I'm Ana Goshko. I'm Bank of America's credit analyst for technology and telecom, and this is our 2025 Leverage Finance Conference, and we're thrilled to have Unisys with us today, and we have Deb McCann, the company's Chief Financial Officer, and also in the audience with us, we have Michaela Pewarski, who's the company's Vice President of Investor Relations, so Deb and Michaela, thank you so much for making the trek down here to speak with us and meet with investors. Great. No, thank you for having us. It was great. We had a great day of meetings today. Some familiar faces I see in this room. It was a great day of meetings, so thank you. Okay, great. Okay, so just in case there's anyone new to the story, can you provide a minute or two on a brief summary of Unisys and its history, and then we'll dive in deeper? Okay, great. So Unisys history is a good term because we're a 150-year-old company. So we have a long history and an amazing history of transforming itself again and again, and we continue to do so all the time. So just to give a background of what we do, we provide IT solutions to corporations. We kind of have two. We have what we call a license and support business, so primarily a ClearPath Forward license business, which is really a profit and cash generator of license business. And then we have what we call ex-L&S, which is the Everything Excluding License and Support, which is primarily two areas. It's our Digital Workplace Solutions and then our Cloud, Applications and Infrastructure business. And those are areas that we're trying to grow, have them become more profitable as we're sitting alongside that license business. That's a very profitable part of our business. Okay, great. So ClearPath Forward, which is your L&S, as you lovingly call it, right? Right. It's about 20% of revenue, give or take, annually right now. Could you just give us an example of the customer base and some of the use cases? Okay. So L&S, which is ClearPath Forward, is an operating system that many large clients use to run a lot of their mission-critical operations. So examples are airlines that use it for their reservation systems. It's cruise companies that also use it for reservations and multiple other things. Banks that use it for mortgage processing. So a lot of financial services, a lot of travel, transportation that use that software to run a lot of their mission-critical operations. Okay. And then in the revenue, what is the mix of actual software contracts? How much of it is usage-based? And then what's the typical mix of hardware revenue? Okay, so the licenses are the biggest portion of that license and support revenue, and that is pretty much all usage-based. So it's a contract they sign up for. It's based on a number of MIPS they use for how much they're using that operating system. And it's kind of that set amount. If they go over that amount, they pay more. So it's generally, when I say usage-based, it's fixed. It's that amount. If they use more, they pay more. If they use less, they still pay that fixed amount. So within that, there is some sporadic hardware that occurs. If a company is refreshing or moving a data center, they need additional hardware. That's periodic. It's kind of episode-based when someone needs to upgrade or move, and that is at a slightly lower margin, but it's really not a big portion of the revenue. And then there's the support. So of that operating system, we provide support services, and that's also not that big of a piece. The biggest piece is really the license, which is based on the amount of usage that they're using, but at a minimum amount. So it's a floor amount. Okay. And then how long are the contracts? And I know the renewals can be lumpy year- to- year, and you can have a really strong quarter. Just talk about that dynamic. Okay. No, thank you for asking because that's important. So for the licenses, which are the biggest portion, those are recognized right when the contract is signed. So if it's a, the average contract time is typically about four and a half to five years for that contract. And when they sign up for that license, all the revenue is recognized for the license portion. The support revenue is recognized over time, but the license revenue is recognized all upfront for the full amount of years that that is. And so that creates some lumpiness because basically the revenue that we get in every year is based on the renewal schedule. So when you look year- to- year at our license and support revenue, and one year it might be up, one year it might be down, that's not because the business is necessarily growing or shrinking. It's just how many renewals were set to happen in that year, so it's a critical element to understand, and that's why we started breaking out L&S and ex-L&S, because when people want to understand the growth of the business, it's important for them to look at the ex-L&S to see how we're doing in our digital workplace and cloud solutions, and then the license, which is really just based on the renewal timing. Okay. So this year, 2025, you've guided to $430 million of L&S revenue, but I think you raised the guidance this year. So what was behind that guidance raise? Yep. It's the third consecutive year at $430 million, so it's been very stable. Right. It's been stable. So we raised that because it was a few things, but a big portion was hardware. So a client did say that they needed to refresh a data center, some of