All right, we'll go ahead and get started. Dave Mossberg with three-part advisors, and I'm here to introduce Unisys. This is a company we found a couple years ago. We literally scour all over the U.S. to find good names to invite to our conference. We did kind of a mini-bus tour somewhere in Pennsylvania. Where is your headquarters? Bluebell. We actually went to Bluebell and met with a company, with a group of investors. And this is the second year of doing our conferences. So really happy to have him back and turn it over to Deb McCann, CFO.
All right, great. Thank you, Dave. Really appreciate it. Hi, everyone. Thanks for coming. So before I get going, I want to – here's a brief agenda, what we'll cover, an overview, focus on some of our growth solutions, artificial intelligence, which I know everyone wants to hear about, our financial strategy, and then our capital structure. So about, you know, just last week we had an investor day on June 2nd. And so a lot of these slides were taken from there. But we also went into a lot more depth at the investor day. We had our business unit leaders presenting, giving actual client examples, some videos of clients speaking about what we do. So I'm going to give an overview. But, you know, we do have on our investor relations website that full, it was a three-hour day. So if there's pieces you want to dive into more, you maybe don't have to watch the full three hours, but you can slide ahead and look at some of the different pieces. So just wanted to give a heads up on that. And at that meeting, when you see item four on the agenda, the financial strategy, we did give some new three-year targets of where we expect to be from now through 2029. So I'll be talking about some of those targets here today. So this conference was perfect timing for us because it's a way to reach more investors with everything we talked about on Investor Day. and hopefully even some more information for you so so first who are we so as they've mentioned they came we were our headquarters bluebell pennsylvania it was great that he came and brought investors no one ever comes to bluebell pennsylvania uh we're actually we're just outside of philly so we're only about 20 25 minutes from philadelphia so not as out in the middle of nowhere as it as it may sound um so we're we're headquartered in bluebell our root state backed over a hundred and fifty years so we're we've been around a long time we we have clients that have been with us very long time our top 50 clients we've been servicing them for an average of 20 years so a lot of recurring revenue a strong base of customers we operate in over a hundred and twenty countries we have about fifteen thousand associates our revenues about two billion dollars of annual revenue in 2025, and as you'll see, we're very diversified by industry, geography, client, and we've been getting more recognition over this past year or two, which I'll also talk about. So this is kind of who we are, and in sum, you know, we are a mission-critical IT services and solutions partner, and we'll talk a little bit more about those businesses in a minute. So here's our, the kind of more what we do as opposed to who we are, now what do we do? So these are our solutions. We have, if you look at the kind of row across the digital workplace solutions, cloud applications and infrastructure, and enterprise computing solutions, those are our three reported segments. So when you look at our financial results, you'll see those are the three main segments, how we manage our business. We have leaders of each of those businesses. But then on the far right, you'll see we have ClearPath, which is an operating system that we have been separating in our financial reporting lately. And that's because the core element of that is license and services. And the license revenue is recognized all up front when a deal is signed. So if it's a three to five year contract, all that revenue and profit and typically the cash come at once. So we've been breaking out this section over here called ClearPath just because it makes our financials very lumpy. So, in addition to reporting on our three segments, we talk about ClearPath, which we formally were calling License and Support, and then everything to the left is our Technology Solutions and Services. And that includes, again, Digital Workplace Solutions, so we do Field Services, Service Desk, you know, Experience as a Service, so help a company manage its devices. Then we do Cloud Application Infrastructure, so help companies manage their infrastructure, their cloud environments application development within those environments and then like i said enterprise computing clear path is the biggest piece of that the license and support but then also we do lots of services within that so this is a the the main uh services we provide um on here next is our revenue uh our revenue profile so as we talked about before um you know that we're very diverse everything's very diversified across segments geography and clients this is an example of that so first on the left you can see the license and support solutions are now what we're calling clear path is about 22 percent of our overall company revenue and everything else the XLNS which we're now calling technology solutions and services is about 78 percent that's the mix of our total company revenue and then when we go to our reporting segments and our geographies and our client sectors you can see it's very well distributed so we have about 42 percent u.s and canada revenue and the rest is is outside of the u.s and canada and then our segments it's the the bars make it look even more different but generally about 30 percent of each between their 25 35 percent um of of our total revenue so within our segments we're very diversified within geography we're diversified and then same with clients. So