Unisys(UIS)2024-05-08 17:16Financial Data and Key Metrics Changes - The company reported a total revenue of $488 million, down 5.5% year-over-year and 7.1% in constant currency, primarily due to the expected cadence of license and support (L&S) renewals [81] - Adjusted EBITDA for the first quarter was $65 million, representing an adjusted EBITDA margin of 13.4%, compared to 19% in the prior year period [5] - First quarter adjusted net income was $3 million or $0.04 per share, compared to $35 million or $0.51 per share in the prior year [8] - The company ended the quarter with a backlog of $2.8 billion, roughly flat year-over-year, but down approximately $200 million sequentially [1] Business Line Data and Key Metrics Changes - Ex-L&S revenue grew 4% year-over-year to $395 million, with expectations for acceleration in the second half of the year [108][95] - ECS gross margin was 57.8% in the first quarter, down from 66.7% in the prior year, attributed to lower L&S revenue [3] - CA&I revenue was $129 million, an increase of 2.3%, driven by higher-margin solutions [109] - DWS revenue was $132 million, flat compared to the prior period, with expectations for growth in the second half of the year [82] Market Data and Key Metrics Changes - Total company TCV declined 1% year-over-year, with a 20% decline in Ex-L&S solutions, largely due to renewal timing [84] - The pipeline for Digital Workplace Solutions grew 10% from the fourth quarter, indicating strong client interest [61] - The company signed significant new logo contracts in EMEA and the U.S., indicating a positive market reception [97][86] Company Strategy and Development Direction - The company is focused on improving performance in Ex-L&S solutions and enhancing profitability through operational efficiency [57] - There is an emphasis on expanding market share in a consolidating market by maintaining excellence in field services [62] - The company aims to enhance free cash flow generation by reducing legal and environmental costs, with expectations for declines beginning next year [107][38] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for revenue growth in the second half of the year, driven by new business signings and project work [95][34] - The company anticipates improving free cash flow conversion as legal and environmental payments decline [96][38] - Management highlighted the importance of new logo signings as a key component for sustaining faster growth [69] Other Important Information - The company has a capital-light strategy, with capital expenditures totaling approximately $20 million in the first quarter [20] - The net leverage ratio was 0.5 times, slightly up from 0.4 times at year-end, indicating strong liquidity [23] - The company expects total company revenue growth of negative 1.5% to positive 1.5% in constant currency for the full year [26] Q&A Session Summary Question: Can you elaborate on the potential magnitude of your plans to reduce environmental and legal costs? - Management indicated that significant legal expenses are expected to tail off after 2024, which will increase remaining cash allowance going forward [12][13] Question: Are you seeing follow-through on heightened L&S volumes? - Management noted a slight increase in L&S revenue this quarter, primarily due to timing, and expressed encouragement regarding consumption trends [14][15] Question: Can you quantify the expected decline in legal and environmental payments? - Management expects a decline of more than half in these expenses over the next couple of years, but did not provide specific quantification [93][122] Question: What are the expectations for gross margins in new businesses? - Management stated that overall Ex-L&S gross margin is expected to improve by 150 to 200 basis points this year, with specific targets for next-gen solutions around 25% gross margin [150][151]