Unisys Corporation (NYSE:UIS) Q3 2023 Earnings Call Transcript

Unisys Corporation (NYSE:UIS) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Good morning, and welcome to the Unisys Corporation Third Quarter 2023 Financial Results, and Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Michaela Pewarski, Unisys, Investor Relations. Please go ahead.

Michaela Pewarski: Thank you, operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its third quarter financial results. I’m joined this morning to discuss those results by Peter Altabef, our Chair and CEO; Deb McCann, our CFO; and Mike Thomson, our President, and COO, who will participate in the Q&A session. As a reminder, certain statements in today’s conference call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions, and beliefs forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely.

This could cause results to differ materially from our expectations. These items can also be found in the forward-looking statements section of today’s earnings release furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures such as non-GAAP operating profit or adjusted EBITDA that explain certain items such as post-retirement expense and cost reduction activities and other expenses, the company believes are not indicative of its ongoing operations as they may be unusual or nonrecurring.

We believe these measures provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. The non-GAAP measures have been reconciled to the related GAAP measures, and we have provided reconciliations within the presentation. The slides accompanying today’s presentation are available on our website. With that, I’d like to turn the call over to Peter.

Peter Altabef: Thank you, Michaela. Good morning and thank you for joining us to discuss Unisys’ third quarter 2023 results. We had another quarter of solid revenue and profit results, allowing us to raise guidance across all our guided metrics. Notably, this was our third consecutive quarter of year over year growth in our Ex-L&S solutions revenue. During the quarter, revenue from expansion and new scope with existing clients contributed to the growth of our cloud, applications, and infrastructure solutions, and digital workplace solutions segments. Within our enterprise computing solution segment, client consumption trends and good support volume generated upside in license and support revenue. New scope and new logo TCV increased 22% sequentially during the quarter with approximately 60% of these signings in next-generation solutions, demonstrating gains with existing clients and within the market in higher value areas.

While total third quarter signings were impacted by low renewal levels due to timing. Overall, we have already signed 60% more TCV in the month of October than we did in the entire third quarter, and we expect the fourth quarter to be our highest TCV quarter in 2023. Our pipeline is robust, up 18% from a year ago with our next-generation pipeline up 50% year over year. Our sales strategy, partner ecosystem, and analyst and advisor recognition are driving higher value opportunities that are supporting our expansion into faster-growing areas of the IT services market. Looking at our top-line performance. Third quarter revenue increased 0.7% year over year as reported and declined 1.4% in constant currency. Excluding license and support or Ex-L&S, we had another solid quarter, growing revenue by 6.2% year over year or 4.1% in constant currency.

Our Ex-L&S solutions primarily consist of gentle workplace solution segment, our Cloud Applications & Infrastructure Solutions segment, as well as our Specialized Services & Next-Gen Compute Solutions within our ECS segment. In all three of these areas, we achieved mid to high single-digit growth. Revenue from License & Support was $67 million in the third quarter, which is significantly better than the $50 million third quarter expectation we had discussed on our last call. Outperformance was primarily due to additional consumption and support revenue with some existing clients. As a reminder, the vast majority of L&S revenue is from license sales and support services, related to our ClearPath Forward operating system. Our technology powers a range of mission-critical set functions such as travel reservations, financial transactions, and mortgage processing.

And digitization in these areas has led to consumption growth at many of our largest clients. Turning to contract signings. Aggregate new logo and new scope TCV was up 22% sequentially, with 60% next-generation solutions mix. As a reminder, new scope represents the purchase of additional offerings by existing clients, while new logo signings are with new clients. The growth and mix of these signings demonstrate increased client and prospect willingness to partner with Unisys further up the value chain. Total company TCV declined 31% sequentially, driven by lower renewals in the quarter. However, this was a timing issue with some third quarter renewals, slipping just outside the quarter. Our renewal rate remains strong at 96% year-to-date. In our Ex-L&S solutions, TCV was down 30% sequentially, again, due to renewal timing.

Expansion TCV in our Ex-L&S solutions also declined modestly on a sequential basis, after a strong first half of expansion signings. While renewals were low in the third quarter, we continue to expect a strong back half of renewal bookings. We have already closed multiple large multi-year renewals in October, in both our L&S and Ex-L&S solutions. We also expect new logo TCV to be a strong driver in the fourth quarter, with October signings already more than double the new logo TCV signed in the third quarter. And with several larger opportunities, we are working to convert before year-end. Turning back to the third quarter, I want to discuss some notable new scope contracts we signed in our next-generation solutions. In our CA&I segment, we signed a next-generation new scope contract with one of the most popular states in the United States.

