Unisys Corporation Price & Performance (UIS)

For the full year, revenue was $2,000,000,000 down 0.3% on both a reported and constant currency basis and within our guidance range. Excluding license and support, full year revenue was $1,580,000,000 down 0.6% year over year both as reported and in constant currency. Caused by certain headwinds we view as temporary. We remain optimistic about the strong levels of new business we have signed and the growth prospects for both DWS and CA and I in 2025. I will now discuss our segment revenue which you can find on Slide six in constant currency terms. Digital Workplace Solutions revenue declined 8.2% year over year to $128,000,000 in the fourth quarter. For the full year, DWS revenue was down 4.2% to $524,000,000 Both the fourth quarter and full year declines were driven by lower hardware and isolated lower margin field services volume. We expect that during the year, DWS will positively inflect as recent new business signings ramp including increased higher end field services volumes. Including advisories, device subscription services and modern device management. The segment's new business signings were up more than 40% in 2024, favorable margins and strong contribution from new logos. We expect these signings to contribute to segment growth in 2025.

Cloud applications and infrastructure solutions revenue declined 5.2% year over year to $132,000,000 in the fourth quarter. For the full year, CA and I revenue was down 0.8% to $527,000,000 The decline in the fourth quarter was driven by lower third party technology revenues and volume with certain clients related to the timing of project uptake which can be uneven. We anticipate improving project volumes in 2025 as clients continue to adopt and optimize hybrid multi cloud strategies, and modernize their data and application layers to support AI. Our combination of physical infrastructure cloud and application expertise positions us for growth in both high value project work and recurring services to secure and intelligently manage hybrid IT estate that are becoming increasingly complex. As we saw in DWS, our CA and I new business signings also increased more than 40% in 2024, and we expect our central application factory to expand our opportunity in high growth areas of the market. Enterprise computing solutions revenue was up 6.2% year over year to $2.00 $9,000,000 in the [indiscernible] For the full year, ECS revenue was up 1.3% to $651,000,000 During the quarter, L and S Solutions revenue grew 8.4% to $152,000,000 $432,000,000 for the full year.

This exceeded our expectation of $415,000,000 which we had increased from $375,000,000 in the third quarter. The $17,000,000 of fourth quarter upside driven by increased client consumption on our platforms as we continue to see expanding usage at many of our larger clients. Specialized Services and Next Generation Compute Solutions with NECS grew 1.3% in the fourth quarter and 2.3% for the year, led by growth within financial services clients. This quarter, we are beginning to provide TCV disclosures in absolute dollar terms, which we believe brings our disclosures more in line with with the broader IT services peers. Fourth quarter total contract value was $752,000,000 including $218,000,000 from new business signings and $534,000,000 from renewals. Full year QCV was $1,900,000,000 with new business TCV of $791,000,000 Trailing twelve months book to bill was one time for the total company and 0.9 times for our XL and S solutions and we exited the year with backlog of $2,800,000,000 compared to $3,000,000,000 year ago. The modest declines in backlog and book to bill was a result of renewal timing. With lower aggregate TCV up for renewal in 2024 with additional impact from movement in FX. 2025 is a expected to be a higher renewal TCV year benefiting backlog and book to bill throughout the year.

Also provides a good opportunity to secure expansion and new scope that clients may seek to integrate when renewing existing contracts. Moving to Slide July gross profit was $175 a 32.1% margin compared to 32.5% in the prior year period. Fourth quarter XL and S gross margin was 15.7% down from 16.5% in the prior year. Contraction in both the total company and XL and S gross margin during the fourth quarter were primarily driven by incremental cost reduction charges during the quarter. For the full year, gross profit increased more than $30,000,000 to $586,000,000 a gross margin of 29.2% which included delivery improvement in our Exanae solutions. Full year XL and S gross profit was $278,000,000 a 17.6% gross margin compared to 15.1% last year, an increase of two fifty basis which includes a one time benefit from a previously exited contract. I will now touch briefly on segment gross profit which you will find on Slide eight. DWS segment gross margin was 15.9% in the fourth quarter, up 60 basis points year over year. Full year GWS gross margin expanded 170 basis points to 15.7%. These gains are the consequence of technology investments we are making to modernize our delivery capabilities and boost employee productivity.

