UNISYS CORP Q2 FY2025 earnings call

• Pension Actions: In June, issued $700 million of senior secured notes, refinanced debt, and used proceeds to make a $250 million discretionary pension contribution, reducing the U.S. deficit. Shifted asset allocation in plans to fixed income to remove market and interest rate volatility, accretive to cash flows over 5 years.
• Revenue Performance: Q2 reported revenue increased 12% sequentially and 1% year-over-year (reported and in constant currency), exceeding prior quarter expectations. Ex-L&S solutions up 10% sequentially.
• Client Wins: Examples include expanding IT support to hospitals, expanding data center management services with a global financial institution, and leading a core banking system upgrade project.
• AI Investment: Investing in AI to scale delivery, with DSS and SEA as examples. SEA uses generative and agentic AI for highly automated omnichannel service desk, seeing end-to-end automation resolution increase.
• Solution Portfolio: Continuing to invest in innovation, operationalizing AI, scaling specialized field services, advancing alliance partner strategy, and receiving numerous awards and recognitions.
• Employee Attrition: Very low trailing 12-month attrition rate of 11.7%, highlighted by Newsweek's Global Top 100 Most Loved Workplaces.

Digital Workplace Solutions: Q2 revenue was $138 million, a 4.6% increase compared to the prior year period. Year-to-date, revenue was down 1.4% year-over-year due to higher volumes of PC-related field services in the prior year period, but saw 13% sequential growth in Q2. Growth was driven by 2024 new business and ramping volumes in high-end storage field services, while PC-related services have stabilized and project work related to Windows 11 upgrades has begun to materialize. Cloud, Applications & Infrastructure Solutions: Q2 revenue was $185 million, a 4.9% decline compared to the prior year period. This segment has high public sector exposure, where client sentiment remains muted due to funding and geopolitical concerns. However, the segment revenue grew 2% sequentially, and year-over-year growth is expected to inflect positively in the fourth quarter. Enterprise Computing Solutions: Q2 revenue was $140 million, an increase of 8.2% compared to the prior year period. Within the segment, L&S revenue was $88 million, up 7.7% year-over-year in constant currency. This exceeded expectations largely due to some acceleration of revenue expected in the third quarter, including integrated system sales. Specialized Services and Next-Generation Compute Solutions grew 9.3% on some higher volumes and project work in business process solutions, some of which are expected to moderate in the back half.

• Total Company Revenue: Guidance range for total company revenue is negative 1% to positive 1% in constant currency.
• Non-GAAP Operating Profit Margin: Raised guidance range to 8% to 9% from prior 6.5% to 8.5%.
• L&S Revenue: Increased full-year L&S revenue guidance to approximately $430 million, from prior expectations. Projecting $400 million for 2026.
• Pension: Expect to execute annuity purchase transactions to remove up to $400 million of U.S. pension liabilities, resulting in settlement loss up to $290 million.
• Pre-Pension Free Cash Flow: Expect $110 million of pre-pension free cash flow for 2025.

• Macro and Geopolitical Uncertainty: Impacting industry growth and client decision-making, affecting revenue timing.
• Elongated Decision-Making: Slower ramp-up of implementations/transitions shifting some revenue out of current year but not affecting total expected revenue over contract life.
• Revenue Recognition: Uncertainty in timing of backlog conversion and contract revenue recognition due to complexities in negotiating large long-term contracts.

Q: Rod Bourgeois asked about the breakdown of the change in the 2025 revenue guidance.

A: Mike Thomson said the tempering of guidance was due to macros (budget uncertainty), backlog conversion hesitancy, and revenue recognition of current contracts. The flip side is increased profitability and pre-pension free cash flow value.

Q: Rod Bourgeois asked about DWS volumes and high-performance compute.

A: Mike Thomson said PC service volumes in DWS have stabilized, high-end storage and network services volumes are ramping. L&S business continues to outperform with $400 million projected for 2026.

Q: Anja Soderstrom asked about L&S growth and new logos.

A: Mike Thomson said L&S growth is from consumption, new business pipeline up 15% first half, and strong pipeline in differentiated areas like DSS and SEA