Unisys Corporation (UIS) Earnings Call Transcript & Summary

Good morning, and welcome to Unisys Corporation 2021 Annual Stockholders Meeting. [Operator Instructions] I would now like to introduce Peter Altabef to begin the meeting.

Thank you, and good morning. My name is Peter Altabef, Chair and Chief Executive Officer of Unisys Corporation, and it is my pleasure to welcome you to this year's Annual Meeting of Stockholders. Due to the COVID-19 pandemic, we are conducting this year's meeting over the Internet as a virtual meeting rather than in-person. A recording of the meeting will be available on the Unisys website 24 hours after the meeting has concluded. You'll be able to access this recording through the Investor Relations page. I would now like to introduce Gerry Kenney, General Counsel and Secretary, who will serve as secretary of the meeting and walk us through the formalities of the meeting.

Thank you, Peter, and good morning. First, I'd like to introduce the members of our senior leadership who are with us today: Eric Hutto, President and Chief Operating Officer; Mike Thomson, Chief Financial Officer; Katie Ebrahimi, Chief Human Resource Officer; Lisa Madion, Head of Corporate Services; Matt Newfield, Chief Security and Infrastructure Officer; Dwayne Allen, Chief Technology Officer; John Clendening, Communications and Marketing Officer; and Shalabh Gupta, Treasurer. Also with us today, in addition to Peter, are the following members of our Board of Directors: Dr. Jared Cohon, Nate Davis, Matt Desch, Denise Fletcher, Philippe Germond, Lisa Hook, Deborah Lee James, Paul Martin and Regina Paolillo. Also in attendance are Richard Greenwood and Wilson Matheson of PricewaterhouseCoopers LLP, our independent registered public accounting firm. They will be available to respond to questions following the meeting. A copy of the meeting agenda is available on the website that you use to access this meeting. After the adjournment of the meeting, Mr. Altabef will provide comments regarding the state of our company and respond to questions or comments from registered stockholders. If you are a registered stockholder, you may use the control number provided in your proxy materials to submit a question at any time during the meeting, and Mr. Altabef will respond to questions relevant to the meeting following his comments, time permitting. The record date for this meeting is March 8, 2021. Each stockholder as of the record date has been given proper notice of the meeting, a quorum is present. Affidavits relating to the mailing of the meeting notice, the proxy materials and the annual report will be filed with the records of this meeting. A complete list of stockholders as of the record date is available on the meeting website. The list has been open to stockholders of record for the last 10 days. The Board of Directors has appointed [ Peter Hegwart ] as the inspector of election for this meeting. In keeping with our policy of confidential voting, Mr. [ Hegwart ] is an independent inspector. He has been duly sworn and is present. Let's now move to the order of business, the presentation of the proposals. The first item to be voted upon is the election of directors. The proxy statement includes a listing of the nominees, I hereby declare them duly nominated. This year, the deadline for stockholders to submit director nominations was January 23, 2021. Since no such nomination was received under our bylaw procedure, I declare the nominations closed. The next order of business is the proposal to ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the corporation's financial statements for 2021. The Board of Directors has recommended a vote for this proposal. The last order of business is the approval on an advisory basis of executive compensation. The Board of Directors has recommended a vote for this proposal. There being no further items to be voted upon. The polls are now open for voting. Any stockholder or proxy holder present who have not voted or who wishes to vote at this time may now do so by submitting their vote on the website you use to access this meeting. Only stockholders of record or proxy holders may vote at this time. Stockholders in the Unisys Savings Plan may not vote at this time since they must vote through the plan trustee. I will pause briefly to allow votes to be counted. [Voting]

Now that stockholders have had an opportunity to vote, the polls are now closed. The final report of the inspector of election will not be available before the end of the meeting. However, I am advised by the inspector of election that he has counted the votes and certifies that proxies representing at least 91.2% of the common stock have been received. The preliminary results are as follows. No material changes in the outcome are expected. Each of the directors received at least 50,449,421 votes for his or her election, which represents more than 50% of the shares voted. Accordingly, each of them has been duly elected as a director. The proposal to ratify the selection of PricewaterhouseCoopers LLP as the corporation's independent registered public accounting firm received -- for 2021 received approximately 60,811,525 votes for, representing 99.7% of the shares present and entitled to vote. Accordingly, this proposal has been adopted. The proposal to approve executive compensation on an advisory basis received approximately 55,688,514 votes for, representing approximately 97.9% of the shares present and entitled to vote. Accordingly, this proposal has been approved. Since there is no further business to come before the meeting, I now declare the meeting adjourned. Peter Altabef, our Chair and CEO, will now comment on the state of our company. Following Peter's comments, we will address any relevant stockholder questions that have been submitted through the website. Peter?