As part of this new scope, we will develop and manage a platform to help the state’s Health and Human Services Department manage assistance Programs that distribute crucial benefits to hundreds of thousands of recipients each month. We signed another new scope next-generation solution engagement during the quarter with a prominent paint and coatings client. As part of this engagement, Unisys will transition the client to the cloud, optimize its cloud environments and implement a managed security operation center. Moving to pipeline, our qualified Ex-L&S pipeline is robust and high-quality, up 18% versus a year ago, and with 47% of pipeline TCV in next-generation offerings, up 37%. Looking at some of the solutions contributing to our pipeline in more detail.

In DWS, we are bringing new ideas and innovation to the market, and our focus is on experience, which is resonating with clients, prospects, and the industry expert to advise. Our portfolio is well-aligned to market demand. Companies are settling into new workplace models and reprioritizing technology investments that improve the employee experience. Within our modern workplace portfolio inside DWS, we are seeing significant interest in DSS, our device asset service solution. Our DSS solution is differentiated and that it can integrate with our XMO deployment, persona mapping, onboarding automation, and smart PC refresh solutions, all to provide next-level insights into device performance and security. Clients are particularly interested in the potential cost savings from using DSS to optimize device CapEx. This solution puts Unisys at the center of our client’s workplace technologies and gives us an intimate understanding of their workplace technology stack.

We’re optimistic that it will help us expand wallet share with our existing clients and provide us with more opportunities to deliver value to the large number of end users we already serve. In our CA&I segment, we are building out six core platforms to increase standardization in our solutions development. These are multi-cloud, data, artificial intelligence, applications, security, and industry. Aligning our talent around these platforms as key to expanding our next-generation solutions and penetrating the larger high-value contracts in areas like turn-ops, hybrid infrastructure, and digital transformation, which require complex solution orchestration. In our applications layer, we have a number of specialized projects in the pipeline requiring our combination of public sector expertise and engineering capabilities.

For example, we have several opportunities to help state and local governments with complex challenges such as managing of licensing and permitting processes or identity and access. We’ve had good success in these high value areas already this year. For example, in the third quarter, we signed a new logo contract with the city in Texas. In partnership with Clarity, we will build a digital platform to help the city better manage commercial and residential development applications, and we’ll provide managed services for the span of the five-year contract. We’re in the process of building out an ecosystem of specialized public sector software partners where we can provide complimentary implementation and managed services, but also develop standardized yet variable application layers.

Across all our business units, we’re seeing strong interest in AI, including generative AI, and services related to supporting enterprise AI adoption. But beyond understanding use cases for generative AI, our clients want to help with strategies for planning and measuring their AI investments. For example, one of our third quarter wins was a new scope with one of the world’s largest quick-service restaurant chains that turned to Unisys to help map its strategy for evaluating and observing the performance of new technologies for its customer-facing mobile ordering platform. Across the company, we are collaborating extensively with clients to approach generative AI adoption in areas like content generation, knowledge access, security, fraud detection, and applications development.

We are also infusing generative AI into Unisys industry solutions. We’re particularly excited about the launch of Unisys logistics optimization, an industry solution that we believe has the potential to advance the multi-billion-dollar cargo logistics market. This cutting-edge solution enables faster and smarter business decisions that help airlines, freight forwarders, and ground handlers, optimize capacity, route, and warehouse processes. The solution marries AI, advanced analytics, and the power of quantum computing, enabling near-real-time decision-making. The solution incorporates proprietary optimized tools and pre-trained models, tailored for the cargo industry, as well as quantum and kneeling capabilities. Head of our launch, we showcased our capabilities at a large industry conference and market perception has been positive with both existing air cargo clients and new prospects.

We’re also seeing interest from global logistics providers and freight forwarders. Our teams are already on the ground actively scoping and deploying our first full-scale pilot with a large air cargo client in Asia, which we expect to go live sometime in the first quarter. We believe Unisys logistics optimization will serve as a proof point of the significant value our ECS segment can help clients unlock with Unisys industry solutions that combine quantum, data, AI, and industry expertise. Finally, just as we’re partnering with clients on their AI journeys and infusing AI into our industry solutions, we are focused on accelerating internal adoption across our own delivery and SG&A functions, for instance. Within our HR department, we are leveraging talent marketplace and talent mobility AI platforms to speed sourcing and recruitment.