we have about 30% between commercial, public sector, and financial services. So this provides a really good base of clients from all over. And so as different macro factors occur, it somewhat limits our exposure in certain ways. So that's a positive. So next are our clients. So in addition to diversity across the segments of clients, you can see this very strong base of blue chip clients that we've been serving for much time. And as we talk about some of the AI solutions and different things coming, this is a great base of clients that we can expand on and expand and provide even more services. So it's a very, you know, and as I mentioned, our top 50 clients we've been servicing over 20 years and have a very strong renewal rate. So this is something we're very proud of and see as a really strong opportunity for us of how we can grow the business. We also have a variety of partners. We have a capital light strategy. We don't, and especially as some of these new AI tools and capabilities are coming to be, you know, our goal is not to invest and create more tools, you know, but to really use those tools and help our clients. How are they going to deploy those? How are they going to integrate those into their processes? And so you can see, these are key alliance partners that we work with. So several OEMs, several, you know, companies that help provide service to manage digital workplace, cloud, and then enterprise computing. So you can see, you know, this is just a small sample. There's a lot more than this. But our goal is to really build these strong relationships. And that way we can be technology, you know, tech agnostic when we're servicing our clients and say, look, we work with all of these. What works best for your business? This is just an example of some of the accolades we've been receiving. And so we think our solutions are top-notch, and we've been investing and ensuring, you know, in addition to we have some pension liabilities and other things competing for our capital, but we've still been able to really invest in our solutions, which we think is really important, and we've benefited from that. and that's just not us that thinks it this is a good example of the the rankings and reports that we've made it into that have us in that leader category and so if you look you know Gartner on the far right in the middle we were just named a leader in global outsource digital workplace solutions and that's important you know if you look at ISG we were we're a leader in advanced analytics and generative AI services so we are deploying AI we're we're doing well with it and we're being recognized, you know, if you look digital workplace solutions, almost all of these were a leader in digital workplace solutions. And so this is important because as clients go to look at who can help me deploy AI, who can help me with our devices, how do we do this? They go to these rank, these, these advisors to see where do I start? Who do I, who do I go out with RF, you know, with an RFP to? And so it's really important for us to be, you know, the second and third columns are these rankings that are important. And then on the left are awards we've received for just our company, you know, world's best company from time, most loved workplace by Newsweek. So, you know, also keeping our associates happy and an important part of our work as being an IT services company. So now on to some of our growth solutions. So within those three reporting segments I talked about, I'm going to dig into a little bit more to what solutions we do, but also on the left, you know, where our priorities are. And so for our cloud application and infrastructure business, you know, our goal is really those things on the left, the hybrid cloud transformation managed services, our application development and transformation managed services, and then security. So those are really what we're focused on, and a lot of those we're employing AI in. And so the goal is really for, to get a higher mix shift in our total revenue to those areas on the left, because they are higher margin, can create more value as we grow these. Also the delivery of these, building, helping our clients get more, you know, agentic teams into their workflows, AI talent into their workflows. And then on the bottom, you know, a priority is our Unisys Intelligent Accelerator AI framework. So as we go to clients, we don't reinvent the wheel every time. We can quickly say to them, here's the tools you should be using, here's the governance structure you should be using, and a really quick roadmap to help them, how do we implement AI within our cloud and applications. So this is, within CA&I, the things that we're really focused on. Within our digital workplace solutions, again, on the left, these are the areas that we're most focused on. You know, you can see experience as a service, agentic service desk so employing some tools where when an associate of our client calls in they say our I need to reset my password I am having an issue with my computer you know employing more agents into that right now agentic AI is already helping that with when or I'm sorry you know generative AI so you know is able to create better answers when people call in so that's already been in place. But now we're moving more towards agents being able to do that and not even have to get a human involved. So those are some examples of service desk technology that is coming into play more. AI-powered field services. So if something's broken, someone goes out to fix it, having those agents, it can't be an agent going out there, an AI agent agent, but they have that source of information to help them figure out how do i fix this it lowers the time of training needing needed for those field services representatives and just makes everything a lot more efficient for the client and improves the