Financial Performance - The company recorded a net loss of $430.7 million in 2023, compared to a loss of $106.0 million in 2022, primarily due to $348.9 million in pension plan settlement losses[170] - Revenue for 2023 increased by 1.8% to $2.02 billion, with U.S. operations revenue growing 4.0% to $889.0 million[173][174] - Gross profit margin improved to 27.4% in 2023 from 26.7% in 2022, driven by lower cost reduction charges and CA&I segment performance[177] - Cash provided by operating activities increased to $74.2 million in 2023 from $12.7 million in 2022, primarily due to working capital improvements[195] - The company's total debt decreased to $504.2 million at December 31, 2023, compared to $513.1 million at December 31, 2022[201] - Cash used for financing activities in 2023 was $17.3 million, down from $21.6 million in 2022[197] Pension and Retirement Plans - The company reduced global defined benefit pension obligations by approximately $2.0 billion since December 2020, including $1.3 billion in the U.S.[199] - The company estimates future cash contributions to its U.S. and non-U.S. defined benefit pension plans to be approximately $110 million in 2025 and $770 million from 2026 through 2033[200] - The company's U.S. qualified defined benefit pension plans had a calculated value of plan assets of $2.08 billion and a fair value of $1.82 billion at December 31, 2023[226] - The company determined the discount rate for its U.S. defined benefit pension plans to be 5.70% at December 31, 2023, a decrease of 34 basis points from 2022, and 4.24% for non-U.S. plans, a decrease of 56 basis points[225] - A 25 basis point change in the U.S. and non-U.S. discount rates would cause a change in 2024 pension expense of approximately $500 thousand and $800 thousand, respectively, and a change of approximately $42 million and $48 million in the benefit obligation[225] - The company recognized consolidated pension expense of $391.3 million for the year ended December 31, 2023, compared to $47.1 million in 2022, and expects pension expense of approximately $57.7 million for 2024[229] - The company's expected long-term rate of return on U.S. plan assets is 7.00%, and on non-U.S. plan assets is 4.82% for 2024[226] Segment Performance - Cloud, Applications & Infrastructure Solutions (CA&I) segment revenue grew to $531.0 million in 2023, with gross profit margin increasing to 15.4% from 9.1% in 2022[189] - The company's CA&I and DWS reporting units had fair values in excess of book value by 10% and 16%, respectively, as of the 2023 annual impairment analysis[238] - The company's consolidated goodwill balance related to the Digital Workspace Solutions (DWS) reporting unit was $140.8 million as of December 31, 2023[261] Cash and Liquidity - The company has $232.2 million in cash and cash equivalents held by foreign subsidiaries, with approximately one-third subject to transfer restrictions[194] - The company's secured revolving credit facility provides up to $145.0 million, with $88.6 million available as of December 31, 2023[205] - The company's operating lease liabilities were $44.7 million as of December 31, 2023[202] - The company had outstanding standby letters of credit and surety bonds totaling approximately $232 million at December 31, 2023[211] Foreign Exchange and Market Risks - A hypothetical 10% adverse movement in foreign currency exchange rates would have reduced the estimated fair value of the company's derivative financial instruments by approximately $49 million as of December 31, 2023[245] - The company uses foreign exchange forward contracts to reduce exposure to market risks from changes in foreign currency exchange rates on intercompany balances[244] - The company is exposed to foreign currency exchange rate risks, particularly from a strengthening U.S. dollar relative to the euro and British pound sterling, which may adversely affect consolidated revenue and operating margins[243] Goodwill and Impairment - The company's income approach for estimating fair value relies on internal forecasts, including projected net cash flows, long-term growth rate, and a reporting unit-specific discount rate[234] - The company continuously monitors events and circumstances that could impact key assumptions used in estimating the fair value of reporting units, including changes to U.S. treasury rates, equity risk premiums, and tax rates[239] - The company's determination of the fair value of the DWS reporting unit was identified as a critical audit matter in the annual goodwill impairment test[261] Workforce and Restructuring - The company expects to make $9.4 million in payments in 2024 related to workforce reduction actions[203] Cybersecurity - Cybersecurity remains a top priority, with significant improvements made to the security technical stack and processes in 2023[146][149] Tax and Deferred Assets - Deferred tax assets exceeded deferred tax liabilities by $1,263.2 million at December 31, 2023, with a valuation allowance of $1,150.1 million[217] Debt and Financial Instruments - The company's 6.875% senior secured notes due 2027 had a fair value of $437.5 million at December 31, 2023[242]

Unisys Corporation (NYSE:UIS) Q4 2023 Earnings Conference Call February 21, 2024 8:00 AM ET Company Participants Michaela Pewarski - Vice President, Investor Relations Peter Altabef - Chair and Chief Executive Officer Deb McCann - Executive Vice President and Chief Financial Officer Conference Call Participants Rod Bourgeois - DeepDive Equity Research Anja Soderstrom - Sidoti & Company Arun Seshadri - BNP Paribas Operator Good day. And welcome to the Unisys’ Fourth Quarter 2023 Earnings Conference Call. [Op ...

| --- | --- | --- | --- | |-------|---------------------------------------------------|-------|-----------------------------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fourth Quarter & Full-Year 2023 Financial Results | | Peter Altabef Chair and CEO | | | | | Deb McCann CFO | | | | | | | | | | FEB 21, 2024 | | --- ...