These platforms leverage industry-leading AI, machine learning, and natural language processing capabilities to improve talent mapping, visibility, and workforce planning, which has significantly reduced certain talent acquisition costs. Our HR teams are also beginning to adopt generative AI for job postings and high-impact talent marketing campaigns. Before turning the call over to Deb, I want to touch on some of our initiatives to attract and retain talent and to provide an inclusive environment where associates can grow in their careers. In 2023, we have increased our investment in the learning and development of our associates, bolstered our learning library with new courses, and launching custom learning modules, leadership events, tech talks, and training boot camps, all to upskill our talent.

We believe our talent initiatives are making Unisys a more attractive place to work, which is evidenced by our lower attrition rates and recognition from third-party organizations. Our trailing 12-month voluntary attrition rate of 13.3% is down significantly from 18.9% a year ago. During the quarter, we won four prestigious HR awards, recognizing our excellence in diversity, hiring, talent growth, talent acquisition, and leadership. With that, I’ll turn the call over to Deb to discuss our financial results and full-year guidance in more detail.

Debra McCann: Thank you, Peter, and good morning everyone. My discussion today will refer to slides in our third quarter earnings presentation, posted on our investor website. My commentary today will discuss financials as reported, except for segment revenue growth rates, which we discussed in constant currency. I’ll also provide information both including and excluding L&S solutions to allow investors to isolate the portion of ECS that includes uneven revenue based on license renewal timing to evaluate the progress we are making in the business outside of that area. As Peter highlighted, we had another solid quarter of results in both our L&S and Ex-L&S solutions. Looking at our results in more detail, as you can see on Slide 6, third quarter revenue was $465 million in increase of 0.7% year over year, or a 1.4% decline in constant currency.

The constant currency decline was driven by the timing of license renewals in our ECS segment, which was better than expected at the beginning of the quarter. Year-to-date, revenue was $1.46 billion, up 2.5% year-on-year or 3.1% in constant currency. Excluding License & Support, third quarter revenue was $398 million, up 6.2% year-over-year or 4.1% in constant currency. Year-to-date, Ex-L&S revenue is up 4.3% or 5.1% in constant currency. We are pleased with the growth we have been able to achieve in light of the uncertain macroeconomic backdrop and believe our Ex-L&S performance is evidence that our strategy is working. I will now provide third quarter detail by segment with revenue growth in constant currency terms. DWS segment revenue was $141 million in the third quarter, up 6.2% year-over-year.

The majority of growth came from expansion of existing clients and revenue from recent new logo wins. CA&I segment revenue was $134 million, up 8.7% year-over-year. CA&I revenue also benefited from expansion as well as new scope with existing clients, such as California State University, where we are delivering cloud security innovation as part of the contract win, Peter discussed, on our second quarter call. Additionally, the prior year CA&I period included a non-recurring $5.5 million revenue impact. Third quarter EPS revenue was $122 million a year-over-year decline of 14.2%. Within ECS, our Next-Gen specialized services and Next-Gen compute solutions revenue growth was 5.2% year-over-year, which was primarily due to expanded application services at large clients in Asia Pacific and Latin America.

The remainder of our ECS solutions, our License & Support, where revenue declined 25.3% in constant currency versus the third quarter of 2022. As Peter mentioned, this was down year-over-year due to the timing of license renewals, but better-than-expected due to higher consumption and support revenue at our existing clients. This upside is not related to early contract renewal, so does not impact our future L&S revenue expectations. Third quarter backlog was versus $2.4 billion versus $2.7 billion at the end of second quarter, with the decline driven by the shift of some larger Ex-L&S renewals into the beginning of the fourth quarter. We expect backlog to rebound nicely next quarter, given our October contract signings and the opportunities we are working to convert before year-end.