margin for us as well devices a subscription as as the price of some of these devices is going up this really helps clients manage the devices that they have the refresh of those devices managing the the service on those devices and that's an important priority solution for us as well. So across digital workplace, we're really building on our strengths and to tap adjacent markets. So one example of that is field services. Right now, we're typically servicing devices, but what we see is in the explosion of some of the data centers that's coming that we can also help service data centers. We can help even build data centers, so racking and stacking that's needed. We have all these agents throughout the world that are helping with the break-fix with client devices. And that's an area where we see a lot of opportunity for expansion. So there's a lot of new information about that on our website. And so, you know, an area we're really pushing towards. And another example of where we see AI is a very big opportunity for us. This is a very busy slide. But this is, you know, the slides are available on the website, so you can dig into this a little bit more. But what this is just explaining is that our ClearPath ecosystem, so that operating system I talked about, you know, is just very, it's secure, it's scalable, and it really has a lot of flexibility to enable AI workflows. So it talks about different deployment options. Clients can shift this to the cloud if they want. But in many cases, clients are choosing to stay on mainframe. But we can also build in value-added solutions. and the application environment creates a very sticky environment where we've helped build a lot of applications throughout this operating system. And just a lot of opportunity we see for AI workflows to become integrated in this operating system and help drive even more value for our clients. So next on to artificial intelligence. So we see, as I know many of you in this room agree, that agentic AI is really going to be a very big inflection. So some of the AI that's come along has just been, you know, somewhat of incremental changes. But agentic AI, especially in the business that we are in of IT services, helping clients, you know, build their, the best technology for them on their journey, agentic AI is going to really speed up innovation. And so, you know, you can see some of these stats here, which all come, they're all cited in the bottom, you know, where we got them from third-party research. But, you know, there's $450 billion of economic value expected to be created by AI, by agentic AI by 2028. About a third of enterprise software applications will contain agentic AI by 2028, and about a 10 times increase in AI agents by 2027, and then about a 44% CAGR in the AI market. So for us, we see, you know, this huge opportunity, and we think we're in a very good position to support our clients as they're implementing some of this agentic AI within their business. and you know to give it a little more sense of how we plan on doing that this slide gives a brief summary of our approach to it and so our framework when we go to clients and they're thinking through how can I you know it used to be a question of should I be doing AI you know now it's an obvious answer which is yes and so the question more is how do I do it and so you know what we help them do is first develop the foundation of their enterprise AI. So this includes things like their data strategy, getting their foundational data in place, includes things like their governance structure and how do they implement governance, the security for it, and then the infrastructure to be able to do it. So with our cloud and infrastructure business, do they have what they need in place to actually implement AI? So the first part we go in is developing that that main foundation next is transforming so this is helping clients implement the foundation foundational AI elements to really translate into measurable outcomes from for them and this is something where if you have the time to look at our investor day we have client examples you know we're not a startup here to say oh here are some ideas we have we're executing these types of things right now with clients and you can see some of those client examples in our, in our, that we walked through in our investor day. And so these are things such as adding agentic workflows into their processes, adding more of an AI workforce, so through agents and into their processes. And things, you know, that maybe took many engineers hours to do that we can now help them where it's, you know, one engineer maybe it takes minutes to do. So really transforming, you know, their processes. and then orchestrate so it's not a once and done right you don't do this and and then that's it right this AI is going to continue to evolve and so it's that you know continuous optimization and working with them to work through how do we continue to optimize their their business so I'm not going to read through this whole chart but this shows you know just examples of the full AI technology stack and the partners in all of these different areas so from a frontier model. So all of these, the companies, the icons within these boxes are companies that we are actively partnering with to support our clients. So the frontier models on the upper left, agentic industry outcomes, so using agents, vertical AI use cases with these partners on the bottom left, data and infrastructure, so cloud, compute, private AI, data governance, you know, working closely. Dell is a big partner of us. But again, you know, Lenovo, all of the OEMs. So we're very technology agnostic. We're not, you know, when we go into a client, we're not set on one partner. Whatever works best for them is what we do. And then on the bottom right, so for some of the AI operations, So ServiceNow, GitHub to