their hardware. And so that's a portion of it. And that allowed us to, hardware is at a lower margin. And so that's why this year you might see the margin. We say for the L&S business, gross margin's around 70%, which is very strong. This year it'll come in slightly lower because there's that hardware element. So a portion of it was hardware. There's some that was some consumption that had increased a little bit. Sometimes it's timing. There's a few different elements, but a large portion of it was the hardware element. And so that's where we came at the $430 million. We initially, I think, it's at $390 million. Okay. And then for the fourth quarter of this year, it's a very back-end loaded guide. So I think the implied guidance for L&S revenue is $185 million-$190 million out of the $430 million. So that's going to be up a lot, like over 100% year- over- year. Also up a lot, like 24%. I'm sorry, 24% year- over- year and over 100% sequentially. So I guess why is it so back-end loaded in the year? Typical is that? And how confident are you at this point in the guidance for the quarter? Yep. Yeah. So typically, and it's just a case of how the contracts were originally set up, that many of them end up being in Q4. It's not necessarily a seasonality, like any kind of seasonal reason. It's just that's how a lot of the contracts ended up being set up. So we are typically a heavy Q4. This Q4 is even heavier, partly because just the way the renewals are falling, but also we had a Q3 contract we had planned on signing that slipped a few days into Q4. So it's made Q4 even larger. That contract that slipped was signed within days of the quarter ending. So that is signed. And we have a lot of visibility into these contracts. We talk to these clients months before the renewal occurs, talking to them about kind of their future path of using the operating system, things we can do to improve their use of the operating system. So we've been engaged with these clients. They're set to renew this quarter. It's so sticky. There's not typically a case where they show up with that renewal and say, "I'm not renewing," because they're running their mission-critical systems on this operating system. So it's very steady. If anything, sometimes it's not an if, it's a when, right? Sometimes it can slip a few days like the one did in Q3. And so we are confident as we look at these contracts and the expectation that these will be signed. And so we're pretty confident in it. Okay. And then for 2026 - 2028, so for the next three years, you've said you expect annual L&S revenue of $400 million. So it is a step down from the $430 million. I mean, are you currently expecting sort of stable across those three years, or is there kind of a linear trend there? Yeah. So it's difficult to say kind of until we finish 2025, right, and we'll set the guidance out. I mean, it is an average because there can be some differences between years. We don't expect any extreme shifts, but it's hard to say until we kind of get into each year to give the exact year. But that's on average. And again, going from $430 million to $400 million doesn't mean the business is in decline. It just means there's fewer renewals in next year, for instance, than this year. So it's really just a matter of the timing of those renewals and not an expectation of the business. And then what's the assumption for usage underlying that outlook? Stable or growing usage or decline? We have started to build in because we've seen an increase in consumption in some of the renewals, which is one reason that we've increased. This year was mostly hardware, some consumption. I think last year a lot of the reason was consumption. So we've seen over the years consumption driving that overage. So we've gotten a lot more detail than our forecasting in talking to the client sooner and getting an estimate of if they expect to increase consumption. So we feel as if we've built that in more than we had in the past. So I think it's a pretty safe assumption what we have right now, and that is built in as far as that consumption use. Okay. And then with regard to AI, how is that impacting, if at all, the ClearPath business and usage? Yeah. So it's a great question. So we definitely believe a portion of, potentially not all, I think, of the increase in the consumption that the clients are using. We definitely think some of it's just basic, more things being digital, more if you go to make a, it used to be that you would just make your reservation maybe online for an airline, let's say, but now they're pushing more online. Right now, you can also order what snack you want, right? So you're just getting more. So some of it's just increased things being pushed more out to use on this operating system. But we do think in talking to clients, there is a portion as they're getting data ready and organizing and using more AI, and that also is driving some of that consumption. We definitely see upside in that license business because the contracts are based on consumption, some increase and some upside for us there. Okay, so more data, more client interaction, customer interaction among your customer base leads to more usage. More consumption, more usage, and then more when they sign the contracts, including more usage in their base contract. Okay. And then I had a margin question here, but I think you already touched on it. So the gross profit margin, what is the natural gross profit or kind