Moving to Slide 7, gross margin was 20.5% for the total company and 14% in our Ex-L&S solutions. The third quarter included a revenue reversal related to a contract we previously exited. This will not impact our segment results, but will impact total company and Ex-L&S financials and is not adjusted out of any non-GAAP measures. This been impacted third quarter gross margin by 160 basis points and Ex-L&S gross margin by 200 basis points. Adjusting for this reduction, Ex-L&S gross margin would have been flat sequentially at approximately 16%. Touching briefly on third quarter segment level gross margins. DWS gross margin was 14.8% a 30-basis point decline year-over-year, due to mix and 110 basis point sequential improvement, driven by labor and delivery efficiencies.

Our DWS segment has a particularly compelling multiyear margin expansion opportunity from increasing modern workplace penetration with our existing clients. Many of our most exciting DWS pipeline opportunities have meaningful modern workplace components and our qualified modern workplace pipeline has more than tripled over the last 12 months. We have also identified several opportunities to capture incremental DWS gross margin by enhancing automation or building proprietary capabilities for certain delivery functions. We carry out using third-party technology. Third quarter CA&I gross margin was 15.3% versus 5.6% a year ago. We are continuing to unlock efficiencies by managing our contingent labor enhancing automation, and capturing other non-labor savings.

Additionally, the prior year, CA&I, gross margin included adjustments associated with the contract. For the full year, we continue to expect more than 250 basis points of aggregate margin improvement in our CA&I and DWS segments. Third quarter, ECS gross margin was 50.2% compared to 58.7% a year ago due to lower software renewals. Moving to slide eight, third quarter non-GAAP operating margin was 0.1% compared to 3.1% in the prior year. Adjusted EBITDA was $37 million or 8% of revenue compared to 11.4% of revenue in the third quarter of 2022. Year-over-year margin declines were largely the result of lower L&S revenue as operating expenses were relatively unchanged. Year-to-date, non-GAAP operating margin was 5.3% compared to 3.3% last year, and we have generated $186 million in adjusted EBITDA reflecting a 12.7% adjusted EBITDA margin.

This is an improvement from prior year period despite the lower L&S renewal levels in 2023. Third quarter GAAP net loss was $50 million, which included a $4 million tax valuation allowance or expense compared to a loss of $40 million a year ago, which included a $10 million valuation allowance reversal or a benefit. Excluding $11 million of retirement expense and $17 million of cost reduction and other expenses net of tax our non-GAAP net loss was $22 million or a loss of $0.33 per share. Touching briefly on our labor cost initiatives, as Peter mentioned, investing in our talent is resulting in more productive associates and lower attrition levels. We are also continuing to optimize our workforce and labor markets as part of our broader talent management strategy.

At the end of the third quarter, 61% of our associate base is in lower cost markets, excluding field services. This is up from 59% a year ago. We believe we are in the early innings of a multi-year margin expansion journey. As we head into 2024, we’ll begin to see the full benefit of delivery and labor efficiencies captured in the third and now the fourth quarter. We also expect SG&A reductions to begin to contribute to profitability growth. As a reminder, we are targeting SG&A reductions that translate to bringing SG&A down to 16% to 17% of revenue by 2026 with savings coming primarily from real estate, technology costs, and in G&A functions outside of sales and marketing. Turning to free cash flow on slide nine, third quarter free cash flow was negative $26 million and negative $9 million for the first nine months.

This is significantly higher than the first nine months of 2022, which were impacted by timing of technology collections. We now expect full-year 2023 free cash flow to be in the vicinity of negative $25 million to negative $30 million compared to our prior expectation of negative $75 million. The improved outlook reflects upside from ex-L&S revenue and gross profit, as well as significantly higher L&S revenue due to client consumption and the extended contract signed in October, half of which we expect to collect in the fourth quarter. As a reminder, L&S collections could shift around year-end based on the timing of renewal signings in the quarter. Pre-pension free cash flow, which we define as free cash flow prior to post-retirement contributions with negative $16 million in the second quarter and positive $33 million year to date, which is a significant improvement over the first nine months of 2022 when pre-pension free cash flow was negative $53 million.

As you can see in Slide 10, cash balances were $385 million as of September 30th. This compares to $392 million at the end of 2022. Our net leverage ratio, including all defined benefit plans, with two times as of the quarter end. Our balance sheet and liquidity positions are strong with no near-term maturities and our $145 million ABL facility remains undrawn. I’ll now briefly touch on expected cash contributions to our U.S. qualified defined benefit plans. As a reminder, once a year, at year-end, we provide detailed projections for 10-year cash contributions to these plans, which change based on financial market conditions, funding regulations, and actuarial assumptions. Based upon market conditions as of September 30th, we estimate contributions for the 10-year period from 2023 through 2032 are approximately $80 million to $100 million higher than our year end projections as of December 31st, 2022.