We are also benefiting from our strengthening leadership position in the market relative to our peers an increased focus on value based pricing. CA and I segment gross margins of 15.4% in the fourth quarter, down 90 basis points year over year. For the full year, CAE and I gross margin was 16.5%, up 110 basis points year over year. Our workforce optimization efforts such as increased automation and expanded campus hiring continue to drive positive outcomes. Looking ahead, anticipate greater benefits from automation, AI and labor efficiency as we scale key delivery centers. We also expect our new central application factory industry sale leads and increased ECS cross selling to accelerate the mix shift to higher margin solutions in CAI. ECS segment gross margin was 64.7% in the fourth quarter down two seventy basis points year over year. Full year ECS gross margin was 60.2%, down 100 basis points year over year. The fourth quarter and full year margin decline was primarily driven by a the hardware in our L and S deals within the period. Moving to Slide nine, fourth quarter non GAAP operating profit margin was 11.6% compared to 11.5% in the prior period. Fourth quarter adjusted EBITDA was $91,000,000 a margin of 16.8%.

The full year, non GAAP operating profit was 8.8% compared to 7% in 2023 exceeding the top end of our guidance range of 6.5% to 8.5 which was raised during the third quarter earnings call. The year over year improvement in guidance fee was driven by a combination of an enhanced margin profile in our XLMS solutions upside in our L and S solutions and SG and A efficiencies. Full year adjusted EBITDA was $292,000,000 representing an adjusted EBITDA margin of of 14.5% compared to 14.2% in 2023. We remain focused on streamlining corporate functions rationalizing real estate, and centralizing IT while also investing in go to market. Fourth quarter net income was $30,000,000 and $24,000,000 On an adjusted basis, Translating to diluted earnings Related to a favorable settlement of a lawsuit we have brought to protect our intellectual property and confidential information. For the full year GAAP net loss was $193,000,000 or diluted loss per share of $2.79 and includes a negative $130,000,000 settlement charge related to our first quarter pension annuity purchase. On an adjusted basis, net income for the full year was $32,000,000 or diluted earnings per share of $0.45 Turning to Slide 11, capital expenditures totaled approximately $221,000,000 In the fourth quarter, and $80,000,000 for the full year relatively flat on a year over year basis.

As a reminder, a significant portion of capital expenditure relates to research and development for our L and S platform, and we are maintaining a capital light strategy in our XL and S solutions. Free pension free cash flow, which is free cash flow prior to pension and post retirement contributions, with $82,000,000 in 2024 up from $44,000,000 in 2023. We generated $56,000,000 of free cash flow in bringing our full year free cash flow to $55,000,000 compared to negative $5,000,000 last year. Was driven by lower international pension contributions and net legal payments as well as XL and S profit improvement. This put us ahead of the upwardly revised expectations of $30,000,000 for the full year, primarily due to high fourth quarter L and S revenue and $15,000,000 of the previously mentioned $40,000,000 legal settlement received in the fourth quarter. The remaining $25,000,000 is due to us in mid-twenty twenty five and is assumed in our 2025 outlook. Moving to Slide 12, Cash balances were $377,000,000 at year end compared to $388,000,000 at the end of twenty twenty three. Our net leverage ratio including all defined benefit pension plans point zero times at year end relatively flat on a year over year basis.

As a reminder, we strengthened our liquidity position by obtaining a two year extension on our ABL facility which has capacity of $125,000,000 with an accordion feature up to $155,000,000 and matures at the October 2027. Our ABL remains undrawn and its maturity is aligned with our $485,000,000 senior secured notes that come due in November 2027. I will now provide an update on our global pension plan beginning with Slide 13. Each year, we provide more detailed estimated projections for expected global cash pension contributions and GAAP deficit relative to our quarterly update. These projections change based on factors such as financial market conditions, funding regulations and actuarial assumptions. Our global GAAP pension deficit, which can be seen on Slide 13, was approximately $750,000,000 at year end 'twenty four compared to approximately $700,000,000 at the end of twenty twenty three. On Slide 14, can see a detailed projection of our expected cash contributions. Volatility in contributions is lower in the first five years of the projection and informs our near term liquidity needs. For the five year period beginning in 2025 through 2029, contributions are expected to total $585,000,000 $10,000,000 higher than our projections at the beginning of twenty twenty four.