of average gross profit margin? Within License and Support? Yeah. Yeah. So gross profit is about 70% of the L&S business. It can be lower this year, but it's been. A little bit lower this year, but expect the 70% for next year. Okay. Great. Okay. So then the other part of the business, which is actually 80% of revenue, I think it's broadly, I characterize it as IT services. Hope that's accurate. And you have the digital workplace and then the cloud application infrastructure. So the two different segments. So maybe, again, could you just, I think you do a lot of things for a lot of different kinds of customers, but maybe just give an example of a use case or an assignment in digital workplace and one on the cloud infrastructure side. Yeah. So for Digital Workplace, if you think of just a company looking to manage all of the devices that their associates use, looking at the help desk. So some companies do that internally, they have help desk. They have IT folks that manage all that, and some outsource it to a company like us, where if an employee has an issue with their laptop, they call a help desk. If they need someone to come out and fix it, they have someone come out and fix it. We help clients do Device- as- a- Service. So we can have the devices, and we help manage the timing of when people turn those in. So all of those just managing the overall IT device side of the business. So that's one thing we do. That's some examples of the Digital Workplace Solutions. On the Cloud Applications and Infrastructure, it's helping clients manage their cloud environments, their Hybrid Cloud environments, the applications, how they operate in those cloud environments, security that goes along with that. So those are the types of things we do in our Cloud Applications and Infrastructure business. There's a part of the ECS business that's also, which is SS&C, that is kind of the managed services that support the license business. It's a smaller portion, but that's also in there as well in our ex-L&S. Okay. And then what's the average sort of either assignment or contract or customer length? Yeah. Yeah. So it really varies because for the full, if they're outsourcing to us, their help desk, their field services, clearly that's a longer project, right? Because there's a transition period. There's a lot that goes into that. So typically those are three to five years. But then there's also some project work. So in cloud, the cloud business, we have a lot of state and local business, and there could just be project work that we do as far as helping build an application, managing, shifting an application into their environment. So there's project work as well. So those are short things. But the longer outsourcing contracts are three to five years. Okay. And then so recently, the company has cited some headwinds from, I think, unfavorable market dynamics and constraints on some IT budgets, which you said caused clients to either pause or delay some projects. So you lowered the 2025 revenue guide based upon the non-L&S segment or ex-L&S segment. So I guess my quick math is I think ex-L&S now is guided to be down about 4% year- over- year. So what specifically in the part of customers led to the softness? And has any of this changed, especially since the end of the government shutdown, I think, which was a factor? Yep. So I think of the guidance reduction we needed to do on the revenue side, the good news is we were able to hold to our profit guidance, which we had increased last quarter, and also our cash color that we gave. We did bring revenue down, and it was probably kind of about half and half. About half of it was just simply timing. So things that we believe one contract we had, we weren't sure if the accounting treatment, it was in the cloud business, would be treated all upfront or over time, and now that's going to be over time. Another timing thing was some hardware that we thought would sell this year that some of that's going to be some shifted Q3 - Q4, but some into next year. So some of them were timing elements. But you're right. Some of the things were in our cloud business, state and local business that we have, even though the government shutdowns at the federal level, a lot of that funding from the state and local business comes from the federal government, and so that impacted and kind of caused some pause in some of the project work we do at the state and local level. Even though the government shutdown, I think, is really the government somewhat kicked the can down the road. It's not completely resolved. It still could continue. I think it got us through January, but then there could be, I don't know, if everyone's completely certain what's going to happen. So we don't see that alleviating into right away, so we still see that that'll have some impact into next year. We're also seeing some hesitancy as far as with all the AI. I think people are trying to determine what they should be looking at, what solutions they should be signing up for. So as some people are looking at signing long-term contracts, they maybe are pausing on some of that. And so some of those headwinds, the government pressures, as well as some of the AI pausing to think through things, I think we're seeing will probably last a few quarters for the next few quarters. Okay. Is there any evidence yet or just a narrative that AI could turn into a tailwind for the segment that it ultimately will increase