening remarks that Deb and I gave and as well as the Q&A responses, we thought this was a good quarter. We're slightly ahead of expectations on revenue and profit. We're making very substantial headway on the new logo TCV, and we are reaffirming our guidance for the year.

Peter A. Altabef: Thanks, very much operator, and I'd like to thank everybody for joining us.

Peter A. Altabef: As I hope that Devin, Mike and I made.

Peter A. Altabef: Made clear in the opening remarks, the debit I gave as far as the Q&A responses.

Peter A. Altabef: We are we thought this was a good quarter were slightly ahead of expectations on revenue and profit we're.

Peter A. Altabef: We're making very substantial headway in in new logo T C D and.

Peter A. Altabef: And we are reaffirming our guidance for the year we.

Peter A. Altabef: You'll find more information about the company on our investor website. We actively encourage any questions from our investor base. We had a shareholder meeting that was taped a little while ago, and that is available as well for your review. For those of you who are not able to do it, I did a company report during that meeting on our 2023 performance. So with that, I want to thank everyone for joining us and look forward to the next one. Thank you. The conference is now concluded. Thank you for attending today's presentation.

Peter A. Altabef: You'll find more information about the company on our Investor website.

Peter A. Altabef: We actively you know encourage any questions from.

Peter A. Altabef: From our Investor base are we had a a shareholder meeting that was taped a little while ago and that is available as well for your review for those of you who are not able to do it I did a company report during that of 2023 performance so with that I want to thank everyone for join.

Peter A. Altabef: Yes.

Peter A. Altabef: Look forward to the next call.

Operator: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Speaker Change: Thank you. The conference has now concluded thank you for attending today's presentation.

unknown: Disconnect.

unknown: Okay.

unknown: [music].