Turning to Slide 15, I will now discuss our financial guidance for the full year. We expect total company revenue growth of positive 0.5% to positive 2.5% in constant currency which based on January 31, 2025, foreign exchange rates equates to reported revenue growth of negative 1.9% to positive 0.1%. Our growth range assumes XL and S constant currency revenue growth of approximately 1% to 5% and license and support revenue of approximately $390,000,000 As a reminder, the timing and exact amount of L and S revenue can be difficult to forecast with precision, given it is dependent on renewal timing and size, which can change based on client budgeting decisions, consumption levels, and duration preferences among other factors. We expect non GAAP operating profit margin to be between 6.58.5% for the full year. Our profit guidance reflects the decline in L and S profit contribution due to renewal timing and coming off a strong 2024. We expect this to be partially offset by approximately 150 basis points of improvement aggregate DWS and CA and I gross margin a reduction in SG and A. For the full year, we expect to generate approximately $100,000,000 of pre pension free cash flow, and slightly positive free cash flow after funding our pension contributions.

Allowing us to preserve our strong cash balance. Our prepension free cash flow outlook reflects significant improvement in cash conversion as environmental, legal, restructuring and other payments are expected to be a net positive $10,000,000 which includes a one time collection of the remaining $25,000,000 owed to us as part of the favorable legal settlement negotiated in the fourth quarter. We have settled several matters contributing to our elevated levels of legal payments in prior quarters and also expect lower cost reduction in other payments this year. Our cash outlook assumes capital expenditures of approximately $95,000,000 cash taxes of approximately $60,000,000 and net interest payments of about 15,000,000 Cash interest does not include any assumption of refinancing. However, we are monitoring credit market conditions along with our banking partners to be prepared to opportunistically take advantage of any favorable opening to refinance in 2025. Looking specifically at the first quarter, XLNS revenues expected to be approximately $370,000,000 which includes more than $10,000,000 of relative to the prior year end equating to a low single digit [indiscernible] year over year in constant currency. The majority of the constant currency ex LNS decline is due to a benefit in the prior year related to the favorable settlement of a previously exercised contract.

We also expect a slight decline in XL and S revenue from our IPSL joint venture which has zero margin and is reported within all other. Based on renewal timing, first quarter L and S revenue is expected to be approximately $70,000,000 compared to $93,000,000 in the prior year. First quarter is expected to be our lowest L and S quarter of the year. Full year L and S revenue is expected to be back half weighted with a split of approximately 40% in the first half and approximately 60% in the back half. Given the cadence of L and S renewal timing and the impact of FX, this translates to a total company reported revenue decline of approximately 10% or 7% in constant currency and a low single digit non GAAP operating margin. While we do not provide financial guidance or cash flow color beyond the current year, I wanted to touch on the potential path that we for achieving improved pre pension free cash flow in light of the expected increase in pension obligations next year. We expect much of the incremental cash flow to come from increasing gross profit in our L and S solutions we are targeting approximately 150 basis points of annual gross margin expansion resulting from delivery optimization and accretive new business momentum.

Have demonstrated our ability to deliver gross profit improvements these past two years expect that we will continue to do so. We also anticipate some incremental L and S gross profit in 2026 based on our expectations of $400,000,000 in HelenEdge revenue. In addition, we expect further improvements in SG and A. A reminder, we also expect an approximate $30,000,000 in reimbursement of environmental costs in 2026. An increase in interest payments assuming a refinancing in 2026 would largely be offset by a further reduction in our baseline environmental restructuring and other payments. This pathway should lead us to the prepension free cash flow needed to fund our future pension contributions and organic investments for profitable growth. With that, I will turn the call back to Peter. Before we open the call to our Q and A session, want to thank you for all of your attention to our company. For several years, I have been joined by both Deb and Mike Thompson, our President and Chief Operating Officer in the Q and A session of our earnings calls. We announced in December 2024 that effective 04/01/2025, Mike will become our CEO. And I will continue as Chair of the Unisys Board of Directors.