assignments? Yeah. So I think we definitely see a lot of benefits that we'll be gaining from AI. So we have within our digital workplace solutions business, we have, for instance, help desk. AI is helping with a lot as far as we're infusing that into our solution. We have a service accelerator solution that is really enabling us to reduce the cost and the amount of labor that's involved at the help desks. And so that helps us improve our margins, but it also allows us to stay competitive with our competitors and allow good pricing and to hopefully win on pricing as well. So that AI benefit, we think of it as sharing it with our clients where we get some improved margin from it, but then also are able to be price-efficient for them as well. So that's just one example in the cloud business where we do application development. AI is helping improve the speed and efficiency of coding and programming. So throughout the business, we see lots of benefits to supporting our clients, providing them better service, but also reducing the cost that it costs to provide the service. Okay. So you already touched on, even though you reduced the guidance for the year, you reiterated the margin guide for the year. And part of that, I think, is the SG&A reduction. So how much have you been able to reduce year to date? And then really, as you look into 2026, what's the potential for additional cost takeout in the business? Yeah. So definitely SG&A has been a big focus. When we had an investor day a few years ago, we laid out a pretty aggressive, over a few years, reduction in SG&A. We accelerated that. It was supposed to be finished in 2026. We did a bunch and tried to get everything actioned by 2025, so we'll get the full year benefit of that in 2026. And then we also, given some of these revenue pressures, have looked at SG&A even closer to continue to reduce that. So we haven't given out exact numbers, but it's something that we're serious about, and it's something that, even given some of the pressures this year that, as we've said, will bleed into some of the few quarters of next year, are able to still improve our profitability because of looking at reductions, so. Okay. So then, pivoting to kind of the free cash flow performance of the company and also the kind of pension. So you also reiterated the free cash flow guidance for the year despite the decline in the revenue outlook. So pre-pension free cash flow for this year, it's $110 million. I just want to talk about what allowed you to affirm that guidance. And then I've got some follow-ups after that. Yeah. Yeah. So the color we gave is that pre-pension free cash flow at $110 million. And we were able to affirm it because a lot of our profit comes from, as I talked about, the license and support business. So even though there was some pressure on some of this ex-L&S business that was lower margin, lower impact to the total overall profitability, offset with additional things on the SG&A side and cost side that we're able to manage. So I mean, that's the good thing on the ex-L&S side of the business. The cost structure is very variable. So we're able to easily pivot if revenue's not coming in or if we on the COGS side as well as SG&A. Did I answer? Yes. Yeah, so that allowed us to still be able to come in with our color. Right. So I think fourth quarter is going to be a strong free cash flow quarter based upon the guidance. So I think if my math is correct, you're going to end the year with about $390 million of cash if you make the guidance. So how can we expect that cash to be used? Yep. Yeah. So like you said, if we get the $110 million of pre-pension free cash flow, we'd end with $390 million. And for now, we'll likely, because of some of the headwinds we're seeing that we anticipate, we'll go into 2026. And we're saying a few more quarters, but things could move hopefully more to the positive, right, and that we're hopefully being too conservative and going to have some upside. But if certain things go longer, we'd like to kind of keep that cash for now until we get a better sense of when some of these headwinds will end. So we're being somewhat conservative, but if we do see some upside or things move quickly, then we can look at different alternatives. I mean, it's a priority for us to reduce pension and also just to deleverage in general. So as much as we can do that, we'll look at that. Okay. And then so on the pension, so the gap pension deficit has been reduced this year from a bunch of things that the company did, including raising some debt and just paying down. So right now, it's $470 million. So what's the outlook for further reductions in that deficit? Yep. Yeah. And if you haven't seen it, right after we did the issuance of the senior notes, we did, I think it was in July, and you can look on our events section of our investor relations website. And we laid out, and there's a chart in there that projects kind of the U.S. deficit. And then taking that, because the deficit does decrease just naturally as we're making the annual contributions. It's not one for one because there's lots of actuarial and fees and things in there. But if you take that and then also the international pension deficit decreases as we make payments. So I would say from now till the end of 2029, which is what we lay out, probably about $150 million-$200 million of deleveraging just for making those pension contributions. And then as EBITDA increases, then our goal