Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Unisys Corp (UIS, Financial) reported revenue and profit slightly ahead of expectations for the first quarter, indicating a solid start to the year.
- The company is on track to meet its full-year financial guidance and is making progress towards long-term cash flow objectives.
- Unisys Corp (UIS) saw a 4% year-over-year growth in Accel revenue and expects growth to accelerate in the second half of the year.
- There was a significant expansion in first quarter XLNS gross margin year over year, driven by additional efficiencies and near-term investments for future cost savings.
- New logo Total Contract Value (TCV) more than doubled in the first quarter both year-over-year and sequentially, indicating strong market demand and potential for future revenue growth.
Negative Points
- Total company TCV declined by 1% and XLNS TCV declined by 20% year over year, primarily due to the timing of the renewal schedule.
- XLNS new business TCV, excluding renewals, was down 2% year over year, although with a favorable mix of projects contributing to revenue later in the year.
- First quarter client signings showed a decline in backlog approximately $200 million on a sequential basis, largely due to the seasonal nature of project work.
- The company reported a net loss of $150 million in the first quarter, significantly impacted by a non-cash settlement loss related to a group annuity contract purchase.
- First quarter non-GAAP operating profit margin and adjusted EBITDA margin declined year over year due to the impact of license and support renewal timing.
Q & A Highlights
Q: Hi, 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?
A: Yes, Rod, this is Peter. Thanks very much for the question, and thanks for attending the call. Did you kind of quantified a bolus in part on the legal side, 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 expect the trial date is not currently set of. We expect that in 2024. So we expect that those legal expenses, which do represent the predominant amount of our outside legal expenses will basically tell off that for 2024. So that's going to increase, you know, the the remaining cash allowance that we have going forward. And then really two things on environmental. We have once again 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. And as Dave 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're thinking that may happen in 2026. So I hope that helps.
Q: Yes, that's definitely helpful. And then I wanted to go back to L&S and the consumption volume in L&S climb last year. Are you seeing follow through on that trend in heightened L&S volumes? And I wonder if that if that contributed some upside to your expectations in the in the quarter that you just reported?
A: It runs? It's another great question, and I'll defer to Mike on that one. But in general, you can we have really been encouraged by that as you will recall, we had more L&S revenue than we expected last year. We have a slight increase in L&S revenue this quarter versus expectations. Most of that was due to the timing of announcing this transaction. But in addition, we have this consumption issue. So Mike, I thought about that.
Q: 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 do you think it's a more than a half half reduction of that expense over the next couple of years?
A: So this is Peter again, if you're talking about external legal expense, 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 expected by the way to be less than half. But Debbie, you may or may not be in a position to quantify that more than I just did.
Q: Got it. Thank you for that, Peter. And then just in terms of the the two add-backs 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. Is that how should we see that trend for the balance of the year if you want to speak to that?
A: And so for the EBITDA add-backs, I think it's Sam. The Q one, I think is a little higher for the cost reduction, and I don't think that should continue to be that high. And then on the other expense as well. There was something more of a onetime. So I think those are a little elevated, but 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.
Q: Got it. Thank you. And then broadly, in terms of the business itself, the XL. and S. TCV was, I think excluding renewals was down about 2% and you're expecting more back half weighting in project revenue. So would you would you say that broadly speaking, what would you say is affecting it?
A: Thank you. Yes, it'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, we're really happy with the new business signings as well as the new business pipeline. So new business for us 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 extension and new scope work with existing clients. But one of the things we are very, very focused on is making sure that the new logo component of that it picks up and increasing and increasingly becomes a bigger part of our new business mix that happened to a fairly well in the first quarter, and we expect that to continue over the course of the year. And so the negative 2% is really not significant one way or the other and largely due to timing. 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 land and expand and create more and increasing revenue over time. Mike, over to you for more detail on that.
Q: Same thing can take my questions have been addressed already, but Humira and given any sort of targets for the gross margins for the new businesses and it works the workforce, listen, the C & I.
A: Yes, thanks. This is Peter. A great question. And again, I'll defer actually to Deb on this one after I do a little start to that when we rolled out our multi-year plan last year, one of the things that we stressed and you just hit on it is really an expansion of gross margin, and that's really going to come in two ways. One is where we expect the gross margin to expand because we expect growth in, if you will, that accelerate U.S. business on the 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, specifically on the majority of that business, which is in DWS and with within CNI. The second element of that, which is also important and it's a little bit like the decreasing amount that we expect on the external legal fees and on the environmental. Some of this stuff is again built into our model, which we showed last year, but relatively automatic.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