Thank you also for your support of Mike. Given that change, I'm asking Mike to take the lead on this Q and A session. And working with Deb on the earnings calls going forward. Operator, please open the call to comments and questions. Thank you. The first question comes from Rod, Borgoie with Deep Dive Equity Research. Please go ahead. Great, great. And so when I just give my kudos to Peter and to Mike for this transition.

You guys are both class acts and I wish you guys the best. Just to jump into the first question here, Given the low growth exit rate in the XLNS business, you exit 2024, you've got a pretty significant growth rebound expected during 2025. And I know some of that is coming from the strong new TCV bookings that you've had but can you give us some more visibility into how you're looking at that growth trajectory and ex L and S, I mean how much of your confidence in that growth inflection point is coming out of work that's already booked into backlog where you have visibility into the ramp I'm also wondering if you have any assumption that these weak client volumes are going to come back or is all of the assumption Hey, Rod. Thanks for the question. And your opening comment there. Much appreciated. And obviously, thanks for the following, the company, etcetera. You Your viewpoints here are always insightful and we appreciate the time following this. Your question is has a couple of parts to it. So I'll try to break it down [indiscernible] into those I think in general, as you know, from an industry perspective, we did fairly well in relation to the peers in 2024, but clearly we were behind in our expectations in XL and S revenue growth.

You're exactly right that we're looking at that inflection in '25, We're calling for, as Deb alluded to, 1% to 5% growth in XL and S on constant currency basis. And I think that comes [indiscernible] probably three component pieces, and I'll break those down to give you a little bit more color.

The first, as you've alluded to at the end of your question, was in relation to the backlog conversion. Clearly, we had very strong new business signings in both CA and I and DWS. From new business TCV perspective, both of which were roughly 40% increases. I think we called 29% year over year in new business signings. [indiscernible] we've got this, I'll say lapping component of new business that we've signed in the back half.

Of 'twenty four that we're going to see the benefit of in 'twenty five And a reminder that those new business signings are also kind of our new solution components, which are higher margin elements to that. So that's number one. Number two, when you look at what happened in 2024, specifically with kind of the low volume components of our field services work, specifically PC oriented. You're seeing from an industry perspective, we're all expecting an uptick in that PC refresh cycle. So I think those volumes will start to come back. And moreover, we and as we announced earlier in in some of Peter's early commentary, we've accelerated with one of our large OEMs global partners a field services component on higher margin storage work. So not only are we lapping year over year the PC volume decline, but we're also picking up additional field services work at a higher margin profile as well. So I think what we saw at the end of 'twenty four was kind of a little bit of a renewal in the work effort from volume based projects starting to come back. So we'll see that pick up. We see the margin inflection on the PC refresh and our DSS offerings that we think are going to be pretty strong in 2025 pickup in the type of work that we're doing Much of that is in backlog already.

And if it's not in backlog, if we look at just in general our pipeline and visibility to deals we expect to close in 2025 Those deals are in a much more mature stage. We're a little over 20% more into our later stage process when you talk about closing out our go to market contract. So a lot of it is visibility of backlog, a lot of it is later stage work and a lot of it is lapping just what I would say our quarterly or back half of the year lower volumes that we expect to recover in 2025.

So hopefully, Rob, that gives you the type of color that you're looking for and kind of where that inflection confidence is coming from. Yes, super helpful commentary there. And so my follow-up is really about your ability to to continue to drive the improvement in free pension free cash flow The reversal in the environmental, legal and restructuring bucket, which had been very large in '20 The reversal there is super encouraging and I appreciate the color that you guys have provided on that already. So now I want to focus on the margin levers that you have. And what I'm hearing is you have gross margin levers and you're also continuing to do work on the SG and A front, although there are investments in SG and A as well. So So just to clarify, you clearly are citing gross margin improvement from here. Are you also expecting SG and A benefit to your overall operating margin And then just a specific thing within gross margin, can you give us a sense for how much of the gross margin improvement confidence is coming from cost takeout and productivity versus pricing and mix shift it does sound like you're you have opportunities on the productivity side but also on the mix shift and on the pricing side?

