UNISYS CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fourth quarter revenue had 10% sequential growth both as reported and in constant currency, with non-GAAP operating margin at 11.6%. Full year non-GAAP operating profit was $176 million, an 8.8% margin, exceeding the top end of revised guidance.
• 2025 outlook includes $100 million expected pre pension free cash flow. Raised L&S revenue expectations to ~$390 million in 2025 and ~$400 million in 2026 with average gross margin ~70%.
• Fourth quarter New Business TCV was ~$220 million, full year ~$790 million, with new logo TCV more than doubling year-over-year.
• Notable client wins in Q4 included field services expansion with a global OEM, network deployment for a quick service restaurant, security managed services for a public sector utility, and managed services contract expansion with a cruise line.
• 2025 priorities: Invest in AI-enabled solutions and services, centralize application services capabilities, support ClearPath Forward 2050 strategy, advance go-to-market through innovation and partner ecosystem expansion, and focus on workforce initiatives including talent optimization, utilization, and cost reduction.

Segment Performance

• Digital Workplace Solutions (DWS): Fourth quarter revenue was $128 million, a 8.2% year-over-year decline; full year revenue was $524 million, a 4.2% year-over-year decline. Q4 gross margin was 15.9%, up 60 basis points year-over-year; full year gross margin was 15.7%, up 170 basis points.
• Cloud Applications and Infrastructure Solutions (CA&I): Fourth quarter revenue was $132 million, a 5.2% year-over-year decline; full year revenue was $527 million, a 0.8% year-over-year decline. Q4 gross margin was 15.4%, down 90 basis points year-over-year; full year gross margin was 16.5%, up 110 basis points.
• Enterprise Computing Solutions (ECS): Fourth quarter revenue was $209 million, a 6.2% year-over-year increase; full year revenue was $651 million, a 1.3% year-over-year increase. L&S Solutions revenue grew 8.4% in Q4 to $152 million and $432 million for the full year. Q4 gross margin was 64.7%, down 270 basis points year-over-year; full year gross margin was 60.2%, down 100 basis points.

Guidance

• Total company revenue growth expected 0.5%-2.5% in constant currency for 2025, translating to reported revenue growth -1.9% to 0.1%.
• Non-GAAP operating profit margin expected 6.5%-8.5% for full year 2025.
• Expect ~$100 million pre pension free cash flow in 2025, including $25 million from remaining legal settlement.
• L&S revenue expected ~$390 million in 2025 and ~$400 million in 2026 at average gross margin ~70%.

Risks

• Factors beyond control affecting forward-looking statements, including market conditions, client budgeting, and consumption levels.
• Volatility in legal, environmental, and cost reduction payments.
• FX impact on revenue and financial results.
• Uncertainty in renewal timing and size affecting L&S revenue forecasting.

Question and Answer

Q: Given the low growth exit rate in the Ex-L&S business, how much of the confidence in growth inflection in 2025 is from backlog conversion and client volume recovery?

A: Mike Thomson responded that confidence comes from backlog conversion of new business signings, lapping low volume components, and expected uptick in PC refresh cycle and higher margin field services work.

Q: How is the repositioning of application services in 2025 expected to impact growth?

A: Mike Thomson explained that centralizing application services capabilities will enhance cross-selling, standardize development, and foster innovation, allowing pursuit of larger engagements in high-growth areas.

Q: Does the free cash flow guidance for 2025 include the remaining legal settlement, and any pension cash obligation impacts?

A: Deb McCann clarified the $100 million pre pension free cash flow includes the $25 million from the legal settlement. On pension, there was a slight uptick in contributions for the next five years, but focus remains on funding with pre pension free cash flow.