Thank you, Gerry. And I appreciate all of you for attending live and those of you who will listen to this broadcast after the fact, I thank you for your time as well. We have about 4 slides that I'll go through. And typically, for an Annual Meeting of Stockholders, the focus of the meeting is on what the company did in the preceding year. So that would be our operations for 2020. While we will talk about that, I've also added some information about this year. And although it's early in this year, and we obviously have not issued any financial numbers for this year, so I can't go into that, I will give you a sense of where the company is headed from an operational standpoint and where we're headed from a strategic standpoint. So Jeff, if we could, let's go to the first slide. We entered 2020 with a pretty full agenda. We had begun work on the sale of our Federal unit. That was an important item for us because it would allow us to have the cash necessary to dramatically reduce our pension and our pension obligations. In addition, it changed our balance sheet very significantly so that we had plans to then rethink our strategy because of that different balance sheet and figure out how to operationalize that strategy. So that was all going into last year. We started on schedule, and we announced the sale of the Federal business, as you can see here, on February 6. That sale was closed on March 16, a pretty interesting date. We closed it very quickly. Not because we knew that the COVID-19 pandemic was going to hit the markets or most people, but because we wanted to move on with the other things we had planned for the year, and this was a necessary for stock. Nonetheless, within about 24 hours of the close of that transaction, the markets decreased substantially and COVID became a commonplace word. So that gave us really a choice. And the choice was whether to batten down the hatches or whether to continue with the pretty aggressive strategy we had for reformatting the company over the course of the year. But as you can see from the slide, we chose to continue. So within a day of closing the sale of the Federal business, we were already launching our strategy project with the assistance of McKinsey & Company to really look at how the company could really operate and thrive now that its balance sheet was much different, and it was much different. The sale of the pension -- the sale of the Federal business gave us the opportunity to dramatically reduce our pension. It gave us the opportunity to pay off all of our fixed debt, which was relatively expensive fixed debt and to really look at our balance sheet in new ways. So by August 13, we had concluded the first of our next steps, which is really to get a view of our strategy for the medium and long term. And then by August 31, we had engaged with AlixPartners about how to operationalize all of that work. And Eric Hutto, our President and Chief Operating Officer, led that effort, working with AlixPartners. And that really put us into the position so that by December 1, we were able to announce the new organization structure, give the company a sense of where we were going, and to inhale and exhale just a bit before we put that new organizational structure in place. That new organizational structure went in place on January 8. In between, in purple, you will see in October, the closing of some additional long-term debt. Effectively, we refinanced the long-term debt that we had paid off in March and then used that debt to further pay down our pension. So I will say, between those two activities, we really got to a place where, from a balance sheet standpoint, instead of being a company really in the bottom quartile of our debt equity leverage, we really moved up effectively into the top quartile. So really a dramatic change in the way the company has been positioned. That all happened last year. Jeff, if we can move to the next page. Thank you. So as we look at our financial results last year, a couple of things come to mind. First, the company had really moved to a revenue growth focus. So in 2018, for the first time in, I think, about 15 years, the company grew revenue. 2019, the company grew revenue at an accelerated rate. That did not happen in 2020 because we had something called COVID. Our revenue went down about 8%, and all of these numbers are adjusted to exclude Federal. And the 3 areas where COVID hit us the most and really disproportionately for us compared to some of our industry peers, was we have a much higher percentage of our revenue in what we called field services. So that is where our people are actually going to client sites, they're going to client data centers, and they're doing things in person on site. And obviously, that was very dramatically affected by COVID. It is still being affected by COVID, although not as dramatically as in some of last year. The second item where our revenue was disproportionately hit was in our business process outsourcing work or our BPO. An example of that would be in the Philippines, where we do the vast majority of the public registry work for the country of the Philippines. That includes death certificates, wedding certificates and all