And can you give us the sense of the balance of those two buckets in your gross margin trajectory? Thank you. Yes, sure. And again, thanks Rod. For the question and the clarity here. So you're really right on all accounts here, right? So if we just talk about the gross margin, I'll stay on the operation [indiscernible] maybe ask Deb to comment on the SG and A component as well.

But if you think about the gross margin improvement in the business, You're seeing what we're calling in in 2025 has two components. It has the LNS step up in top line that is also an increase in gross margin. As that top line pulls through. And you'll note that When we Deb gave the commentary around the L and S gross margin for 2024 was a higher mix of hardware components in that and in general was sitting at probably low to mid 60% gross margin rates. Here we've got a step up in both top line primarily based on consumption And so this 2,050 LNG program has been helpful in driving additional gross margin dollars We're also talked about that being in the approximately 70% range.

So there is a pickup to your point on the top line from an L and S perspective. If I shift to ex L and S, we've got really two things that play. One, as you've just alluded to, there is a top line benefit to gross margin because we're selling our solutions at a higher margin from the start and they're more valued solutions, right? So it's not the whole point of our strategy shift was to kind of move up that stack and we're seeing some of the benefit of that coming through. And we see this continued workforce modernization. So Peter alluded to that in his opening remarks and gave three elements of that.

As it pertains to the shifting of the workforce, the upskilling and right skilling of the workforce as well as the efficiency and utilization play. So I would think from an operational perspective, we're calling for about a point five on the aggregate in XL and S margin improvement. And I would say if I look at that proportionally, it's probably about a half a point or so pull through top line and a point from efficiency in the work force, right? And it's also just the efficiency in how we're delivering our solutions, Rod, when you talk about the of AI and AI ops and orchestration, etcetera, right, that just being able to deliver that in a more efficient way is where a good chunk of that comes from. You're right in that we're also expecting continued improvements in SG and A as well. Deb mentioned a couple components of that. And Deb, I'll ask that if you want to weigh in here on the SG and A components for 2020 And thanks Rod for your question. We definitely are making progress executing what we had laid out at Invest in 2023, our SG and A initiatives were streamlining corporate functions, rational [indiscernible] And we're we've made a lot of progress with that.

To your point you had made, we are also reinvesting back into our go to market and our portfolio. But we still will see a portion of our operating profit improvement in 2025 will be from that continued SG and A reduction and progress we're making.

And I would say, Rod, just to close that out, I mean, obviously, our focus is on prepension cash flow and kind of continual step up in that. You've seen that number almost double in 2024. Deb talked about that being in the $100,000,000 ish range in 2025. And the path to the $150,000,000 ish range in 2026, which gets to the comfort level that the contributions that need to be made in those out years are covered and we're not tapping into our cash balances to do that. So I think that's kind of the name of the game here. Great. Thank you guys. And thank you to Peter. You will be missed, Talk to you guys later. Thanks, Rob. [indiscernible] The next question comes from Joseph Bafi with Canaccord. Please go ahead. Hey, everyone. Good morning. Nice to see progress in the business. And Big congratulations to Peter and the team for everything they've accomplished over the last few years and with Mike at the helm, I'm looking forward to More progress in the business moving forward. So Maybe just drill down on L and S a little bit more. It's obviously a big lever moving forward. We did see a step up in the guide after Q3, you exceeded that and then we have another step up here We drilled down a little bit on where those where that uptick is coming from.

Is it broad based as a function of the new release of software? AI, is it or verticals, any color there would be appreciated. And then I have a quick follow-up.

Sure.

And thanks for the question, Joe.