help them with their code writing, you know, all of that is a big area as well. So this is something we see as far as you can see our framework on the left, develop, transform, and orchestrate. Working closely with these partners is the model that we're choosing and that we think is the right model. So this just kind of summarizes. So as far as the AI section, end-to-end AI, security and governance, we have proven enterprise delivery. We've been doing this for 150 years. Not exactly this, but first we were typewriters and adding machines, but supporting clients in running their businesses and optimizing their business. And just a depth of industry and process knowledge that we've been doing for much time and really just being agile and practical. right not coming with here's the solution you need to do but but having lots of options and conversations that we can have with them just want to quickly touch on I've been talking mostly about the examples I was giving were mostly DWS and CA and I but just an example of within our clear path forward operating system some of the real benefits we see from AI that that we've already seen some of the benefits from and this is you know the mainframe market people kind of thought oh mainframe that's old and now it's all about cloud but we're seeing more and more clients really with AI finding it still important to work on mainframes and so you know workload growth about six percent CAGR is expected about 90 percent of IT leaders planning on deploying AI on a mainframe and so you know and then two times faster MIPS growth so mips is a measurement it's a unit of workload consumption and you know this is something we are seeing so in our clear path uh operating system it's not something that we're going out and getting new logos in this area a lot of the a lot of the clients we have are big airlines that run all their um reservation systems on our platform or a bank that runs all its mortgage processing these are companies that are very sticky they've been with us for decades We're not necessarily getting new clients, but within those clients they're using more data. And so the Contracts we sign with them are based on that usage of data. It's a set number that they purchase at the beginning But if they go over those MIPS when they renew they sign for more MIPS and we've seen that consistently So when we did investor day in 2023 We expected this business to to be about 360 million dollars per year and it ended up being about 425 million dollars per year the past three years and mostly that was due to this MIPS usage increasing and that ClearPath business runs at 70% gross margins so for us to have that increased usage you know because of AI people want the you know their data in a lot of times the same place that some of the AI inference is happening uh they want um you know so they they really want the security for this ai data because it's becoming even more important and so we're we're finding that we're really capturing some of the value from from this ai these ai factors that are occurring i'm going to skip ahead just to make sure we have more time but this is again just talking about clear path and how ai is kind kind of at the core and integrated into everything we do. So just to make sure I get to the finance slides and also leave some time for Q&A. As we talk about revenue, so what does this translate into? So we, in the Investor Day deck, you'll see as we go through the different business units, we talk about some industry CAGRs, but how does that translate for us as Unisys? And so for technology solutions and services, which is more the DWS and CA&I, we are targeting about 3% to 5% of three-year CAGR of revenue growth. And this is an important note is we have a UK joint venture that is going to be winding down and that revenue is moving away. It's a no margin business. And so it's been winding, you know, it's going to start winding down next year. this CAGR excludes that so including that kind of wind down of revenue it's one to three percent so that's in the footnote just want to make sure I point that out but the folk the area we're focused on growing which is this technology solutions and service revenue we see this three to five percent CAGR over three years and the growth solutions on the right or how we plan to get there we see a lot of the macro trends and headwinds that have been affecting our revenue growth the past year or two a few years really um we see some of those alleviating we see all this opportunity and in ai and some of the kegers that are in some of those areas and we also see with all of the new recognitions we've received where we're now leader in in dws and ca and i we really see these areas as being where we're going to focus on and we see a lot of opportunity to get to this growth rate from a margin perspective and again this is the technology solutions and services so the dwsca and i we've really a big focus of ours has been improving the the margin so the gross margin over the past three years has improved 560 basis points and that's through looking at our our people our our technology that we're using our automation uh that's been a huge improvement and that's really getting these businesses to become profitable and so we've made it really a lot of progress it's not going to be as much progress the next few years but we still do see opportunity using the areas on the right so higher margin mix shift improved automation future skilling the workforce so we get more revenue per associate these are the areas on the right that we expect will drive about 70 basis points of gross margin in the the DWS CA and I areas over the next three years for a total of about 200. We're also improving our SG&A. So at the 2023 Investor Day, we set a target to reduce our SG&A by $50 million. We actually reduced it by $70 million. So a lot