Revenue Performance - Revenue for Q4 2023 was $557.6 million, a 0.1% YoY increase, but a 2.1% decline in constant currency[3][4] - Revenue for Q4 2023 was $557.6 million, a slight increase from $557.0 million in Q4 2022[24] - Full-year 2023 revenue reached $2,015.4 million, up from $1,979.9 million in 2022[24] - Full-year 2023 revenue was $2,015.4 million, compared to $1,979.9 million in 2022[41] - Full-year revenue growth of 1.8% YoY, or 1.6% in constant currency; Ex-L&S revenue growth of 4.9% YoY[46] - 4Q revenue up 0.1% YoY, a decline of 2.1% in constant currency; 4Q Ex-L&S revenue growth of 6.8% YoY, or 4.3% in constant currency[46] Ex-L&S Revenue - Ex-L&S revenue increased 6.8% YoY to $413.3 million, driven by New Business with existing clients[3][4] - Excluding License and Support (Ex-L&S) revenue for Q4 2023 was $413.3 million, up from $386.9 million in Q4 2022[44] - Ex-L&S Non-GAAP gross profit for Q4 2023 was $68.4 million, compared to $45.7 million in Q4 2022[44] - Ex-L&S Total Contract Value (TCV) increased 27% YoY for the full-year and 137% YoY in the fourth quarter, including New Business TCV growth of 18% YoY for the full-year and 84% YoY in the fourth quarter[46] L&S Revenue - L&S revenue declined 15.2% YoY to $144.3 million, primarily due to the timing of software license renewals[3][4] Digital Workplace Solutions (DWS) - Digital Workplace Solutions (DWS) revenue grew 8.9% YoY to $139.2 million, with a gross profit margin of 15.3%[6][7] Cloud, Applications & Infrastructure Solutions (CA&I) - Cloud, Applications & Infrastructure Solutions (CA&I) revenue was flat at $138.9 million, with a gross profit margin of 16.3%[6][8] Enterprise Computing Solutions (ECS) - Enterprise Computing Solutions (ECS) revenue declined 10.0% YoY to $203.0 million, with a gross profit margin of 67.4%[6][9] Operating Income and Net Loss - Operating income for Q4 2023 was $44.0 million, down from $50.0 million in Q4 2022[24] - Full-year 2023 operating income was $76.9 million, compared to $52.2 million in 2022[24] - Consolidated net loss for Q4 2023 was $164.2 million, compared to a net income of $8.8 million in Q4 2022[24] - Full-year 2023 consolidated net loss was $427.1 million, compared to a net loss of $104.9 million in 2022[24] - Net loss attributable to Unisys Corporation for Q4 2023 was $165.3 million, compared to a net income of $8.5 million in Q4 2022[37] - Full-year 2023 net loss attributable to Unisys Corporation was $430.7 million, compared to a net loss of $106.0 million in 2022[37] Gross Profit and Margins - Gross profit percentage for Q4 2023 was 32.5%, down from 34.1% in Q4 2022[30] - Full-year 2023 gross profit percentage was 27.4%, up from 26.7% in 2022[30] - Full-year operating profit margin of 3.8%; non-GAAP operating profit margin of 7.0%[46] Cash Flow and Free Cash Flow - Full-year 2023 free cash flow improved by $68.7 million YoY to ($4.5) million, driven by working capital improvements[10] - Net cash provided by operating activities for 2023 was $74.2 million, compared to $12.7 million in 2022[34] - Full-year 2023 free cash flow improved by nearly $70 million year-over-year, reaching $120.5 million[45] - Full-year operating cash flow of $74.2 million compared to $12.7 million for 2022, and free cash flow of ($4.5) million compared to ($73.2) million for 2022[46] - Free cash flow represents cash flow from operations less capital expenditures[47] - Adjusted free cash flow excludes postretirement funding, legal matters, environmental costs, and cost-reduction activities[47] Backlog and Contract Value - Backlog increased to $3.01 billion in Q4 2023, up from $2.92 billion in Q4 2022, driven by Ex-L&S contract renewals and New Business signings[15] - New Business Total Contract Value (TCV) increased by 18% year-over-year in 2023[45] Pension and Non-Cash Losses - Non-cash pension settlement losses of $348.2 million were recorded in 2023 due to the purchase of annuity contracts[12] - Pension liabilities of approximately $500 million were transferred to a third-party insurer through annuity purchases in 2023[45] Guidance and Future Expectations - 2024 revenue growth guidance is (1.5)% to 1.5% in constant currency, with Ex-L&S revenue growth expected to be 1.5% to 5.0%[16] - Full-year 2024 guidance of (1.5)% to 1.5% YoY constant currency revenue growth and 5.5% to 7.5% non-GAAP operating profit margin[46] - Constant currency revenue guidance implies (1.0)% to 2.0% revenue growth as reported, with Ex-L&S full-year revenue growth of 1.5% to 5.0% and L&S revenue of approximately $375 million[46] Non-GAAP Metrics - Non-GAAP net income attributable to Unisys Corporation for Q4 2023 was $35.4 million, down from $82.8 million in Q4 2022[37] - Adjusted EBITDA for Q4 2023 was $100.4 million, down from $148.7 million in Q4 2022[41] - Non-GAAP net income and diluted EPS exclude postretirement expense, legal matters, environmental costs, and cost-reduction activities[47] Cash and Cash Equivalents - Cash and cash equivalents at the end of 2023 were $387.7 million, slightly down from $391.8 million at the end of 2022[32]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 1-8729 UNISYS CORPORATION (Exact name of registrant as specified in its charter) Delaware 38-0387840 (State or other jurisdict ...