And I agree with you and Rod. Peter will certainly be missed and looking forward to continuing the great legacy he is he's left us here. So appreciate the opening comments there. Look, I think you know Joe this pretty well. This business has continued to outperform. We continue to see clients over the broad base signed contracts for longer duration continue to invest in the IT estate around the L and S platform in general. I think with Interestingly enough, when you think about what's going on, obviously, in the world today and you think about the AI component of that, and you look at this business, I don't think it's really any different, right? The value in the AI is really about the large language models and the data.

And when you think about our our L and S operating system, it's got tremendous amounts of data that is secure and usable from that perspective. So when you look at the work that we're doing in the planning process around ClearPath Forward 02/1950, it's really about the ecosystem around the L and S platform. [indiscernible] I think what we've seen over the course of the last couple of years and we expect to see prospectively, which is why we've we've raised our our color guidance there up in both 'twenty five and in 'twenty six for an average of roughly $25,000,000 per annum of an increase in those years. On a top line basis. It's because we're getting that strength from our clients in their increased consumption and their willingness to sign longer term deals, right? They're coming to us wanting to extend the the life of the deal and also giving us work in the application space that sit on top of that platform to help modernize that infrastructure. So this has not been new, right? I think we've seen this this trend of overperformance from this business probably over the course of the last two years. And then as you know, we have a pretty deep line of sight into the clients that utilize this platform and work with them fairly exclusively in how we could continue to modernize and we're seeing that take up rate.

So we're pretty excited about the long [indiscernible] what you would consider a modernization story. And as you know, it's the most secure operating system on the planet when you talk about according to NIST and the value that that brings. So you've got this tremendous data set that can be utilized in a modernized way. So seeing really, I'll say, strong client support of that and that's given us confidence to increase our color there.

That's great.

Thanks, Mike.

And then maybe on the operation side a bit, I know Peter discussed this, I guess, the repositioning or [indiscernible] anything special to note there on timing this occurring now? I know you've you've done a lot of repositioning internally over the last few years with this something new pop up on the roadmap or was this kind of planned But there were other things to do first to Just some more color there would be appreciated. Thanks a lot. [indiscernible] for your continually following the story here and being spot on with these. Look, the applications factory, as we're calling it, is nothing new.

You're right. When we did our first premise of what the future strategy of the company would look like, this was under consideration then. But we had so much to do in order to kind of get the new strategy in place. We had a lot of change going on and it just wasn't the time from an adoption perspective. So we kind of left these areas sitting there I'll say legacy business ownership. Some of it was in ECS some of it was in BPS, which is in our was in our other segment. We kind of let it mature a little bit there. But was always intentional to bring this together to get the leverage that we wanted out of this business. We're just at a point where we're mature enough, think, in both our leadership our structure, our solution development, and wanting to get deeper into the industry verticals. Where it made sense to do it now. So there's really no magic bullet as to why other than it's the majority of of our solutions and of our management team and of our strategy that allowed us to do it effective January. Now we will be putting out [indiscernible] That relates to the kind of restatement of those segment data so that everyone has the ability to model We'll put two years out by quarter.

That will be probably filed after we filed the K. Which we expect to be a little later this week. And that will give the kind of movements out of ECS into CA and I and out of all other into CA and I and give a good viewpoint. But look, we know that apps modernization in general is is a fast moving element of the industry and the segment and we want to take advantage of that. So we're putting some I'll say, more wood behind the bat. We're bringing these teams together It's giving us a good geography base as especially in EMEA to grow from, which we've seen some good growth over the course of the last year. And so we think it's the right time to do it, but there's no like triggering event, if you will. It's kind of always been in the hopper and this is just the time we thought was the most advantage to us to pull it together and take advantage of the growth that we're seeing in new business. That's great. Thanks for that color, Mike, and congrats to the team. Best of luck to everybody. Great. Thank you, Joe.

The next question comes from Marun Chishadri with BNP Paribas. Please go ahead.

Yes. Hi. Thanks for sneaking Congrats again to Peter and Mike on the recent announcements and appreciate continuity by your leadership. Of the Board, Peter. Just very quickly for me, just a couple of things. First, I think you've kind of talked about the higher renewal TCV year in 2025.