of heavy lifting to take a lot of, and I say SG&A, but it's really more focused on the G&A. And that's through deploying AI, streamlining processes, looking at our real estate portfolio and areas we could cut. so we really did a lot of work and and also you know but going forward we're going to still do more maybe not 70 million dollars that was a big lift but we do see targeting you know as sgna is a percent of revenue as as revenues growing that will become even more efficient with our sgna so about 150 basis point reduction in our sgna is a percent of revenue which equates to about another 10 to 20 million dollars over the next three years so with all of this with the three with the revenue growth we plan on getting the margin expansion in our SG&A these this is kind of how it all adds up so if you look on the lower left that's that technology solutions and services revenue we expect three to five percent clear path revenue about four hundred million dollars on average for the next three years that all adds up to about a two to four percent CAGR over the next three years and again that clear path revenue which is ending this year we're expecting our guidance about 425 million and so next year it goes down to about that 400 and that's not because it's not growing within the clients but based on the renewal schedule we expect fewer renewals um in 27 through 29 so about 400 million so that's a little bit of a weight on that dws and ca and i growth rate it's a total to two to four percent And again, you can see the footnote that including that JV, it would be total company 0 to 2%. From a gross margin perspective, you can see the bottom is that 200 basis points we talked about over the next three years. Clear path gross margin remains very strong at about 70%. So from a total company basis, about 100 basis points in total over the next three years. And then with that SG&A expense reduction, we expect operating profit of about 12% to 14%. And that translates to adjusted EBITDA of about 17% to 19% by 2029. And with this, we generate free cash flow of about $50 million by 2029. Without our pension, which is, you know, it's something we have to contribute to each year, the free cash flow excluding pension is about 110 million dollars and this assumes similar modeling items you know the taxes the some of those other items if you look at what we guided for this year for modeling purposes you can assume the same going out through 2029 very similar numbers so as far as deleveraging so deleveraging is a core focus of ours so for those who don't know, we have a pension, a 150-year-old company. We still have a pension. And so when we look at our debt, the dark green on the bottom, that's our secured notes that were about $500 million until we refinanced them last year. We raised $200 million more in order to pay down some of that pension. And so when we look at the deficit, the middle bar is our U.S. pension. And you can can see in 2024, we reduced that deficit greatly by taking out some additional debt. So it really didn't change our debt amount, including pension, but really helped reduce some of those pension contributions. So as you can see, we'll be reducing the pension contribution, the deficit related to pension by about $240 million over the next few years. We'll also be improving EBITDA by about $75 million. And what that translates to is where we're now about 2.9 times leverage, including pension, will be below two times by 2029. So this is important for a few reasons, you know, just, you know, by that time we can pay down some of our existing debt, refinance, be able to get better rates, and also we can borrow a little bit more to be able to go to an insurance company and transfer, you know, the goal is to get rid of that pension, which we should be able to do, you know, sometime after 2029 with this better leverage profile so the D leveraging is a core focus of ours and something where we're very excited that we're we've made a lot of progress and that we kind of see a light to getting to the end of that pension so why is Unisys a compelling investment so we already talked about the transformed Unisys we're now a much more recognized leader we have a diversified client base with a very large TAM we've increased profitability like I said 560 basis points we've stabilized our pension and now we're moving to kind of that next phase 26 27 where we're seeing we're gonna be seeing growth inflect positively scaling that digital workforce and all of the AI tailwinds and TAM expansion I talked about that we see is a really big opportunity we see you know medium term so through 2029 which were the targets I laid out you know continued margin expansion deleveraging and a potential pension removal once we're able to to get through some of the contributions and get to that leverage point where we can potentially borrow to reduce that pension we're also getting an environmental receipt we for some remediation work we've been doing that we should get money back from that which we expect in around 2028 timeframe. So what does that mean for shareholders? You know, just doing the pure math on some of these items we talked about. So $200 million of targeted net debt reduction would translate just based on the current amount of shares to about $3 per share. And then our increase in EBITDA, which as I mentioned, about $75 million, you know, given our current multiples would translate to about $4 per share incremental. So we see, you know, really us becoming a solid free cash flow generator with enhanced flexibility for deploying capital and, you know, really see a path to that and are looking forward to it. So I'm really excited about the opportunities that AI are bringing to us to really grow and improve on what we already do for our clients. So, with that, there's about two minutes left for any questions.
