Unisys(US:UIS)2023-05-03 16:58Financial 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]