Versus 2024. Is there any way you can quantify, I guess, how much higher of a TCV renewal year $25,000,000 is relative to $24,000,000 Yes. I don't know that I have the percentage that I can give you a room, but there's really two reasons for that. One is just the timing of the renewal cycle, right? And that does ebb and flow a little bit. The other was there were a couple of deals that we expected to renew at the tail end of 'twenty four. That got pushed into 2025. So when I look at it from perspective, I would say it's $25,000,000 is probably a little bit more of a normalized renewal cycle if there is such a thing. So not really a percentage that I would give you. I guess the thing I could tell you is if I look at kind of backlog conversion, The expectation is the backlog conversion of revenue in 'twenty five is going to be fairly consistent to what it was in 'twenty four. And we're expecting that renewal cycle to be stronger in 2025, both for just the due dates on when they come up to bid? And I guess secondarily, the rollover of a couple of things that we expected to have happen in 'twenty four that that got pushed into 'twenty five.

Got it. Thank you for that, Megan. And I assume that's also the push from '24 to '25 for some of those renewals is basically what impacted the book to bill? Is there some connection there as well?

Yes. You're exactly right, Arun, and thanks for for calling that out. I should have done it as well. Yes, we were certainly expecting a higher book to bill in 'twenty four and it wasn't in relation to these these expected closings. But as you know, tail end of the year, you've got these closings. They push out a week or two and they change fiscal year. So I think you'll see a higher number than normal in 2025 based on that, right, from a book to bill perspective. And the increase in backlog and TCV, But if you're looking at the two years combined, you'll it's normalized and aligned to what was in our strategy from inception.

Appreciate it. One more from me. And that is, in terms of the really great to see the L and S revenue transition here and the continued with prior guidance versus prior guidance. But can you talk about sort of just get a sense for how broad that is across your L and S base? Is there any way could talk about how many customers, I guess, accounted for this pretty significant improvement from the beginning of the year to the end of the year in terms of your expectations overall LNS evolution?

Yes. Look, I would say in general on maybe tying this back into Joe's question, The favorable I'll say market conditions that we're seeing is across the whole base. Right? It's not like it's a specific client. Now, as you know, these L and S renewals come up, these are five or seven year deals, right? So when they come up for renewal, is more a timing on the renewal schedule, which is why we break it out and it's lumpy. But I would say in general, we've seen increased consumption and we've seen increased desire to extend contracts, right? And that's across the base, not not a one off or a one project oriented thing. And it's been pretty consistent over the last couple of years in that manner. So So it's not some anomaly of, in our opinion, of a one off thing. And there's a reason why we had ClearPath 2,050 as our mantra here, right? We have seen and continue to the increase in consumption and the insight from our clients that there's a long tail here and they like this this platform. It works well for them and the business and they've seen our ability to modernize around it.

So it's really been pretty favorable experience from our perspective. Thank you, Mike. And then one last thing maybe for Deb.

The just in terms of the free cash flow guidance, just want to make sure that 2025 guidance includes the remainder I guess $25,000,000 remaining in the legal settlement was announced in Q4. And then on a sort of a longer timeframe your I think we saw in 2025, there was a small reduction in pension funding requirements relative to your expectations going into the year. Any other possibilities like this in 2025 that could impact 2026 and beyond in terms of reducing the front end of the pension cash obligations. Thank you.

Right. So just to clarify, in the our 100,000,000 pre pension free cash flow, color that we gave, that does include the $25,000,000 expected from that settlement. So that's your first question. Go ahead. Second, I think from a pension perspective, I'm not sure we did have a slight uptick in the contributions for this next five years, which is what we typically focus on since that's the less volatile more of the volatilities out in the later years and also that's what we really focus on to look at our liquidity needs and our near term that five years. So So slight uptick there, but we feel like we're still on a path to be able to fund those with our pre pension free cash flow.