Financial Data and Key Metrics - Third quarter revenue increased 0.7% year-over-year as reported but declined 1.4% in constant currency [7] - Excluding License & Support (Ex-L&S), revenue grew 6.2% year-over-year or 4.1% in constant currency [7] - License & Support revenue was $67 million in Q3, significantly higher than the $50 million expectation [8] - Year-to-date revenue was $1.46 billion, up 2.5% year-on-year or 3.1% in constant currency [21] - Third quarter GAAP net loss was $50 million, compared to a loss of $40 million a year ago [23] - Non-GAAP net loss was $22 million or a loss of $0.33 per share [23] - Cash balances were $385 million as of September 30th, compared to $392 million at the end of 2022 [24] Business Line Performance - Digital Workplace Solutions (DWS) segment revenue was $141 million, up 6.2% year-over-year [55] - Cloud Applications & Infrastructure (CA&I) segment revenue was $134 million, up 8.7% year-over-year [55] - Enterprise Computing Solutions (ECS) segment revenue declined 14.2% year-over-year [55] - Next-Gen specialized services and Next-Gen compute solutions within ECS grew 5.2% year-over-year [39] - License & Support revenue within ECS declined 25.3% year-over-year due to timing of renewals [39] Market Performance - New scope and new logo Total Contract Value (TCV) increased 22% sequentially [2] - Next-generation pipeline grew 50% year-over-year [3] - Qualified Ex-L&S pipeline is up 18% versus a year ago, with 47% of pipeline TCV in next-generation offerings [18] - Modern workplace pipeline has more than tripled over the last 12 months [57] Strategic Direction and Industry Competition - The company is building an ecosystem of specialized public sector software partners [5] - Unisys is focusing on AI, including generative AI, and services related to enterprise AI adoption [5] - The company launched Unisys Logistics Optimization, a solution combining AI, quantum computing, and industry expertise [6][30] - Unisys is infusing generative AI into its industry solutions and internal functions like HR [31] Management Commentary on Operating Environment and Future Outlook - The company raised full-year 2023 revenue guidance to 0% to 1.5% growth in constant currency [72] - Full-year profitability guidance was raised to a non-GAAP operating margin of 5% to 6% and adjusted EBITDA margin of 12.5% to 13.5% [44] - The company expects full-year 2023 free cash flow to be in the range of negative $25 million to negative $30 million [33] - Management highlighted strong client consumption trends and increased usage of ClearPath Forward systems [36][46] Other Important Information - The company is investing in talent development, with a trailing 12-month voluntary attrition rate of 13.3%, down from 18.9% a year ago [13] - Unisys won four prestigious HR awards during the quarter, recognizing excellence in diversity, hiring, and leadership [38] - The company is targeting SG&A reductions to bring SG&A down to 16% to 17% of revenue by 2026 [59] Q&A Session Summary Question: Connection between TCV and revenue outlook - The company raised revenue guidance based on year-to-date performance, not just TCV growth [27][62] - October TCV signings already exceeded the entire Q3 TCV, indicating a strong Q4 [29] Question: Employee experience market and AI opportunities - The company is seeing strong demand in the employee experience market, with discussions focusing on productivity and value [63][67] - AI-related opportunities are driving cross-sell opportunities across business units [67] Question: October bookings activity and macro trends - The strong October bookings were driven by the timing of sales cycles and not necessarily macro trends [76][77] Question: L&S revenue outperformance and future outlook - Q3 L&S revenue outperformance was $17 million, with additional upside from an extended contract signed in October [87] - The company expects L&S revenue to average $360 million annually over the next three to five years [35][105] Question: Consumption volumes and margins in L&S - Consumption margins are similar to overall L&S business margins [83] - Longer-term contracts are not significantly discounted and often come with pricing increases upon renewal [70] Question: New logo acquisition trends - The company expects an uptick in new logo acquisitions in Q4 and is seeing momentum in its go-to-market strategy [101][109]

[Information Concerning Forward-Looking Statements](index=4&type=section&id=Information%20Concerning%20Forward-Looking%20Statements) [Forward-Looking Statements Disclaimer](index=4&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section serves as a cautionary note regarding forward-looking statements within the report, emphasizing that actual results may differ materially from management's expectations due to various factors. The company assumes no obligation to update these statements - Forward-looking statements are based on management's current expectations, assumptions, and beliefs, and actual results may differ materially[8](index=8&type=chunk) - The company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the statement's date[8](index=8&type=chunk) - Key risk factors that could cause actual results to differ include implementation of business strategy, significant underfunded pension obligations, and general business risks such as revenue growth, competition, technological innovation, client retention, contract profitability, cybersecurity, and internal control weaknesses[9](index=9&type=chunk)[10](index=10&type=chunk)[12](index=12&type=chunk) [PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Unisys Corporation, including statements of income (loss), comprehensive income (loss), balance sheets, cash flows, and equity (deficit), along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial items [Consolidated Statements of Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20(Loss)) | Metric | Three Months Ended June 30, 2023 (Millions) | Three Months Ended June 30, 2022 (Millions) | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :----- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Revenue | $476.8 | $515.0 | $993.2 | $961.7 | | Operating income | $0.1 | $33.7 | $50.0 | $10.2 | | (Loss) earnings before income taxes | $(24.1) | $3.5 | $(178.7) | $(49.4) | | Consolidated net loss | $(39.5) | $(16.8) | $(214.0) | $(73.8) | | Net loss attributable to Unisys Corporation | $(40.0) | $(17.1) | $(215.4) | $(74.4) | | Basic Loss per share | $(0.59) | $(0.25) | $(3.16) | $(1.10) | | Diluted Loss per share | $(0.59) | $(0.25) | $(3.16) | $(1.10) | - For the three months ended June 30, 2023, revenue decreased by **7.4% YoY**, and the company reported a net loss of **$40.0 million**, a significant increase from **$17.1 million** in the