For the first five years, from 2023 to 2027, contributions are estimated to increase by $20 million, and we continue to expect no cash contributions to our U.S. plans in 2023 and 2024. $60 million to $80 million of the increase is spread over the last five years of the period from 2028 to 2032. It’s possible that additional contributions could occur in 2033, estimated to be approximately $40 million. As we discussed at our June Investor Day, expected cash contributions are most sensitive to asset returns and estimated cash contributions, especially in these later years, are expected to continue to fluctuate based on market performance in each quarter, while earlier years should move to a lesser degree. In managing the business and liquidity needs, we place a greater emphasis on our estimates of cash contributions we have to make in the next five years, though we closely monitor trends in later years of our projections.

We remain confident that our strategy and long-term targets will allow us to meet our global pension obligations while investing in the future of our next-generation solutions. I’ll now discuss the changes we are making to our full-year guidance ranges, which you can find on Slide 11. Given our year-to-date revenue performance, we are raising our revenue growth guidance range and now expect to achieve full-year constant currency revenue growth of 0% to 1.5%. This compares to our prior guidance range of negative 7% to negative 3%. Our updated guidance reflects expectations for Ex-L&S revenue growth of 3% to 4.5% compared to prior guidance of negative 1% to positive 4%, and assumes full-year L&S revenue of approximately $420 million, which is significantly above our initial guidance of $350 million.

More than half of the $70 million increase to our 2023 L&S outlook is related to higher consumption and support at existing clients, which on future L&S revenue. Additional upside is related to a multiyear License & Support renewal signed in October with a client that had historically renewed annually. The multiyear contract is larger than the future revenue we anticipated with this client, driven by consumption which will lessen the impact on future year revenue. We are also seeing good trends and workloads at many other ClearPath Forward clients. For these reasons, we continue to expect $360 million of L&S revenue per year on average for the three and five-year periods beginning in 2024. We are also raising our full-year profitability guidance and now expect a 2023 non-GAAP operating margin of 5% to 6%, compared to prior guidance of 2% to 4% and we expect an adjusted EBITDA margin of 12.5% to 13.5%, compared to prior guidance of 9.5% to 11.5%.

Improved profitability guidance reflects the flow-through from high-margin L&S revenue and the solid growth in our Ex-L&S solutions. I am pleased with the performance we have delivered this year, across all of our segments, and activity across our next-generation solutions is strong. By exceeding our guidance ranges, not only in our License & Support solutions, but in the remainder of the business, we are demonstrating that our strategy is sound. I will now turn it back to Peter.

Peter Altabef: Thank you, Deb. Operator, we will now open the line for Q&A.

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Q&A Session

Operator: [Operator Instructions]. The first question comes from Rod Bourgeois with DeepDive Equity Research. Please go ahead.

Rod Bourgeois: Okay. Thank you, operator. So, I want to ask a question about the connection between TCV and your revenue outlook. You are upping your revenue guidance despite the optically weak TCV this quarter. Others in the industry have been posting strong TCV. But actually, reducing their revenue outlook. So, can you say, a bit more about your revenue progression despite the recent loss that you had in TCV? Thanks.

Peter Altabef: Rod, thanks. This is Peter. That’s a really great question. And I think it gives insight if I answer it correctly on a number of fronts. So first, for us, TCV is not directly related to current year revenue. So, our increasing of guidance is not so much because we believe that we are going to have a good fourth quarter in TCV. In fact, we already had a good fourth quarter. October alone had more TCV than any of the three quarters in this year. But a lot, it will take time for renewal TCV does not necessarily change. The revenue picture and new business and new scope TCV really doesn’t kick in immediately. So, there isn’t too much of a direct connection between the fact that we expect to have a really strong TCV quarter in the fourth quarter, and already have.

And the fact that we are raising guidance. The raising guidance is really what we have seen over the course of the year. And particularly what we saw in the third quarter. So, we feel obviously good about our position versus our older guidance. And we thought it was appropriate to increase it now. I hope that helps to put the context into the question.

Rod Bourgeois: Yes, for sure. That’s helpful. And then you talked in your commentary about the increased client consumption volumes in your L&S segment. And I just wanted to get, you shared a little color on it, but I’d like more color on what drove the increase in client consumption and then is — what’s the outlook for those consumption levels going forward?

