Unisys(UIS)2023-11-07 16:33Financial 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]