prior-year period[16](index=16&type=chunk) - For the six months ended June 30, 2023, revenue increased by **3.3% YoY**, but the net loss attributable to Unisys Corporation widened substantially to **$215.4 million** from **$74.4 million**, primarily due to a U.S. pension plan settlement loss[16](index=16&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | Metric | Three Months Ended June 30, 2023 (Millions) | Three Months Ended June 30, 2022 (Millions) | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :----- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Consolidated net loss | $(39.5) | $(16.8) | $(214.0) | $(73.8) | | Total other comprehensive income (loss) | $30.7 | $(7.2) | $233.4 | $32.4 | | Comprehensive (loss) income attributable to Unisys Corporation | $(9.4) | $(24.3) | $18.0 | $(40.8) | - Total other comprehensive income (loss) significantly improved for the six months ended June 30, 2023, reaching **$233.4 million** compared to **$32.4 million** in the prior-year period, driven by foreign currency translation gains and postretirement adjustments[18](index=18&type=chunk) [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) | Metric | June 30, 2023 (Millions) | December 31, 2022 (Millions) | | :----- | :----------------------- | :--------------------------- | | Total current assets | $950.5 | $930.4 | | Total assets | $2,032.7 | $2,065.6 | | Total current liabilities | $641.0 | $650.5 | | Long-term debt | $488.5 | $495.7 | | Total Unisys Corporation stockholders' equity (deficit) | $11.4 | $(14.7) | | Total equity | $49.3 | $21.8 | - Total assets slightly decreased from **$2,065.6 million** at December 31, 2022, to **$2,032.7 million** at June 30, 2023. However, total Unisys Corporation stockholders' equity improved from a deficit of **$14.7 million** to a positive **$11.4 million**[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :----- | :---------------------------------------- | :---------------------------------------- | | Net cash provided by (used for) operating activities | $55.3 | $(66.7) | | Net cash used for investing activities | $(23.5) | $(74.4) | | Net cash used for financing activities | $(11.0) | $(15.0) | | Increase (decrease) in cash, cash equivalents and restricted cash | $29.5 | $(171.3) | | Cash, cash equivalents and restricted cash, end of period | $432.2 | $389.3 | - Net cash provided by operating activities significantly improved to **$55.3 million** for the six months ended June 30, 2023, compared to a usage of **$66.7 million** in the prior-year period[23](index=23&type=chunk) - Cash used for investing activities decreased from **$74.4 million** to **$23.5 million**, and cash used for financing activities also decreased from **$15.0 million** to **$11.0 million**[23](index=23&type=chunk) [Consolidated Statements of Equity (Deficit)](index=10&type=section&id=Consolidated%20Statements%20of%20Equity%20(Deficit)) | Metric | Balance at December 31, 2022 (Millions) | Balance at June 30, 2023 (Millions) | | :----- | :-------------------------------------- | :---------------------------------- | | Total Unisys Corporation stockholders' equity (deficit) | $(14.7) | $11.4 | | Accumulated deficit | $(1,515.0) | $(1,730.4) | | Accumulated other comprehensive loss | $(3,076.0) | $(2,842.6) | - Unisys Corporation's stockholders' equity shifted from a deficit of **$14.7 million** at December 31, 2022, to a positive **$11.4 million** at June 30, 2023, despite an increase in accumulated deficit[26](index=26&type=chunk) - Accumulated other comprehensive loss improved from **$(3,076.0) million** to **$(2,842.6) million**, primarily due to translation adjustments and postretirement plan changes[26](index=26&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1 - Basis of Presentation](index=11&type=section&id=Note%201%20-%20Basis%20of%20Presentation) - The unaudited consolidated financial statements are prepared in accordance with SEC rules and U.S. GAAP, with certain information condensed or omitted[28](index=28&type=chunk) - Management makes estimates and assumptions about future events, which affect reported amounts and disclosures, and these estimates are subject to change based on economic conditions[30](index=30&type=chunk) [Note 2 - Cost-Reduction Actions](index=11&type=section&id=Note%202%20-%20Cost-Reduction%20Actions) | Cost-Reduction Charges (Millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Net Charges | $3.5 | $3.1 | $0.7 | $6.1 | | Workforce reductions (severance) | $2.1 | $(0.3) (credit) | $2.8 | $(0.9) (credit) | | Professional fees/other expenses | $1.3 | $0.7 | $1.3 | N/A | | Net foreign currency (gains) losses | $0.1 | $1.8 | $(2.1) (credit) | $2.9 | | Asset impairments | N/A | $0.9 | N/A | $4.7 | - Net cost-reduction charges for the three months ended June 30, 2023, were **$3.5 million**, primarily due to workforce reductions (**$2.1 million** severance costs)[32](index=32&type=chunk) - For the six months ended June 30, 2023, net cost-reduction charges were **$0.7 million**, including **$2.8 million** for workforce reductions and a net credit of **$2.1 million** from foreign currency gains[34](index=34&type=chunk) [Note 3 - Pension and Postretirement Benefits](index=13&type=section&id=Note%203%20-%20Pension%20and%20Postretirement%20Benefits) | Metric | Three Months Ended June 30, 2023 (Millions) | Three Months Ended June 30, 2022 (Millions) | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :----- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net periodic pension expense (income) | $10.9 | $12.9 | $204.4 | $23.5 | | Net periodic postretirement benefit income | $(0.3) | $(0.4) | $(0.6) | $(0.8) | - Net periodic pension expense for the six months ended June 30, 2023, significantly increased to **$204.4 million**, primarily due to a **$183.2 million** pre-tax settlement loss from purchasing a group annuity contract to transfer U.S. defined benefit pension obligations[37](index=37&type=chunk) - The company expects to make cash contributions of approximately **$41 million** to its international defined benefit pension plans in 2023 and **$4.0 million** to its postretirement benefit plan[37](index=37&type=chunk)[40](index=40&type=chunk) [Note 4 - Stock Compensation](index=14&type=section&id=Note%204%20-%20Stock%20Compensation) | Metric | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :----- | :---------------------------------------- | :---------------------------------------- | | Share-based compensation expense | $8.9 | $10.3 | | Aggregate weighted-average grant-date fair value of restricted stock and RSUs granted | $16.7 | $26.7 | | Unrecognized compensation cost (as of June 30, 2023) | $28.4 | N/A | - Share-based compensation expense decreased to **$8.9 million** for the six months ended June 30, 2023, from **$10.3 million** in the prior-year period[43](index=43&type=chunk) - As of June 30, 2023, there was **$28.4 million** of total unrecognized compensation cost related to outstanding restricted stock and restricted stock units, expected to be recognized over a weighted-average period of **2.0 years**[46](index=46&type=chunk) [Note 5 - Other (expense), net](index=15&type=section&id=Note%205%20-%20Other%20(expense)%2C%20net) | Component | Three Months Ended June 30, 2023 (Millions) | Three Months Ended June 30, 2022 (Millions) | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :-------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Postretirement expense* | $(10.2) | $(11.9) | $(203.1) | $(21.6) | | Foreign exchange (losses) gains** | $(3.2) | $(2.6) | $0.5 | $(0.4) | | Environmental costs and other, net*** | $(3.3) | $(7.4) | $(11.0) | $(20.9) | | Total other (expense), net | $(16.7) | $(21.9) | $(213.6) | $(42.9) | - Other (expense), net for the six months ended June 30, 2023, significantly increased to **$213.6 million**, primarily due to a **$183.2 million** settlement loss related to a U.S. defined benefit pension plan[48](index=48&type=chunk) [Note 6 - Income Taxes](index=15&type=section&id=Note%206%20-%20Income%20Taxes) - The company maintains a full valuation allowance for all U.S. and certain foreign deferred tax assets in excess of deferred tax liabilities, meaning U.S. operations generally have no tax provision or benefit[53](index=53&type=chunk) - The ability to realize net deferred tax assets depends on generating sustained taxable income in various jurisdictions, and future changes in tax laws or an 'ownership change' under Section 382 could limit the utilization of NOL carryforwards[52](index=52&type=chunk)[54](index=54&type=chunk) [Note 7 - Loss Per Share](index=16&type=section&id=Note%207%20-%20Loss%20Per%20Share) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic loss per common share | $(0.59) | $(0.25) | $(3.16) | $(1.10) | | Diluted loss per common share | $(0.59) | $(0.25) | $(3.16) | $(1.10) | | Weighted average shares (thousands) | 68,289 | 67,694 | 68,116 | 67,541 | - Basic and diluted loss per common share increased significantly for both the three-month and six-month periods ended June 30, 2023, primarily due to the higher net loss attributable to Unisys Corporation[55](index=55&type=chunk) [Note 8 - Contract Assets and Deferred Revenue](index=17&type=section&id=Note%208%20-%20Contract%20Assets%20and%20Deferred%20Revenue) | Metric | June 30, 2023 (Millions) | December 31, 2022 (Millions) | | :----- | :----------------------- | :--------------------------- | | Contract assets - current | $16.5 | $28.9 | | Contract assets - long-term | $9.8 | $11.0 | | Deferred revenue - current | $(219.8) | $(200.7) | | Deferred revenue - long-term | $(113.0) | $(122.3) | - Current contract assets decreased from **$28.9 million** to **$16.5 million**, while current deferred revenue increased from **$200.7 million** to **$219.8 million**, indicating a shift in contract liability balances[56](index=56&type=chunk) [Note 9 - Capitalized Contract Costs](index=17&type=section&id=Note%209%20-%20Capitalized%20Contract%20Costs) | Metric | June 30, 2023 (Millions) | December 31, 2022 (Millions) | | :----- | :----------------------- | :--------------------------- | | Deferred commissions | $2.6 | $4.9 | | Costs to fulfill a contract (outsourcing assets, net) | $28.5 | $34.8 | - Deferred commissions decreased from **$4.9 million** to **$2.6 million**, and costs to fulfill outsourcing contracts (capitalized) decreased from **$34.8 million** to **$28.5 million**[57](index=57&type=chunk)[58](index=58&type=chunk) | Amortization Expense (Millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Deferred commissions | $0.4 | $0.8 | $0.8 | $1.9 | | Costs to fulfill a contract | $1.4 | $7.5 | $3.6 | $16.4 | [Note 10 - Financial Instruments and Fair Value Measurements](index=18&type=section&id=Note%2010%20-%20Financial%20Instruments%20and%20Fair%20Value%20Measurements) - The company uses foreign exchange forward contracts to reduce exposure to foreign currency exchange rate fluctuations, with notional amounts of **$462.1 million** at June 30, 2023[60](index=60&type=chunk) | Metric | June 30, 2023 (Millions) | December 31, 2022 (Millions) | | :----- | :----------------------- | :--------------------------- | | Total fair value of foreign exchange forward contracts | $1.7 | $6.6 | | Fair value of 6.875% senior secured notes due 2027 | $349.8 | $373.0 | | Gains and (losses) on foreign exchange forward contracts (Millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Other (expense), net | $(29.3) | $5.0 | $10.2 | $(40.2) | [Note 11 - Goodwill and Intangible Assets](index=18&type=section&id=Note%2011%20-%20Goodwill%20and%20Intangible%20Assets) | Metric | December 31, 2022 (Millions) | June 30, 2023 (Millions) | | :----- | :--------------------------- | :----------------------- | | Total Goodwill | $287.1 | $287.3 | | Total Intangible assets, net | $52.4 | $47.5 | - Goodwill remained relatively stable at **$287.3 million** at June 30, 2023, with no goodwill allocated to reporting units with negative net assets[65](index=65&type=chunk) - Net intangible assets decreased to **$47.5 million** at June 30, 2023, from **$52.4 million** at December 31, 2022, with future amortization expense estimated at **$4.7 million** for the remainder of 2023[66](index=66&type=chunk)[67](index=67&type=chunk) [Note 12 - Debt](index=19&type=section&id=Note%2012%20-%20Debt) | Metric | June 30, 2023 (Millions) | December 31, 2022 (Millions) | | :----- | :----------------------- | :--------------------------- | | Total debt | $503.0 | $513.1 | | Long-term debt | $488.5 | $495.7 | | Current maturities of long-term debt | $14.5 | $17.4 | - Total debt decreased to **$503.0 million** at June 30, 2023, from **$513.1 million** at December 31, 2022[68](index=68&type=chunk) - The company has outstanding **$485.0 million** aggregate principal amount of **6.875% Senior Secured Notes due 2027**, which are secured by substantially all assets of the company and its subsidiary guarantors[69](index=69&type=chunk)[70](index=70&type=chunk) - The Amended and Restated ABL Credit Facility, maturing October 29, 2025, provides for revolving loans and letters of credit up to **$145.0 million**, with **$56.5 million** available at June 30, 2023[77](index=77&type=chunk) [Note 13 - Litigation and Contingencies](index=21&type=section&id=Note%2013%20-%20Litigation%20and%20Contingencies) - The company is involved in various lawsuits, claims, investigations, and proceedings in the ordinary course of business, including tax-related matters in Brazil estimated up to **$119 million**[83](index=83&type=chunk)[89](index=89&type=chunk) - A putative