What's the size of your total?
From a liability perspective, well, the deficit, if we go back to the slide, it's about $400 million is our total deficit, and that's U.S. and international. The U.S. deficit's about $240 million. And what have you been paying in the last couple of years? So the last couple of years, I think last year was around $60 million for the U.S. pension. The international contribution is consistent, about $30 million. So I think it was around $90 million. This year, I think it's around $70 million U.S. and $30 million international, so about $100 million for this year and next year. And then it goes down. And there's a chart. if you look at our Q4 earnings call, we do it once a year with the exact pension contributions and the exact deficit. So, yep.
Clear paths like call?
It's about $400 million.
So it's 20%, 25%?
Yes, about 20%. With 70% gross money?
That sounds like it's very AI focused.
Yeah, I mean, it's very, you know, ripe for kind of AI being very you know just increasing the usage yeah I mean it's it's just really the operating system that the clients are using but because they're using more data and you know the the utilization is increased so it yeah so it's hard to do yeah for yeah so for the for the clear path you're saying?
Just your overall kind of numbers you're through.
Yep.
And then your EBITDA going to like 17%, I think you said.
Right, exactly. So yeah, the...
With four or five hundred million.
Yep, four hundred million.
People who get that done, what's in between?
No, I mean, well, it's four hundred million on average, the revenue for the next few years. And it's you know, those clients within that operating system are using it more and the usage is higher because they're using more AI. So it's not us using, you know, their AI. We're also using AI to help build in and improve the functionality, right, of the operating system. But it's really their usage of AI that's increasing the MIPS that they're using.
So that 70% gross margin on that revenue.
Yep.
As they use more and more data, that's going to grow.
Right, that'll grow. Exactly. Yeah, as they use more, so as that revenue, because there's a lot of fixed costs within that. And so as they use more and that revenue number goes up, that margin will go up. But for now, we're expecting that about $400 million and then about 70% gross margins. But we definitely see. And the revenue year per year is based on how many clients are renewing that year, not necessarily the growth happening within those clients. So just because the revenue is all recognized up front when they sign the deal. So there just happen to be fewer renewals in 2027 eight nine as there were the past few years that's why we see that decline it's not a measurement of the performance of the business yes they're just the required amounts that I mentioned yep did I see a question over here the hundred and fifty so we yeah we've reduced 70 million of costs over the past three years and now it's only about 10 to 20 million will reduce over the next three years but the the basis point improvement of the percentage it'll become more productive over time is that what you did I answer your question yes right right yeah no we do think they'll look for savings but we'll also you know so I think it'll be split right they'll take some of that savings but then it'll also help us improve our margin so so great yeah I think it'll still be in our favor I think so all right I guess I'm over time I have the red blinking light but thank you all for your time really appreciate your interest in Unisys and we look forward to hearing from you