When we do that pension analysis annually, right, the full analysis is done, the actuarial viewpoint, There is typically very little movement in the first eighteen months on the contribution side. When you see a movement in that, it typically comes in later in those contribution schedule as they pertain to actuarial assumptions. So I expect that the next several years of those contributions are pretty much locked loaded. And if we do see any movement up or down, it would be probably two years and beyond when we look at that. So that's Deb's point on the short term liquidity component of it. Thank you, Bob.

The next question comes from Anya Soderstrom with Sidoti.

Please go ahead.

Hi, and thank you for taking my questions. And also want to thank Peter for his time, and I look forward to working with Mike Most of my questions have been addressed already, but I'm just curious with a much stronger L and S expected in 2026, how is that going to impact your cash flow expectations?

Hi, Anya. It's good to hear from you. Thank you for the Deb, why don't you feel that one?

Okay, great. No, we it will help. So as far as that kind of expected potential bridge to '26 that is an element of it. So that FL and S going from what we're expecting to be $390,000,000 in '25 going to $400,000,000 in $26,000,000 and it is at that higher margin approximate 70% that we laid out. And so given that, it does contribute a decent amount to getting to that bridge in addition to a bigger component is the XLNS gross margin improvement, which we've kind of proven that we've been able to continue to increase that approximately 150 basis points, particularly if you're looking looking particularly CA and I and DWS. Which we're calling for again in 2025 and then also you can expect that continue in 2026. So that's the a bigger piece of it, that gross profit from XL and S but that L and S bump of that $10,000,000 more of revenue will also be a contributor to it. Along with SG and A improvements as I mentioned, and then continued improvement in cash conversion. Okay. Thank you. And then in terms of demand in the commercial vertical, is there any industry that's worth calling out on the negative side or the positive side?

Yes, I wouldn't say that there's any industry I would call out certainly on the negative side. We don't really have anything to call out there. We have as you know, really focused in public sector diving a little deeper into higher ed. We have a pretty strong presence in travel and transportation. And obviously in financial services. So we're pretty as you know, Anya, pretty evenly distributed amongst those various industries as far as our businesses is concerned. And we're fairly evenly distributed from a geography perspective as well. So I think we have a really nice mix of diversity both in geography and segment that kind of insulate one another from any specific anomalies And again, we've got a clearly a focus area public sector. And as a reminder from that perspective, you're talking state and local business domestically and internationally, clearly foreign countries, etcetera. That make up our public sector. So So nothing I would call out in particular. Other than to say that they've all been at least where we're playing, all been performing pretty well as of late. Okay.

Thank you. That was all for me. Great. Thanks, Sonya.

This concludes our question and answer session. I would like to turn the conference back over to Peter Altobeth, excuse me Altobeth, I'll do quick closing remarks but then I'll let Mike actually do the final closing remarks. I really want to appreciate and thank each of you Joe, Arun and Anj, thank you for your remarks. Following Rod's. Thanks for your support. And it's encouraging and totally expected that you are supportive of Mike in the new role. He will be terrific in this role. And I can tell you he has the support of both our Board of Directors and our entire leadership With that, over to you, Mike. Great. Thank you. And I would like to acknowledge Peter here as well.

Thank you, Peter, so much for your leadership in the company. And as a reminder to the folks on the phone here, Peter is staying on as Chair of the Board. So we're lucky to keep him with us for an extended period here on the Board side of the equation. So thanks Peter for your guidance Look, I'll just wrap by saying number one, thanks for taking the additional time. I know we went over, but it's always good to get the questions and get the color out. We continually try to give more and more transparency in our remarks and in our content and And by that, I would also remind you all to visit unisys.com Unisys Relations website. There are is a ton of information that we've talked about here and additional information again, from a quarterly perspective and an annual perspective, exceeded our upward guidance as far as profitability is concerned, met our revenue guidance, improved our operating and free cash flow, and hopefully gave you some good color into what we're expecting in 2025, which is the continual improvement of the margin component of this business, as well as seeing growth in that XL and S business as well driving additional profitability and cash flow.

Right? That's what we're focused on. I know that you'll see the continuity in the strategy and the team and looking forward to our next call. So thanks a lot for your time and attention and looking forward to Q1.

Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.