securities class action complaint was filed on **November 11, 2022**, alleging violations of the Securities Exchange Act of 1934 based on allegedly false or misleading statements[90](index=90&type=chunk) - The company records provisions for these matters when a liability is probable and estimable, and believes it has adequate provisions at June 30, 2023[84](index=84&type=chunk)[88](index=88&type=chunk) [Note 14 - Accumulated Other Comprehensive Loss](index=22&type=section&id=Note%2014%20-%20Accumulated%20Other%20Comprehensive%20Loss) | Metric | December 31, 2022 (Millions) | June 30, 2023 (Millions) | | :----- | :--------------------------- | :----------------------- | | Total Accumulated other comprehensive loss | $(3,076.0) | $(2,842.6) | | Translation Adjustments | $(977.4) | $(923.3) | | Postretirement Plans | $(2,098.6) | $(1,919.3) | - Accumulated other comprehensive loss improved by **$233.4 million** for the six months ended June 30, 2023, primarily due to positive translation adjustments and postretirement plan changes[92](index=92&type=chunk) | Reclassifications from Accumulated Other Comprehensive Loss (Millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | | Total before tax | $218.0 | $80.5 | | Settlement losses (Postretirement plans) | $183.2 | — | [Note 15 - Supplemental Cash Flow Information](index=23&type=section&id=Note%2015%20-%20Supplemental%20Cash%20Flow%20Information) | Metric | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :----- | :---------------------------------------- | :---------------------------------------- | | Cash paid for Income taxes, net of refunds | $37.0 | $29.3 | | Cash paid for Interest | $18.1 | $18.7 | | Total cash, cash equivalents and restricted cash (end of period) | $432.2 | $402.7 | - Cash paid for income taxes increased to **$37.0 million** for the six months ended June 30, 2023, from **$29.3 million** in the prior-year period[95](index=95&type=chunk) [Note 16 - Segment Information](index=23&type=section&id=Note%2016%20-%20Segment%20Information) - The company operates through three reportable segments: Digital Workplace Solutions (DWS), Cloud, Applications & Infrastructure Solutions (CA&I), and Enterprise Computing Solutions (ECS)[97](index=97&type=chunk) | Segment Revenue (Millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Segments | $402.2 | $443.1 | $847.4 | $817.6 | | DWS | $135.0 | $127.2 | $266.0 | $252.0 | | CA&I | $132.6 | $130.1 | $258.6 | $259.2 | | ECS | $134.6 | $185.8 | $322.8 | $306.4 | | Segment Gross Profit (Millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Segments | $113.6 | $146.6 | $271.1 | $232.4 | | DWS | $18.4 | $16.5 | $34.0 | $32.5 | | CA&I | $22.4 | $7.1 | $38.8 | $14.1 | | ECS | $72.8 | $123.0 | $198.3 | $185.8 | [Note 17 - Remaining Performance Obligations](index=25&type=section&id=Note%2017%20-%20Remaining%20Performance%20Obligations) - At June 30, 2023, the company had approximately **$0.6 billion** in remaining performance obligations[100](index=100&type=chunk) - Approximately **17%** of these obligations are expected to be recognized as revenue by the end of **2023**, **27%** by the end of **2024**, **22%** by the end of **2025**, **16%** by the end of **2026**, and **18%** thereafter[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, highlighting key drivers of revenue, expenses, and profitability, as well as liquidity and capital resources. It also discusses segment-specific results and critical accounting policies [Overview](index=26&type=section&id=Overview) - Unisys Corporation reported a net loss of **$40.0 million** (**$0.59 per diluted share**) for Q2 2023, compared to a **$17.1 million** loss (**$0.25 per diluted share**) in Q2 2022[103](index=103&type=chunk) - For the six months ended June 30, 2023, the net loss was **$215.4 million** (**$3.16 per diluted share**), significantly higher than **$74.4 million** (**$1.10 per diluted share**) in the prior-year period, primarily due to a **$183.2 million** U.S. pension plan settlement loss[104](index=104&type=chunk)[105](index=105&type=chunk) [Results of operations](index=26&type=section&id=Results%20of%20operations) | Metric | Three Months Ended June 30, 2023 (Millions) | Three Months Ended June 30, 2022 (Millions) | Six Months Ended June 30, 2023 (Millions) | Six Months Ended June 30, 2022 (Millions) | | :----- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Revenue | $476.8 | $515.0 | $993.2 | $961.7 | | Gross profit | $115.8 | $148.1 | $274.8 | $235.5 | | Gross profit margin | 24.3% | 28.8% | 27.7% | 24.5% | | Operating profit | $0.1 | $33.7 | $50.0 | $10.2 | | Loss before income taxes | $(24.1) | $3.5 | $(178.7) | $(49.4) | | Net loss attributable to Unisys Corporation | $(40.0) | $(17.1) | $(215.4) | $(74.4) | - Q2 2023 revenue decreased by **7.4% YoY** to **$476.8 million**, primarily due to lower software license renewals in the ECS segment, with foreign currency having a **1 percentage-point negative impact**[106](index=106&type=chunk) - For the six months ended June 30, 2023, revenue increased by **3.3% YoY** to **$993.2 million**, despite a **2 percentage-point negative impact** from foreign currency fluctuations[118](index=118&type=chunk) - Operating profit for the six months ended June 30, 2023, increased to **$50.0 million** from **$10.2 million** in the prior-year period, driven by higher gross profit in CA&I and ECS segments[124](index=124&type=chunk) [Segment results](index=28&type=section&id=Segment%20results) | Segment Revenue (Millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | DWS | $135.0 | $127.2 | $266.0 | $252.0 | | CA&I | $132.6 | $130.1 | $258.6 | $259.2 | | ECS | $134.6 | $185.8 | $322.8 | $306.4 | | Segment Gross Profit Percent | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | DWS | 13.6% | 13.0% | 12.8% | 12.9% | | CA&I | 16.9% | 5.5% | 15.0% | 5.4% | | ECS | 54.1% | 66.2% | 61.4% | 60.6% | - DWS revenue increased by **6.1%** for Q2 2023 and **5.6%** for the six months ended June 30, 2023, driven by recent contract signings and additional scope with existing clients[130](index=130&type=chunk)[133](index=133&type=chunk) - CA&I gross profit percent significantly increased to **16.9%** for Q2 2023 and **15.0%** for the six months ended June 30, 2023, from **5.5%** and **5.4%** respectively, due to additional cost incurred in the prior-year period associated with certain contracts as well as delivery improvements[131](index=131&type=chunk)[134](index=134&type=chunk) - ECS revenue declined by **27.6%** for Q2 2023 due to lower software license renewals, but increased by **5.4%** for the six months ended June 30, 2023, driven by higher software license renewals[132](index=132&type=chunk)[135](index=135&type=chunk) [Financial condition](index=30&type=section&id=Financial%20condition) - Cash