of those kind of registry items. We have people throughout the Philippines doing that. And for large parts of last year, those offices were simply closed. And then finally, similar to some of our other industry peers, we have a business that services travel and transportation clients. Those include airlines, et cetera. And obviously, those -- that particular business was hit very hard by COVID, and our revenue serving those clients was down as well. As we move from the revenue portion of this slide over to operating profit margin percentage, adjusted EBITDA percentage and diluted earnings per share, you can see that even though our revenue did take a decline last year, we were able to increase our operating profit, our EBITDA and our earnings per share, both on a percentage basis and on an absolute basis. So the kind of discipline that we had put into place in the immediate prior years and the kind of march we have had as a company with respect to profitability continued. I will say, great credit to the people of the company, and we refer to the people who work for the company as associates who did a tremendous job of keeping their eye on our clients, on serving our clients and doing it in an efficient way and also supporting each other. Jeff, if we go to the next slide. This is a bit of a transition slide where we talk a little bit about what happened in 2020, and then I'll add some more information about 2021. I just spoke about our associates and how the company and they did during last year and in the first part of this year because COVID is still very much with us. A survey we took towards the later half of last year had 85% of associates satisfied with our COVID response. I will tell you that, to me, understates actually the level of satisfaction. I've spent a fair amount of time speaking with our COVID positive associates. And I can tell you, they're very supportive of the company, and they're very appreciative of the support they've gotten from other people in the company as well as the company kind of postures and policies of getting everybody who can work from home to work from home. Our associate engagement score, which had been hovering just slightly below the global benchmark, actually went up last year to above the global benchmark. And that is really a major statement, especially in last year when we were obviously hit with COVID. So as people were going to work from home, as people were not able to see each other in person every day, nonetheless, the work that we had put in to increase people's feeling of ownership and empowerment in the company went up. And then finally, and these are available on our website. We released new ESG and DEI reports. And I think rather than go through them here, which I really can't, I really commend them to you. It gives you a very good idea of where the company is and where we're going. And none of this is new. The company started quantifiable ESG efforts with specific goals in 2003. So something that has been near and dear to the company's heart for a very long time. As we transition to 2021, just a couple of items that -- I'll really discuss 3. We're really making this personal. So I have started a series of videos called Coffees with Peter, where I am on for a period of time, almost an hour, with each of the groups that you see below. And we're really showing those, and everybody in the company has access to those videos to really understand what we're doing as a company, as a group of people around each of the interest groups you see here and more. Eric Hutto, our President and Chief Operating Officer, is similarly doing a series of videos called Hanging with Hutto, and those are with the different business leaders of the company. So he is similarly allowing everybody in the company to really see a snapshot of what we're doing on a business unit by business unit basis. And then finally, Mike Thomson, our Chief Financial Officer; and Courtney Holben, who leads our Investor Relations function, have hosted in January an Investor Day, which was virtual and very successful. We had much more attendance on our virtual Investor Day than we had had on our in-person investor days, and we really laid out in January that entire strategy and operating plan that you will have seen us put together in the prior slide over last year. Jeff, if we can move to the next slide. This is the last slide, and this really gives you, I hope, a sense of where the company is now and what we intend to do over the course of both this year and the years to come. We are now functioning in 4 business units. Each of those business units represent approximately 20% to 30% of our revenues. Again, those business units are described at length in our Investor Day presentation, which is available to you on our investor website, and I would recommend that to you as well. And then finally, when you see below, we have some pretty high expectations of what this company needs to deliver for our stockholders, for our clients and for our associates over the coming years. And you can see those described below the business units. With that, Gerry, I'd turn the call back to you for any questions we might have from our stockholders.