is to really improve that debt leverage ratio over time. And then you're also making annuity purchases to help just overall reduce the pension obligations. What's the outlook for that? Yep. So we had said when we had raised incremental debt and did a presentation on what our plans were, we had said about $600 million of annuity purchases, which is transferring a portion of the pension to a third party, an insurance company. And we had said we would do about $600 million in the next two years. So in September, we did $320 million. And what's important to note is when you are shifting the liabilities to the insurance company, you're also shifting the assets. And sometimes a bit more assets than paying a premium. We actually got really good pricing and the assets we moved were similar to the amount of liabilities. So shifted $320 million. So we plan on doing about $280 million next year. And it doesn't decrease the deficit, but it definitely reduces the overall burden of liabilities on our books. Okay, and it's cashless. Cashless, right? Because it's the assets that are part of the plan. Right. Okay. And then in terms of leverage, what is the company's leverage target? So you've got the secured debt and then you've got the. The pension. Pension, the deficit, which is the $470 million. So how do you think about leverage and where's the target? Yep. So the target is over the next few years, we should be able to get the goal is to get down closer to like two and a half times is kind of what we're the near term. And we'll, of course, continue to want to reduce, but over the next few years, about two and a half times. And that includes the pension debt. Yep. Okay. And then so now that we've gone through the business, how would you direct investors to think about the sum of the parts valuation for Unisys? What do you think the market is potentially missing? Yep. No, it's a great question. I think definitely we talk a lot about the ex-L&S portion just because it's the part that we're trying to go out and get new logos. We're growing it. There's lots of focus on it. Gartner just put us in the leader quadrant for Digital Workplace Solutions. So we're really focused on it and focused on growing it and improving the margin. So sometimes we end up talking about that, but I think the license and support business is really our profit and cash generation, the core of the business. And so that's a critical piece. And so I think sometimes people might miss how profitable that is and how important that is to the overall valuation of the company. But it's something that we've talked about. We had an event where we had the leader of that business do a presentation. It's on our website if anyone wants to take a look on ClearPath Forward. So we're making sure people understand, even though we like to talk about the other stuff, that this is also a critical part of the business. And so some people, we're trying to fix that by really making sure we're talking about it more and that that's a very profitable business that's very stable, very sticky. And I think it's important for investors to understand that. Okay, and then anything to do or to think about on the M&A side, including is there anything that you would be willing to divest or? Yeah. I mean, our current strategy is, as we've laid out, we see there's some synergies between DWS and CA&I when a lot of times when we go and sell digital workplace, it's nice for some clients to be able to also get the cloud from us. The license and support business is a little bit separate, not as much overlap as far as revenue. So our current strategy, as laid out, is our focus. But as any public company, if people come and there's different ideas on how to better unlock value, then we're always open for that. But right now, our prime strategy is as laid out with all three of those business units. Okay. Great. So I always like to leave a minute just to allow you maybe to hit on anything that we haven't touched upon that you'd like to leave the audience with and just really kind of wrap up with what you're most excited about. Okay. Great. No, we're very excited about kind of the two sides of the business. So the ex-L&S making a lot of progress, really showing the value of our solutions. I mean, we talk about getting the leader designation in Gartner, but that just doesn't happen, right? That's Gartner spending years with us on looking at our solutions, seeing how competitive they are with our other competitors. And so I think we're proving ourselves in the marketplace and in a position to really win out there. So I think that's what we're excited about. We're also excited about the strength of the license and support business. Given that it is so profitable, it really allows us to have the ability to invest in that business, and we continue to invest in that and ensure we're keeping that very stable while also investing in some of these growth areas that we're excited about. So I think it's important that we're excited about that. I think from a liquidity perspective, having that cash, right, and having that flexibility of what to do there, I think we have an undrawn ABL, and so we're in a good position from a liquidity perspective. No big notes coming due for at least the next few years. So we feel very good from a liquidity position and just excited for what's to come. Okay. Great. Deb, thank you so much for being with us. Thank you. Thanks so much. you. Thanks so much.