and cash equivalents increased to **$423.2 million** at June 30, 2023, from **$391.8 million** at December 31, 2022[138](index=138&type=chunk) - Cash provided by operations was **$55.3 million** for the six months ended June 30, 2023, a significant improvement from cash usage of **$66.7 million** in the prior-year period[140](index=140&type=chunk) - The company has successfully reduced its global defined benefit pension obligations by **$1.7 billion** since December 2020, including a **$265 million** group annuity contract purchase in March 2023[143](index=143&type=chunk) - Total debt decreased to **$503.0 million** at June 30, 2023, from **$513.1 million** at December 31, 2022[146](index=146&type=chunk) - The Amended and Restated ABL Credit Facility provides **$145.0 million** in revolving loans and letters of credit, with **$56.5 million** available at June 30, 2023, and the company has met all covenants[147](index=147&type=chunk)[152](index=152&type=chunk) [Critical accounting policies and estimates](index=31&type=section&id=Critical%20accounting%20policies%20and%20estimates) - There have been no significant changes to the company's critical accounting policies and estimates as reported in its Annual Report on Form 10-K for the year ended December 31, 2022[154](index=154&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there have been no material changes to the company's assessment of its sensitivity to market risk since its last annual report - No material changes in the company's assessment of market risk sensitivity since the December 31, 2022, Annual Report on Form 10-K[155](index=155&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and internal control over financial reporting, identifying material weaknesses and outlining the remediation plan [Disclosure Controls and Procedures](index=32&type=section&id=Disclosure%20Controls%20and%20Procedures) - The CEO and CFO concluded that the company's disclosure controls and procedures were **not effective** as of June 30, 2023, due to material weaknesses in disclosure controls and internal control over financial reporting[156](index=156&type=chunk) - A material weakness was identified regarding the lack of effective formal policies and procedures to ensure timely communication from IT and legal/compliance functions to accounting and governance, which could result in material misstatements[158](index=158&type=chunk) - Despite the material weaknesses, management believes the consolidated financial statements present the company's financial condition, results of operations, and cash flows in all material respects due to additional analysis and procedures performed[160](index=160&type=chunk) [Remediation Plan for Material Weaknesses](index=32&type=section&id=Remediation%20Plan%20for%20Material%20Weaknesses) - Management implemented several remedial actions during Q4 2022, including enhancing policies for cyber-incident information escalation, strengthening the disclosure committee, requiring CEO direct reports to confirm awareness of SEC filing matters, and providing training to non-finance executives[161](index=161&type=chunk) - As of June 30, 2023, all remedial actions related to IT and legal/compliance communication to accounting functions have been implemented, but there has been insufficient time to demonstrate consistent execution and conclude on operating effectiveness[162](index=162&type=chunk) [Changes in Internal Control Over Financial Reporting](index=33&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - Except for the remediation plan described, there have been no other material changes in internal control over financial reporting during the quarter ended June 30, 2023[163](index=163&type=chunk) [PART II - OTHER INFORMATION](index=34&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 of the Consolidated Financial Statements for detailed information on legal proceedings, which are incorporated by reference - Information regarding legal proceedings is incorporated by reference from Note 13 of the Notes to Consolidated Financial Statements[165](index=165&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the 'Risk Factors' as disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[166](index=166&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[167](index=167&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) This section reports that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2023[167](index=167&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, certifications, and XBRL financial information - Exhibits include Amendment No.1 to the Amended and Restated Credit Agreement, certifications by Peter A. Altabef and Debra McCann, and Inline XBRL financial information[171](index=171&type=chunk) [Signatures](index=37&type=section&id=Signatures) [Report Signatures](index=37&type=section&id=Report%20Signatures) This section contains the official signatures of the company's Executive Vice President and Chief Financial Officer, Debra McCann, and William Reinheimer, Principal Accounting Officer, certifying the filing of the report - The report is duly signed by Debra McCann, Executive Vice President and Chief Financial Officer, and William Reinheimer, Principal Accounting Officer, on August 2, 2023[174](index=174&type=chunk)

Financial Data and Key Metrics Changes - Total company revenue for Q2 2023 was $477 million, a decline of 7.4% year-over-year and 6.3% in constant currency, primarily due to lower license and support (L&S) revenue within the Enterprise Computing Solutions (ECS) segment [5][19][27] - Excluding L&S, second quarter revenue was $396 million, reflecting a strong year-over-year increase of 6.5% in constant currency [6][20] - The second quarter gross margin was 24.3%, down from 28.8% in Q2 2022, while the gross margin excluding L&S improved to 16% from 10.4% year-over-year [25][27] Business Line Data and Key Metrics Changes - Digital Workplace Solutions (DWS) segment revenue grew 7.7% year-over-year, driven by expanded engagements with existing clients [21] - Cloud Application and Infrastructure (CA&I) segment revenue increased 2.6% year-over-year, with growth in commercial sector clients offsetting a decline in financial services clients [21] - ECS segment revenue, which includes L&S and Specialized Services & Next-Gen Compute (SS&C), declined 27% year-over-year, while SS&C grew 14.5% year-over-year [22] Market Data and Key Metrics Changes - The trailing 12-month ex-L&S book-to-bill ratio was 1.0x, unchanged from the previous quarter, indicating stable contract signings [7] - New and expanded scopes within existing clients grew total contract value (TCV) by 14% year-over-year, despite a 4% decline in TCV year-over-year due to lower signings with new logos [7][58] Company