Peter Altabef: Yes, so let, let me start with that, and then turn it over to Deb for a little more color on that. It’s really interesting. So, some of the increase in revenue, both for this year from what we originally thought would be in this year is clients wanting to accelerate or sign long-term contracts. And as in L&S, unlike most of our other business, we take that into revenue when we sign it up pretty quickly depending on the terms of the contract. So, some of what’s going on is in fact, people just deciding I want a long-term contract now or a longer renewal. But some of it is actually what we talk about increased consumption. And Deb mentioned that in her comments. What we’re seeing in probably three quarters of our largest clients in L&S is a ramping up of usage.

And I think, what we’re seeing with the advent of AI and the advent of big data is we have some really incredible data sources for our clients and they’re taking advantage of that. And so, we feel really good about that. Interestingly, we don’t think that the increase in that kind of revenue this year will detriment our revenue going forward. We just think that’s an increase. So, we feel pretty good about that, really across the board.

Debra McCann: Yes, I really don’t have more to add. I think we covered it.

Michael Thomson: Maybe one thing I would add, Rod. Hey, good to hear from you, its Mike. Look, it’s been a recurring theme from our perspective of increased volume in really all of the client contracts we see increases versus decreases. I think, you’re aware already, we have pretty good downside protection on the decrease side, right? It’s not volumes down, it’s really volumes up. And I think Peter’s spot on, right? The data analysis, the creation of these large models are really driving further increases in consumption, and again, very, very little risk on kind of downside there. It’s really all upside and this whole concept, even market-wise, where you’re seeing a lot more kind of repatriation to legacy environments, I think just creates this swell of a lot of that activity increasing the volume and usage. So pretty good trends from our point view.

Debra McCann : Yes, and I’ll just add one thing to the, your prior question, Rod, about increasing guidance. I think, the L&S is one portion, but what we’re happy to see this quarter is we’re looking at the year is the ex-L&S portion is really at the high end of the range we had originally laid out. So, we’re happy with the performance there as well. I think it’s just an important point to note when thinking through the full-year guidance change.

Rod Bourgeois : Yes, Deb, and thanks for that clarification. And maybe a little more on the ex-L&S. Could you share more about what you’re experiencing in the employee experience market? I’m wondering how you’re feeling, if you’re feeling better about that market even in recent months due to the ongoing work from home experience that’s out there, and also AI-related opportunities. Can you just share a little more about the employee experience market?

Michael Thomson : Hey, Rod, it’s Mike again. Yes. Look I think we’re feeling stronger and stronger in relation to that market. I’ve had the luxury of spending a lot of time with our clients, both prospective and existing as we continue to deploy our solutions. I think Peter mentioned during the call, a whole series of things that we think are very distinctive in that case. But I will tell you the dialogues we’re having it, it’s no longer a commodity discussion, right? We’re really talking about productivity, we’re talking about value, we’re talking about time to value, the whole concept of personas and how they impact security and deployment and procurement and smart refresh. I mean, it is absolutely real. And it’s absolutely the gist of all of the discussions that we’re having, both on a renewal basis even converting some legacy to what we’ll say is experience and certainly on all of the new prospective.

In fact, it’s interesting, we’re seeing a lot more combined view of experience, right? It’s not just experiences in the employee experience from a digital perspective, it’s also the experience on the cloud infrastructure and data side, right? When you talk about the AI components there, they’re so intertwined that most of our discussions with new clients actually end up being cross sell opportunities for us and, and multiple elements of both of those business units. So, we’re very pleased with the way it’s progressing.

Peter Altabef: And Rod, just to add to what Mike has said with — and I agree with everything he said, it’s an interesting space, digital workplace. There are some companies that kind of go hot and cold in terms of their focus on that space. We’ve never lost focus on that space. And if you go to our website and look at our awards section on our website, you’ll see current in year awards that we’ve received around digital workplace from ISG, from Gartner, Nelson Hall, from IDC, from Everest. This has been a push for us for a long time. We’re happy to see some others focus a little more on the space. We think it’s good for the industry. We think it’s worthy for clients. But as I said, we have established a really strong position, and, we intend to keep moving forward on it

Operator: The next question comes from Joseph Vafi with Canaccord. Please go ahead.