Thank you, Peter. We will now address relevant questions from our stockholders. In order to assure that all stockholders have an opportunity to speak, our procedures limit those who may ask questions only to those stockholders of record on the March 8 record date or their proxies. John Armbruster, please let us know if there are any relevant questions or comments from the stockholders.

We do have some questions that have been submitted. The first question comes from Joseph Lockley. He says, Mr. Chair, the Carpenters Union pension funds that have a collective ownership position of 162,300 shares of the company's common stock, a topic that has received significant attention as the growth of the ownership interest held by mutual funds, particularly passive index funds in publicly traded corporations. BlackRock and Vanguard, along with FMR, each own in excess of 5% of Unisys' outstanding shares. Public retirement plan filings indicate that investment funds associated with each of these 3% to 5% holders are available investment options in the Unisys-defined compensation retirement plan. As the company determine whether these relationships constitute related party transactions and whether they should be disclosed in the company's proxy statement. Thank you.

Well, first of all, thank you for that question. With respect to the -- those specific investors, they are some of our larger investors, and I'll ask Mike Thomson in just a minute to discuss the relationships we have with those investors. We work very hard to have a dialogue with all of our largest investors. I will say for -- we are really pleased that our largest investors tend to be long holders. So these are people that -- or companies or organizations that have investment in Unisys and have kept that investment for long periods of time. With respect to your specific question, those holders are some of the largest companies or investment companies in the world. And when we make decisions about the funds that we will allow people to invest in our 401(k), et cetera, they are completely independent of the list of our investors. The decisions around funds are really made in terms of who do we think will be positioned to assist our 401(k) recipients over the long term. But Mike, I'll turn it over to you for any other specific comments. We'll certainly take a look at the disclosure requirements. I have every reason to believe that we are in complete conformity with all of the relevant SEC regulations. Mike, anything you'd like to add?

No, Peter, I think you've covered them. I will say that based on the SEC rules, they are not considered related parties in that regard and that we do have independent fiduciaries that help with the investment side of our portfolio. So we look at that on a regular basis, and they are not deemed to be related parties, that is for sure. And I would echo all of the other comments that you made in regards to the long-term holding nature of those particular investors.

Thank you, Mike. John?

Yes. The next question also comes from Mr. Lockley, who says, Mr. Chair, the topic of stakeholder capitalism as an alternative to shareholder capitalism has received considerable attention recently. As long-term pension fund investors, the Carpenter funds appreciate sentiments embodied in the stakeholder capitalism perspective but feel that execution could be complicated. Could you discuss the Board's perspective on the concept of stakeholder capitalism and what principles the board would use to balance the interest of varied stakeholders as it develops and implements the company's long-term business strategy. Thank you, Mr. Chairman.

Well, thank you for the question. It's actually a terrific question. I would say that this is an area where -- and the Board spends a lot of time reviewing our stakeholders, reviewing obviously our financial position. This is an area where we do not see a disparity between those 2 goals. So as we look at the long-term financial health of the company, that is based on our ability to provide really superlative work for our clients and to do that in an efficient way. To do that, we need an engaged workforce. We need associates of the company who believe in the company who want to stay in the company and develop their careers here. We need to be able to attract people into the company that want to work at the company. So as we think about the difference between a stakeholder view and what I call a solely shareholder or financial view. The difference really is other things such as concern about the environment, concern about diversity, equity and inclusion, concern about ESG. When we think about those other topics, what we find is they're completely compatible with the long-term financial health of the company. In fact, they're becoming increasingly indispensable to the long-term health of our company. Our clients care about it. And typically, when we do response for proposals for work now, they're asking about our ESG program. They're asking about our targets. They're asking about our DEI program. So this really is a world we're in now where those 2 sets of goals, stakeholder and shareholder, are inextricably linked. So we don't see a conflict at all, but it's a terrific question. John?

Yes. Thank you. There are no further questions or comments at this time.

With that, I will turn the call back to Gerry, but I do want to thank each of you for being on the call, and I'd like to specifically recognize the questions we received, and I thank you on behalf of the company and the Board. Gerry?

Thank you, Peter, and thank you all for your time and your support of our company. Enjoy your day. The meeting is ended.

Thank you. The Unisys Corporation 2021 Annual Stockholders Meeting has now come to an end. Thank you for attending. You may now leave the virtual meeting.