Strategy and Development Direction - The company is focusing on next-generation solutions, which include Modern Workplace, Digital Platforms & Applications, and Specialized Services & Next-Gen Compute, with a 55% larger pipeline compared to the previous year [4][11] - Generative AI is seen as a significant market opportunity, with the company adapting to new tools and technologies released by hyperscalers and enterprise software companies [5][12] Management's Comments on Operating Environment and Future Outlook - Management noted that financial services clients remain cautious, impacting new investments, but activity levels picked up in June [7][29] - The company reaffirmed its full-year revenue guidance, expecting a decline of 3% to 7%, with ex-L&S revenue projected to range from a decline of 1% to growth of 4% [23][24] Other Important Information - The company reported a net loss of $40 million for Q2 2023, compared to a loss of $17 million in the same quarter last year [27] - Free cash flow for Q2 was positive at $25 million, with expectations to align with 2022's negative free cash flow of approximately $75 million [28][52] Q&A Session Summary Question: Any changes in long-term financial projections? - Management stated that long-term financial projections remain unchanged since the June Investor Day, despite recent activity increases [32] Question: Can you elaborate on the pickup in activity? - Management indicated that the increase in activity is attributed to both internal efforts and broader industry changes, with a significant increase in the new logo pipeline [34][35] Question: What caused the labor productivity jump? - Management highlighted improvements in attrition rates and ongoing automation efforts as key factors contributing to increased labor productivity [39] Question: What is the gross margin profile of the Next-Gen portfolio? - Next-Gen margins are targeted to be in the 25% range, with a focus on achieving 50 basis points of expansion annually until 2026 [44] Question: Are there any renewals that may not be economically viable? - Management confirmed that there are no current renewals that are deemed unworthy, with a strong renewal rate exceeding 95% [48]

Financial Data and Key Metrics Changes - Total company revenue for Q1 2023 was $516 million, reflecting an 18.9% increase on a constant currency basis and 15.6% as reported, driven largely by the timing of license renewals within License and Support (L&S) [21][24] - Excluding L&S revenue, constant currency revenue growth for Q1 was 4.6% and 1.7% as reported, with high single-digit growth in Digital Workplace Solutions (DWS) and specialized services [21][24] - Gross profit for Q1 was $159 million, resulting in a gross margin of 30.8%, compared to 19.6% in the prior year, primarily due to higher license renewals [27][30] Business Line Data and Key Metrics Changes - DWS revenue grew 7.7% year-over-year, benefiting from strong new business wins and improved pricing on large renewals [22] - Cloud Applications and Infrastructure Solutions (CA&I) revenue declined 1.4% year-over-year, impacted by caution in volumes and cloud investments, particularly from financial services clients [23] - Enterprise Computing Solutions (ECS) revenue, including L&S, increased 60.1% year-over-year, with specialized services and next-gen compute growing 11.9% [23][24] Market Data and Key Metrics Changes - The total contract value (TCV) grew 2% year-over-year, driven by strong renewal rates and expansion with existing clients, while annual contract value (ACV) declined 18% year-over-year due to the mix of license renewal bookings [25] - The pipeline for next-generation solutions increased 15% sequentially and 6% year-over-year, with a notable 34% sequential increase in the next-gen pipeline [40][41] Company Strategy and Development Direction - The company is focusing on next-generation solutions, particularly in areas like artificial intelligence, cybersecurity, and data analytics, which are expected to drive future growth and margin improvements [5][9] - Investments are being made in modern workplace offerings and automation to enhance delivery efficiency and reduce costs [14][17] - The company aims to improve its margin profile by right-sizing legacy contracts and optimizing talent distribution [17][30] Management's Comments on Operating Environment and Future Outlook - Management noted macroeconomic uncertainty, particularly in the financial services sector, but emphasized the resilience of the revenue base and strong renewal rates [6][21] - The outlook for the remainder of the year includes expectations for lower L&S revenue in the upcoming quarters, with a focus on maintaining growth in Ex-L&S solutions [26][34] - Management reiterated full-year guidance for total company revenue to decline in the range of negative 3% to negative 7% year-over-year, while Ex-L&S revenue is expected to range from negative 1% to positive 4% [26][34] Other Important Information - The company is committed to diversity, equity, and inclusion initiatives, and was recognized on Forbes' list of Best Employers for Diversity [18] - The company is executing an ESG strategy and has launched a business process solution to assist clients with their ESG efforts [18] Q&A Session Summary Question: License renewal patterns and expectations - Management indicated that the first quarter saw slightly better than expected L&S renewals, but overall, the lumpiness of L&S revenue is expected to continue [38][39] Question: Long-term improvements and fundamentals - Management is focused on improving margins and business fundamentals through AI and ML development, right-shoring, and cleaning up legacy contracts [41][43] Question: Drivers of sequential pipeline growth - The growth in the pipeline is attributed to modern workplace solutions and increased cross-selling efforts, with consistent volume across businesses [44][45] Question: Client investment shifts - Management noted a perceptible decrease in client volume in financial services but an increased interest in data analytics and AI across other sectors [47][48] Question: Next-gen solutions and sales cycle - The faster sales cycle for next-gen solutions is driven by standardized offerings and smaller deal sizes, allowing quicker revenue recognition [51][53] Question: Focus on small to mid-size opportunities - The company is intentionally targeting small to mid-size clients for quicker decision-making and shorter project durations, aligning with current market needs [55][56]

| --- | --- | |------------------------|-----------------------------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | First Quarter | Peter Altabef Chair and CEO | | 2023 Financial Results | Deb McCann CFO | | | | | | MAY 02, 2023 | | --- ...